Civeo Corp 10-Q

ITEM 1. Financial Statements CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Service and other $ 183,229 $ 177,504 $ 529,172 $ 514,328 Rental — 5,785 — 18,080 Product 343 938 834 2,451 183,572 184,227 530,006 534,859 Costs and expenses: Service and other costs 130,183 127,955 394,953 373,123 Rental costs — 5,024 — 14,830 Product costs 113 517 282 1,439 Selling, general and administrative expenses 20,236 17,677 52,885 50,572 Depreciation and amortization expense 16,914 22,608 59,277 65,818 Other operating expense (income) 87 ( 339 ) 302 ( 187 ) 167,533 173,442 507,699 505,595 Operating income 16,039 10,785 22,307 29,264 Interest expense ( 3,365 ) ( 3,001 ) ( 10,625 ) ( 8,077 ) Interest income 44 13 126 15 Other income (expense) ( 4,709 ) 2,179 ( 1,832 ) 4,290 Income before income taxes 8,009 9,976 9,976 25,492 Income tax benefit (expense) 1,214 ( 3,713 ) ( 2,897 ) ( 7,091 ) Net income 9,223 6,263 7,079 18,401 Less: Net income (loss) attributable to noncontrolling interest 201 546 ( 53 ) 1,706 Net income attributable to Civeo Corporation 9,022 5,717 7,132 16,695 Less: Dividends attributable to Class A preferred shares — 492 — 1,469 Net income attributable to Civeo common shareholders $ 9,022 $ 5,225 $ 7,132 $ 15,226 Per Share Data (see Note 6) Basic net income per share attributable to Civeo Corporation common shareholders $ 0.61 $ 0.32 $ 0.48 $ 0.92 Diluted net income per share attributable to Civeo Corporation common shareholders $ 0.61 $ 0.32 $ 0.47 $ 0.91 Weighted average number of common shares outstanding: Basic 14,814 13,932 14,980 14,058 Diluted 14,891 14,064 15,051 14,220 Dividends per common share $ 0.25 $ — $ 0.25 $ — The accompanying notes are an integral part of these financial statements. 4 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 9,223 $ 6,263 $ 7,079 $ 18,401 Other comprehensive loss, net of taxes: Foreign currency translation adjustment, net of zero taxes ( 6,795 ) ( 20,745 ) ( 6,890 ) ( 32,757 ) Total other comprehensive loss, net of taxes ( 6,795 ) ( 20,745 ) ( 6,890 ) ( 32,757 ) Comprehensive income (loss) 2,428 ( 14,482 ) 189 ( 14,356 ) Less: Comprehensive income (loss) attributable to noncontrolling interest 136 368 ( 50 ) 1,474 Comprehensive income (loss) attributable to Civeo Corporation $ 2,292 $ ( 14,850 ) $ 239 $ ( 15,830 ) The accompanying notes are an integral part of these financial statements. 5 CIVEO CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Excluding Share Amounts) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,817 $ 7,954 Accounts receivable, net 153,946 119,755 Inventories 6,272 6,907 Prepaid expenses 11,158 7,199 Other current assets 3,251 3,081 Assets held for sale 8,185 8,653 Total current assets 190,629 153,549 Property, plant and equipment, net 263,436 301,890 Goodwill 7,290 7,672 Other intangible assets, net 77,547 81,747 Operating lease right-of-use assets 12,866 15,722 Other noncurrent assets 4,826 5,604 Total assets $ 556,594 $ 566,184 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 53,124 $ 51,087 Accrued liabilities 48,693 39,211 Income taxes 173 178 Current portion of long-term debt 7,143 28,448 Deferred revenue 6,884 991 Other current liabilities 9,276 8,342 Total current liabilities 125,293 128,257 Long-term debt, less current maturities 95,852 102,505 Deferred income taxes 7,017 4,778 Operating lease liabilities 10,355 12,771 Other noncurrent liabilities 24,114 14,172 Total liabilities 262,631 262,483 Shareholders’ Equity: Preferred shares (Class A Series 1) — — Common shares ( no par value; 46,000,000 shares authorized, 15,167,502 shares and 15,584,176 shares issued, respectively, and 14,800,827 shares and 15,217,501 shares outstanding, respectively) — — Additional paid-in capital 1,627,809 1,624,512 Accumulated deficit ( 935,944 ) ( 930,123 ) Common shares held in treasury at cost, 366,675 and 366,675 shares, respectively ( 9,063 ) ( 9,063 ) Accumulated other comprehensive loss ( 392,080 ) ( 385,187 ) Total Civeo Corporation shareholders’ equity 290,722 300,139 Noncontrolling interest 3,241 3,562 Total shareholders’ equity 293,963 303,701 Total liabilities and shareholders’ equity $ 556,594 $ 566,184 The accompanying notes are an integral part of these financial statements. 6 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In Thousands) Attributable to Civeo Preferred Shares Common Shares Amount Par Value Additional Paid-in Capital Accumulated Deficit Treasury Shares Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total Shareholders’ Equity Balance, June 30, 2022 $ 62,918 $ — $ 1,584,416 $ ( 903,492 ) $ ( 9,063 ) $ ( 373,841 ) $ 2,582 $ 363,520 Net income — — — 5,717 — — 546 6,263 Currency translation adjustment — — — — — ( 20,567 ) ( 178 ) ( 20,745 ) Dividends paid — — — — — — ( 61 ) ( 61 ) Dividends attributable to Class A preferred shares 492 — — ( 492 ) — — — — Common shares repurchased — — — ( 13,667 ) — — — ( 13,667 ) Share-based compensation — — 887 — — — — 887 Balance, September 30, 2022 $ 63,410 $ — $ 1,585,303 $ ( 911,934 ) $ ( 9,063 ) $ ( 394,408 ) $ 2,889 $ 336,197 Balance, June 30, 2023 $ — $ — $ 1,626,556 $ ( 939,983 ) $ ( 9,063 ) $ ( 385,350 ) $ 3,173 $ 295,333 Net income — — — 9,022 — — 201 9,223 Currency translation adjustment — — — — — ( 6,730 ) ( 65 ) ( 6,795 ) Dividends paid — — — ( 3,731 ) — — ( 68 ) ( 3,799 ) Common shares repurchased — — — ( 1,252 ) — — — ( 1,252 ) Share-based compensation — — 1,253 — — — — 1,253 Balance, September 30, 2023 $ — $ — $ 1,627,809 $ ( 935,944 ) $ ( 9,063 ) $ ( 392,080 ) $ 3,241 $ 293,963 Balance, December 31, 2021 $ 61,941 $ — $ 1,582,442 $ ( 912,951 ) $ ( 8,050 ) $ ( 361,883 ) $ 1,612 $ 363,111 Net income — — — 16,695 — — 1,706 18,401 Currency translation adjustment — — — — — ( 32,525 ) ( 232 ) ( 32,757 ) Dividends paid — — — — — — ( 197 ) ( 197 ) Dividends attributable to Class A preferred shares 1,469 — — ( 1,469 ) — — — — Common shares repurchased — — — ( 14,209 ) — — — ( 14,209 ) Share-based compensation — — 2,861 — ( 1,013 ) — 1,848 Balance, September 30, 2022 $ 63,410 $ — $ 1,585,303 $ ( 911,934 ) $ ( 9,063 ) $ ( 394,408 ) $ 2,889 $ 336,197 Balance, December 31, 2022 $ — $ — $ 1,624,512 $ ( 930,123 ) $ ( 9,063 ) $ ( 385,187 ) $ 3,562 $ 303,701 Net income (loss) — — — 7,132 — — ( 53 ) 7,079 Currency translation adjustment — — — — — ( 6,893 ) 3 ( 6,890 ) Dividends paid — — — ( 3,731 ) — — ( 271 ) ( 4,002 ) Common shares repurchased — — — ( 9,222 ) — — — ( 9,222 ) Share-based compensation — — 3,297 — — — — 3,297 Balance, September 30, 2023 $ — $ — $ 1,627,809 $ ( 935,944 ) $ ( 9,063 ) $ ( 392,080 ) $ 3,241 $ 293,963 Preferred Shares Common Shares (in thousands) Balance, December 31, 2022 — 15,218 Share-based compensation — 26 Common shares repurchased — ( 443 ) Balance, September 30, 2023 — 14,801 The accompanying notes are an integral part of these financial statements. 7 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 7,079 $ 18,401 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 59,277 65,818 Deferred income tax expense 2,688 6,930 Non-cash compensation charge 3,297 2,861 Losses (gains) on disposals of assets 2,264 ( 4,069 ) Provision (benefit) for credit losses, net of recoveries 120 ( 23 ) Other, net 1,900 2,397 Changes in operating assets and liabilities: Accounts receivable ( 37,411 ) ( 19,138 ) Inventories 420 ( 1,557 ) Accounts payable and accrued liabilities 4,767 3,515 Taxes payable ( 5 ) ( 62 ) Other current and noncurrent assets and liabilities, net 12,197 ( 12,701 ) Net cash flows provided by operating activities 56,593 62,372 Cash flows from investing activities: Capital expenditures ( 21,179 ) ( 17,466 ) Proceeds from dispositions of property, plant and equipment 7,070 11,975 Other, net — 190 Net cash flows used in investing activities ( 14,109 ) ( 5,301 ) Cash flows from financing activities: Revolving credit borrowings 172,867 204,951 Revolving credit repayments ( 179,599 ) ( 219,775 ) Term loan repayments ( 22,338 ) ( 23,059 ) Dividends paid ( 3,731 ) — Repurchases of common shares ( 9,222 ) ( 14,209 ) Taxes paid on vested shares — ( 1,013 ) Net cash flows used in financing activities ( 42,023 ) ( 53,105 ) Effect of exchange rate changes on cash ( 598 ) ( 1,887 ) Net change in cash and cash equivalents ( 137 ) 2,079 Cash and cash equivalents, beginning of period 7,954 6,282 Cash and cash equivalents, end of period $ 7,817 $ 8,361 Non-cash financing activities: Preferred dividends paid-in-kind $ — $ 1,469 The accompanying notes are an integral part of these financial statements. 8 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of the Business We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. We provide a suite of services for our guests, including lodging, catering and food service, housekeeping and maintenance at accommodation facilities that we or our customers own. In many cases, we provide services that support the day-to-day operations of these facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics. We also offer development activities for workforce accommodation facilities, including site selection, permitting, engineering and design, manufacturing management and site construction, along with providing hospitality services once the facility is constructed. We primarily operate in some of the world’s most active oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore producing regions, and our customers include major and independent oil companies, mining companies, engineering companies and oilfield and mining service companies. We operate in two principal reportable business segments – Canada and Australia. Basis of Presentation Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars. The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited consolidated financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. Certain reclassifications have been made to the 2022 financial information to conform to current year presentation. The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements. The unaudited consolidated financial statements included in this report should be read in conjunction with our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. 9 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. REVENUE The following table disaggregates our revenue by our two reportable segments: Canada and Australia and major categories for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Canada Accommodation revenues $ 71,417 $ 72,724 $ 208,000 $ 219,349 Mobile facility rental revenues 17,314 25,283 54,752 73,359 Food service and other services revenues 6,413 5,002 17,315 15,276 Total Canada revenues 95,144 103,009 280,067 307,984 Australia Accommodation revenues $ 46,012 $ 38,316 $ 130,953 $ 114,967 Food service and other services revenues 41,873 35,489 116,465 90,187 Total Australia revenues 87,885 73,805 247,418 205,154 Other Other revenues $ 543 $ 7,413 $ 2,521 $ 21,721 Total other revenues 543 7,413 2,521 21,721 Total revenues $ 183,572 $ 184,227 $ 530,006 $ 534,859 Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when our performance obligations are satisfied is not significant. Payment terms are generally within 30 days and in most cases do not extend beyond 60 days. We do not have significant financing components or significant payment terms. As of September 30, 2023, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue. The table only includes revenue expected to be recognized from contracts where the quantity of service is certain (in thousands): For the years ending December 31, 2023 2024 2025 Thereafter Total Revenue expected to be recognized as of September 30, 2023 $ 43,646 $ 151,716 $ 111,329 $ 383,980 $ 690,671 We applied the practical expedient and do not disclose consideration for remaining performance obligations with an original expected duration of one year or less. In addition, we do not estimate revenues expected to be recognized related to unsatisfied performance obligations for contracts without minimum room commitments. The table above represents only a portion of our expected future consolidated revenues and it is not necessarily indicative of the expected trend in total revenues. 3. FAIR VALUE MEASUREMENTS Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. As of September 30, 2023 and December 31, 2022, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. In addition, the estimated fair value of our assets held for sale is based upon Level 2 fair value measurements, which include appraisals and previous negotiations with third parties. 10 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS Additional information regarding selected balance sheet accounts at September 30, 2023 and December 31, 2022 is presented below (in thousands): September 30, 2023 December 31, 2022 Accounts receivable, net: Trade $ 87,567 $ 65,563 Unbilled revenue 64,820 52,547 Other 1,739 1,944 Total accounts receivable 154,126 120,054 Allowance for credit losses ( 180 ) ( 299 ) Total accounts receivable, net $ 153,946 $ 119,755 September 30, 2023 December 31, 2022 Inventories: Finished goods and purchased products $ 4,955 $ 5,538 Raw materials 1,317 1,369 Total inventories $ 6,272 $ 6,907 Estimated Useful Life (in years) September 30, 2023 December 31, 2022 Property, plant and equipment, net: Land $ 25,888 $ 25,528 Accommodations assets 3 — 15 1,330,164 1,464,476 Buildings and leasehold improvements 7 — 20 15,396 15,516 Machinery and equipment 4 — 7 12,429 11,775 Office furniture and equipment 3 — 7 64,981 62,725 Vehicles 3 — 5 9,325 8,411 Construction in progress 8,902 1,771 Total property, plant and equipment 1,467,085 1,590,202 Accumulated depreciation ( 1,203,649 ) ( 1,288,312 ) Total property, plant and equipment, net $ 263,436 $ 301,890 September 30, 2023 December 31, 2022 Accrued liabilities: Accrued compensation $ 27,888 $ 34,358 Accrued taxes, other than income taxes 2,988 2,873 Other (1) 17,817 1,980 Total accrued liabilities $ 48,693 $ 39,211 (1) The increase in Other accrued liabilities from December 31, 2022 to September 30, 2023 was due to payments received in the third quarter of 2023 from a customer related to an asset sale contract, which are expected to be recognized in the fourth quarter of 2023 and the first quarter of 2024. 11 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2023 December 31, 2022 Contract liabilities (Deferred revenue): Current contract liabilities (1) $ 6,884 $ 991 Noncurrent contract liabilities (1) 7,986 — Total contract liabilities (Deferred revenue) $ 14,870 $ 991 (1) Current contract liabilities and Noncurrent contract liabilities are included in "Deferred revenue" and "Other noncurrent liabilities," respectively, in our unaudited consolidated balance sheets. Deferred revenue typically consists of upfront payments received before we satisfy the associated performance obligation. The increase in deferred revenue from December 31, 2022 to September 30, 2023 was 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, which will all be recognized over the contracted terms. 5. ASSETS HELD FOR SALE As of September 30, 2023 and December 31, 2022, assets held for sale included certain assets in our Canadian business segment and the U.S. These assets were recorded at the estimated fair value less costs to sell, which exceeded or equaled their carry values. During the first quarter of 2023, we sold the accommodation assets at our Louisiana location. The land at this location remains in assets held for sale as of September 30, 2023. During the third quarter of 2023, we entered into a definitive agreement to sell our McClelland Lake Lodge assets for approximately C$ 49 million, or US$ 36 million. The related assets had no remaining carrying value. 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. The following table summarizes the carrying amount as of September 30, 2023 and December 31, 2022 of the assets classified as held for sale (in thousands): September 30, 2023 December 31, 2022 Assets held for sale: Property, plant and equipment, net $ 8,185 $ 8,653 Total assets held for sale $ 8,185 $ 8,653 6. EARNINGS PER SHARE For the three and nine months ended September 30, 2023, we calculated our basic earnings per share by dividing net income (loss) attributable to common shareholders, before allocation of earnings to participating earnings by the weighted average number of common shares outstanding. For diluted earnings per share, the basic shares outstanding are adjusted by adding all potentially dilutive securities. For the three and nine months ended September 30, 2022, a period during which we had participating securities in the form of Class A preferred shares, we used the two-class method to calculate basic and diluted earnings per share. The two-class method requires a proportional share of net income to be allocated between common shares and participating securities. The proportional share to be allocated to participating securities is determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities. Basic earnings per share is computed under the two-class method by dividing the net income (loss) attributable to common shareholders, after allocation of earnings to participating earnings by the weighted average number of common shares outstanding during the period. Net income attributable to common shareholders, after allocation of earnings to participating 12 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) earnings represents our net income reduced by an allocation of current period earnings to participating securities as described above. No such adjustment is made during periods with a net loss, as the adjustment would be anti-dilutive. Diluted earnings per share is computed under the two-class method by dividing diluted net income (loss) attributable to common shareholders, after reallocation adjustment for participating securities by the weighted average number of common shares outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of share-based awards. In addition, we calculate the potential dilutive effect of any outstanding dilutive security under both the two-class method and the “if-converted” method, and we report the more dilutive of the methods as our diluted earnings per share. We also apply the treasury stock method with respect to certain share-based awards in the calculation of diluted earnings per share, if dilutive. The calculation of earnings per share attributable to Civeo common shareholders is presented below for the periods indicated (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net income attributable to Civeo common shareholders, before allocation of earnings to participating securities $ 9,022 $ 5,225 $ 7,132 $ 15,226 Less: income allocated to participating securities — ( 794 ) — ( 2,297 ) Net income attributable to Civeo Corporation common shareholders, after allocation of earnings to participating securities $ 9,022 $ 4,431 $ 7,132 $ 12,929 Add: undistributed income attributable to participating securities — 794 — 2,297 Less: undistributed income reallocated to participating securities — ( 788 ) — ( 2,275 ) Diluted net income attributable to Civeo Corporation common shareholders, after reallocation adjustment for participating securities $ 9,022 $ 4,437 $ 7,132 $ 12,951 Denominator: Weighted average shares outstanding - basic 14,814 13,932 14,980 14,058 Dilutive shares - share-based awards 77 132 71 162 Weighted average shares outstanding - diluted 14,891 14,064 15,051 14,220 Basic net income per share attributable to Civeo Corporation common shareholders (1) $ 0.61 $ 0.32 $ 0.48 $ 0.92 Diluted net income per share attributable to Civeo Corporation common shareholders (1) $ 0.61 $ 0.32 $ 0.47 $ 0.91 (1) Computations may reflect rounding adjustments. The following common share equivalents have been excluded from the calculation of weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented (in millions of shares): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Share-based awards (1) — — — — Preferred shares — 2.5 — 2.5 (1) Share-based awards for the three and nine months ended September 30, 2023 and September 30, 2022 totaled fewer than 0.1 million shares. 13 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. DEBT As of September 30, 2023 and December 31, 2022, long-term debt consisted of the following (in thousands): September 30, 2023 December 31, 2022 Canadian term loan; weighted average interest rate of 8.1 % for the nine month period ended September 30, 2023 $ 7,396 $ 29,532 U.S. revolving credit facility; weighted average interest rate of 10.1 % for the nine month period ended September 30, 2023 — — Canadian revolving credit facility; weighted average interest rate of 8.2 % for the nine month period ended September 30, 2023 95,852 101,147 Australian revolving credit facility; weighted average interest rate of 6.7 % for the nine month period ended September 30, 2023 — 1,358 103,248 132,037 Less: Unamortized debt issuance costs 253 1,084 Total debt 102,995 130,953 Less: Current portion of long-term debt, including unamortized debt issuance costs, net 7,143 28,448 Long-term debt, less current maturities $ 95,852 $ 102,505 Credit Agreement 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: (A) a $ 10.0 million senior secured revolving credit facility in favor of one of our U.S. subsidiaries, as borrower; (B) a $ 155.0 million senior secured revolving credit facility in favor of Civeo, as borrower; and (C) a $ 35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a C$ 100.0 million term loan facility scheduled to be fully repaid on December 31, 2023 in favor of Civeo. The Credit Agreement was amended effective March 31, 2023 to, among other things, change the benchmark interest rate for certain U.S. dollar-denominated loans in each of the Australian Revolving Facility, Canadian Revolving Facility, and U.S. Revolving Facility from London Inter-Bank Offered Rate to Term Secured Overnight Financing Rate (SOFR). U.S. dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to the Term SOFR plus a margin of 3.00 % to 4.00 %, or a base rate plus 2.00 % to 3.00 %, in each case based on a ratio of our total net debt to Consolidated EBITDA (as defined in the Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a Bankers’ Acceptance Discount Rate (as defined in the Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.00 % to 4.00 %, or a Canadian Prime rate plus a margin of 2.00 % to 3.00 %, in each case based on a ratio of our total net debt to Consolidated EBITDA. Australian dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.00 % to 4.00 %, based on a ratio of our total net debt to Consolidated EBITDA. The future transition from CDOR as an interest rate benchmark is addressed in the Credit Agreement and at such time the transition from CDOR takes place, an alternate benchmark will be established based on the first alternative of the following, plus a benchmark replacement adjustment, Term Canadian Overnight Repo Rate Average (CORRA) and Compound CORRA. The Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) specified acquisitions; (iv) certain restrictive agreements; (v) transactions with affiliates; and (vi) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain a minimum interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.00 to 1.00 and our maximum net leverage ratio, defined as the ratio of total net debt to Consolidated EBITDA, of no greater than 3.00 to 1.00. Following a qualified offering of indebtedness, we will be required to maintain a maximum leverage ratio of no greater than 3.50 to 1.00 and a maximum senior secured ratio less than 2.00 to 1.00. 14 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of September 30, 2023. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries subject to customary exceptions. The obligations under the Credit Agreement are guaranteed by our significant subsidiaries. As of September 30, 2023, we had seven lenders that were parties to the Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $ 22.5 million to $ 52.0 million. As of September 30, 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. We also had outstanding bank guarantees of A$ 0.8 million under the Australian facility. 8. INCOME TAXES Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned. We operate in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 15 % to 30 %. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions. We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions. Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs. As of September 30, 2023 and 2022, the U.S. was considered a loss jurisdiction for tax accounting purposes and was removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Our income tax benefit for the three months ended September 30, 2023 totaled $ 1.2 million, or ( 15.2 )% of pretax income, compared to 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. Our income tax expense for the nine months ended September 30, 2023 totaled $ 2.9 million, or 29.0 % of pretax income, compared to income tax expense of $ 7.1 million, or 27.8 % 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. 9. COMMITMENTS AND CONTINGENCIES We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 10. ACCUMULATED OTHER COMPREHENSIVE LOSS Our accumulated other comprehensive loss increased $ 6.9 million from $ 385.2 million at December 31, 2022 to $ 392.1 million at September 30, 2023, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the nine months of 2023 were primarily driven by the Australian dollar decreasing in value compared to the U.S. dollar and the Canadian dollar increasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$ 198 million and A$ 211 million, respectively, at September 30, 2023. 15 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. SHARE REPURCHASE PROGRAMS AND DIVIDENDS Share Repurchase Programs In August 2023, 2022 and 2021, our Board of Directors (Board) authorized common share repurchase programs to repurchase up to 5.0 % of our total common shares which were issued and outstanding, or approximately 742,000 , 685,000 and 715,000 common shares, respectively, over a twelve month period. The repurchase authorization allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. We have funded, and intend to continue to fund, repurchases through cash on hand and cash generated from operations. The common shares repurchased under the share repurchase programs are cancelled in the periods they are acquired and the payment is accounted for as an increase to accumulated deficit in our Unaudited Consolidated Statements of Changes in Shareholders’ Equity in the period the payment is made. The following table summarizes our common share repurchases pursuant to our share repurchase programs (in thousands, except per share data). Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Dollar-value of shares repurchased $ 1,252 $ 2,997 $ 9,222 $ 3,540 Shares repurchased 62.3 101.0 443.2 123.9 Average price paid per share $ 20.05 $ 29.65 $ 20.78 $ 28.54 In addition to the share repurchases pursuant to our share repurchase programs, we repurchased 374,753 common shares from a shareholder for approximately $ 10.7 million during the three months ended September 30, 2022. Dividends Our Board declared a quarterly dividend on September 5, 2023 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). 12. SHARE-BASED COMPENSATION Certain key employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board and the Compensation Committee of our Board to approve grants of options, awards of restricted shares, performance awards, phantom share awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 3,028,667 Civeo common shares are authorized to be issued under the Civeo Plan. Outstanding Awards Restricted Share Awards / Restricted Share Units / Deferred Share Awards. On May 17, 2023, we granted 49,598 restricted share and deferred share awards to our non-employee directors, which vest in their entirety on May 15, 2024. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended September 30, 2023 and 2022 totaled $ 0.3 million and $ 0.3 million, respectively. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the nine months ended September 30, 2023 and 2022 totaled $ 0.8 million and $ 0.9 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended September 30, 2023 and 2022 was zero and less than $ 0.1 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the nine months ended September 30, 2023 and 2022 was $ 0.9 million and $ 2.1 million, respectively. 16 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) At September 30, 2023, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $ 0.7 million, which is expected to be recognized over a weighted average period of 0.6 years. Phantom Share Awards. On February 23, 2023, we granted 171,608 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 23, 2024. We also granted 56,387 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 23, 2024. Phantom share awards are settled in cash upon vesting. During the three months ended September 30, 2023 and 2022, we recognized compensation expense associated with phantom shares totaling $ 1.7 million and $ 2.3 million, respectively. During the nine months ended September 30, 2023 and 2022, we recognized compensation expense associated with phantom shares totaling $ 4.8 million and $ 7.2 million, respectively. At September 30, 2023, unrecognized compensation cost related to phantom shares was $ 7.3 million, as remeasured at September 30, 2023, which is expected to be recognized over a weighted average period of 1.8 years. Performance Awards. On February 23, 2023, we granted 85,837 performance awards under the Civeo Plan, which cliff vest in three years on February 23, 2026 subject to attainment of applicable performance criteria. These awards will be earned in amounts between 0 % and 200 % of the participant’s target performance share award, based equally on (i) the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 16 other companies and (ii) the payout percentage associated with Civeo's cumulative operating cash flow over the performance period relative to a preset target. The portion of the performance awards tied to cumulative operating cash flow includes a performance-based vesting requirement. We evaluate the probability of achieving the performance criteria throughout the performance period and will adjust share-based compensation expense based on the number of shares expected to vest based on our estimate of the most probable performance outcome. During the three months ended September 30, 2023 and 2022, we recognized compensation expense associated with performance share awards totaling $ 1.0 million and $ 0.6 million, respectively. During the nine months ended September 30, 2023 and 2022, we recognized compensation expense associated with performance share awards totaling $ 2.5 million and $ 1.9 million, respectively. No performance share awards vested during the three months ended September 30, 2023 and 2022. The total fair value of performance share awards that vested during the nine months ended September 30, 2023 and 2022 was zero and $ 2.4 million, respectively. At September 30, 2023, unrecognized compensation cost related to performance share awards was $ 4.6 million, which is expected to be recognized over a weighted average period of 1.8 years. 17 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. SEGMENT AND RELATED INFORMATION In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada and Australia, which represent our strategic focus on hospitality services and workforce accommodations. Prior to the first quarter of 2023, we presented the U.S. operating segment as a separate reportable segment. Our operating segment in the U.S. no longer meets the reportable segment quantitative thresholds required by GAAP and is included below within the Corporate, other and eliminations category. Prior periods have been updated to be consistent with the presentation for the three and nine months ended September 30, 2023. Financial information by business segment for each of the three and nine months ended September 30, 2023 and 2022 is summarized in the following table (in thousands): Total revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three months ended September 30, 2023 Canada $ 95,144 $ 9,565 $ 10,811 $ 3,006 $ 745,377 Australia 87,885 7,181 9,067 6,244 195,315 Corporate, other and eliminations 543 168 ( 3,839 ) 212 ( 384,098 ) Total $ 183,572 $ 16,914 $ 16,039 $ 9,462 $ 556,594 Three months ended September 30, 2022 Canada $ 103,009 $ 14,749 $ 7,846 $ 3,580 $ 718,981 Australia 73,805 7,599 5,859 4,921 191,557 Corporate, other and eliminations 7,413 260 ( 2,920 ) 318 ( 327,209 ) Total $ 184,227 $ 22,608 $ 10,785 $ 8,819 $ 583,329 Nine months ended September 30, 2023 Canada $ 280,067 $ 37,067 $ 9,486 $ 7,075 $ 745,377 Australia 247,418 22,099 23,140 13,373 195,315 Corporate, other and eliminations 2,521 111 ( 10,319 ) 731 ( 384,098 ) Total $ 530,006 $ 59,277 $ 22,307 $ 21,179 $ 556,594 Nine months ended September 30, 2022 Canada $ 307,984 $ 41,344 $ 23,081 $ 7,433 $ 718,981 Australia 205,154 23,284 17,446 8,969 191,557 Corporate, other and eliminations 21,721 1,190 ( 11,263 ) 1,064 ( 327,209 ) Total $ 534,859 $ 65,818 $ 29,264 $ 17,466 $ 583,329 18 Cautionary Statement Regarding Forward-Looking Statements This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including the volatility in the price of and demand for commodities, as well as our expectations about capital expenditures in 2023, beliefs with respect to liquidity needs and expectations with respect to share repurchases and dividends. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law. In addition, in certain places in this quarterly report, we may refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.