Civeo Corp 10-Q

ITEM 1. Financial Statements CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues: Service and other $ 188,233 $ 178,532 $ 353,763 $ 345,909 Rental 248 13 631 34 Product 232 298 439 491 188,713 178,843 354,833 346,434 Costs and expenses: Service and other costs 140,749 131,333 271,115 264,725 Rental costs — 10 — 45 Product costs 85 82 164 169 Selling, general and administrative expenses 17,433 16,459 36,073 32,649 Depreciation and amortization expense 17,059 20,701 33,829 42,363 Impairment expense — — 7,823 — (Gain) loss on sale of McClelland Lake Lodge assets, net 87 — ( 5,988 ) — Other operating expense 188 86 486 215 175,601 168,671 343,502 340,166 Operating income 13,112 10,172 11,331 6,268 Interest expense ( 2,203 ) ( 3,604 ) ( 4,563 ) ( 7,260 ) Interest income 54 50 97 82 Other income 310 427 763 2,877 Income before income taxes 11,273 7,045 7,628 1,967 Income tax expense ( 3,786 ) ( 2,878 ) ( 5,337 ) ( 4,111 ) Net income (loss) 7,487 4,167 2,291 ( 2,144 ) Less: Net loss attributable to noncontrolling interest ( 740 ) ( 296 ) ( 803 ) ( 254 ) Net income (loss) attributable to Civeo Corporation $ 8,227 $ 4,463 $ 3,094 $ ( 1,890 ) Per Share Data (see Note 7) Basic net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.57 $ 0.30 $ 0.21 $ ( 0.13 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders $ 0.56 $ 0.30 $ 0.21 $ ( 0.13 ) Weighted average number of common shares outstanding: Basic 14,518 14,970 14,586 15,064 Diluted 14,600 15,000 14,678 15,064 Dividends per common share $ 0.25 $ — $ 0.50 $ — 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income (loss) $ 7,487 $ 4,167 $ 2,291 $ ( 2,144 ) Other comprehensive income (loss), net of taxes: Foreign currency translation adjustment, net of zero taxes 1,621 2,081 ( 8,610 ) ( 95 ) Total other comprehensive income (loss), net of taxes 1,621 2,081 ( 8,610 ) ( 95 ) Comprehensive income (loss) 9,108 6,248 ( 6,319 ) ( 2,239 ) Less: Comprehensive loss attributable to noncontrolling interest ( 767 ) ( 226 ) ( 899 ) ( 186 ) Comprehensive income (loss) attributable to Civeo Corporation $ 9,875 $ 6,474 $ ( 5,420 ) $ ( 2,053 ) The accompanying notes are an integral part of these financial statements. 5 CIVEO CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Excluding Share Amounts) June 30, 2024 December 31, 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,435 $ 3,323 Accounts receivable, net 124,337 143,222 Inventories 8,353 6,982 Prepaid expenses 9,093 8,439 Other current assets 2,375 7,407 Assets held for sale — 5,873 Total current assets 151,593 175,246 Property, plant and equipment, net 236,842 270,563 Goodwill 7,538 7,690 Other intangible assets, net 72,707 77,999 Operating lease right-of-use assets 11,709 12,286 Other noncurrent assets 2,845 4,278 Total assets $ 483,234 $ 548,062 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 47,151 $ 58,699 Accrued liabilities 32,207 40,523 Income taxes payable 9,685 3,831 Deferred revenue 4,187 4,849 Other current liabilities 4,855 6,334 Total current liabilities 98,085 114,236 Long-term debt 47,489 65,554 Deferred income taxes 7,176 11,803 Operating lease liabilities 8,571 9,264 Other noncurrent liabilities 22,525 24,167 Total liabilities 183,846 225,024 Shareholders’ Equity: Common shares ( no par value; 46,000,000 shares authorized, 14,790,667 shares and 15,046,756 shares issued, respectively, and 14,376,593 shares and 14,680,081 shares outstanding, respectively) — — Additional paid-in capital 1,630,130 1,628,972 Accumulated deficit ( 933,346 ) ( 919,023 ) Common shares held in treasury at cost, 414,074 and 366,675 shares, respectively ( 10,130 ) ( 9,063 ) Accumulated other comprehensive loss ( 389,229 ) ( 380,715 ) Total Civeo Corporation shareholders’ equity 297,425 320,171 Noncontrolling interest 1,963 2,867 Total shareholders’ equity 299,388 323,038 Total liabilities and shareholders’ equity $ 483,234 $ 548,062 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 Common Shares Par Value Additional Paid-in Capital Accumulated Deficit Treasury Shares Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total Shareholders’ Equity Balance, March 31, 2023 $ — $ 1,625,379 $ ( 940,247 ) $ ( 9,063 ) $ ( 387,361 ) $ 3,469 $ 292,177 Net income (loss) — — 4,463 — — ( 296 ) 4,167 Currency translation adjustment — — — — 2,011 70 2,081 Dividends paid — — — — — ( 70 ) ( 70 ) Common shares repurchased — — ( 4,199 ) — — — ( 4,199 ) Share-based compensation — 1,177 — — — — 1,177 Balance, June 30, 2023 $ — $ 1,626,556 $ ( 939,983 ) $ ( 9,063 ) $ ( 385,350 ) $ 3,173 $ 295,333 Balance, March 31, 2024 $ — $ 1,629,521 $ ( 931,135 ) $ ( 10,130 ) $ ( 390,877 ) $ 2,731 $ 300,110 Net income (loss) — — 8,227 — — ( 740 ) 7,487 Currency translation adjustment — — — — 1,648 ( 27 ) 1,621 Dividends paid — — ( 3,661 ) — — ( 1 ) ( 3,662 ) Common shares repurchased — — ( 6,644 ) — — — ( 6,644 ) Excise tax on common shares repurchased — — ( 133 ) — — — ( 133 ) Share-based compensation — 609 — — — — 609 Balance, June 30, 2024 $ — $ 1,630,130 $ ( 933,346 ) $ ( 10,130 ) $ ( 389,229 ) $ 1,963 $ 299,388 Balance, December 31, 2022 $ — $ 1,624,512 $ ( 930,123 ) $ ( 9,063 ) $ ( 385,187 ) $ 3,562 $ 303,701 Net loss — — ( 1,890 ) — — ( 254 ) ( 2,144 ) Currency translation adjustment — — — — ( 163 ) 68 ( 95 ) Dividends paid — — — — — ( 203 ) ( 203 ) Common shares repurchased — — ( 7,970 ) — — — ( 7,970 ) Share-based compensation — 2,044 — — — — 2,044 Balance, June 30, 2023 $ — $ 1,626,556 $ ( 939,983 ) $ ( 9,063 ) $ ( 385,350 ) $ 3,173 $ 295,333 Balance, December 31, 2023 $ — $ 1,628,972 $ ( 919,023 ) $ ( 9,063 ) $ ( 380,715 ) $ 2,867 $ 323,038 Net income (loss) — — 3,094 — — ( 803 ) 2,291 Currency translation adjustment — — — — ( 8,514 ) ( 96 ) ( 8,610 ) Dividends paid — — ( 7,368 ) — — ( 5 ) ( 7,373 ) Common shares repurchased — — ( 9,852 ) — — — ( 9,852 ) Excise tax on common shares repurchased — — ( 197 ) — — — ( 197 ) Share-based compensation — 1,158 — ( 1,067 ) — — 91 Balance, June 30, 2024 $ — $ 1,630,130 $ ( 933,346 ) $ ( 10,130 ) $ ( 389,229 ) $ 1,963 $ 299,388 Common Shares (in thousands) Balance, December 31, 2023 14,680 Share-based compensation 104 Common shares repurchased ( 407 ) Balance, June 30, 2024 14,377 The accompanying notes are an integral part of these financial statements. 7 CIVEO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income (loss) $ 2,291 $ ( 2,144 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 33,829 42,363 Impairment charges 7,823 — Deferred income tax expense (benefit) ( 4,344 ) 3,985 Non-cash compensation charge 1,158 2,044 Gain on disposals of assets ( 6,104 ) ( 2,445 ) Provision (benefit) for credit losses, net of recoveries 34 ( 65 ) Other, net 1,257 1,242 Changes in operating assets and liabilities: Accounts receivable 15,229 ( 19,669 ) Inventories ( 1,525 ) ( 297 ) Accounts payable and accrued liabilities ( 17,166 ) ( 14,713 ) Taxes payable 5,836 ( 78 ) Other current and noncurrent assets and liabilities, net 25 9,538 Net cash flows provided by operating activities 38,343 19,761 Cash flows from investing activities: Capital expenditures ( 10,929 ) ( 11,717 ) Proceeds from dispositions of property, plant and equipment 10,617 2,719 Other, net 183 — Net cash flows used in investing activities ( 129 ) ( 8,998 ) Cash flows from financing activities: Revolving credit borrowings 120,816 114,674 Revolving credit repayments ( 136,641 ) ( 98,681 ) Term loan repayments — ( 14,942 ) Dividends paid ( 7,368 ) — Repurchases of common shares ( 9,852 ) ( 7,970 ) Taxes paid on vested shares ( 1,067 ) — Net cash flows used in financing activities ( 34,112 ) ( 6,919 ) Effect of exchange rate changes on cash 10 ( 377 ) Net change in cash and cash equivalents 4,112 3,467 Cash and cash equivalents, beginning of period 3,323 7,954 Cash and cash equivalents, end of period $ 7,435 $ 11,421 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 remote workforces in Canada and Australia, including lodging, catering and food service, housekeeping and maintenance at accommodation facilities that we or our customers own. 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 manage 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 U.S. 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. 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, 2023. 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) into major categories for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Canada Accommodation revenues $ 72,259 $ 72,355 $ 132,046 $ 136,583 Mobile facility rental revenues 356 17,407 1,350 37,438 Food service and other services revenues 6,912 5,708 13,291 10,902 Total Canada revenues 79,527 95,470 146,687 184,923 Australia Accommodation revenues $ 48,914 $ 44,342 $ 96,021 $ 84,941 Food service and other services revenues 59,694 38,202 104,324 74,592 Total Australia revenues 108,608 82,544 200,345 159,533 Other Other revenues $ 578 $ 829 $ 7,801 $ 1,978 Total other revenues 578 829 7,801 1,978 Total revenues $ 188,713 $ 178,843 $ 354,833 $ 346,434 Our payment terms vary by the type and location of our customer and the 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 June 30, 2024, 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, 2024 2025 2026 Thereafter Total Revenue expected to be recognized as of June 30, 2024 $ 88,395 $ 135,838 $ 99,944 $ 296,521 $ 620,698 We applied the practical expedient and do not disclose consideration for remaining performance obligations with an original expected duration of one year or less. In addition, we do not estimate revenues expected to be recognized related to unsatisfied performance obligations for contracts without minimum room commitments. The table above represents only a portion of our expected future consolidated revenues and it is not necessarily indicative of the expected trend in total revenues. 3. IMPAIRMENT CHARGES The following summarizes pre-tax impairment charges recorded during 2024, which are included in Impairment expense in our consolidated statements of operations (in thousands): Australia U.S. Total Quarter ended March 31, 2024 Long-lived assets $ 5,749 $ 2,074 $ 7,823 Total $ 5,749 $ 2,074 $ 7,823 10 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Quarter ended March 31, 2024 . During the first quarter of 2024, we recorded impairment expense of $ 5.7 million related to various undeveloped land positions and related permitting costs in Australia. At March 31, 2024, we identified an impairment trigger related to certain of these properties due to the denial of development permit applications in Australia. Accordingly, the assets were written down to their estimated fair value of $ 0.6 million. In addition, during the first quarter of 2024, we recorded impairment expense of $ 2.1 million, related to land located in the U.S. The land was written down to its estimated fair value (less costs to sell) of $ 3.8 million. No impairment expense was recorded during the second quarter of 2024. 4. FAIR VALUE MEASUREMENTS Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values. As of June 30, 2024 and December 31, 2023, we believe the carrying value of our floating-rate debt outstanding under our revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans. In addition, the estimated fair value of our assets held for sale was based upon Level 2 fair value measurements, which included appraisals, broker price opinions and negotiations with third parties. During the first quarter of 2024, we wrote down certain long-lived assets to fair value. Our estimate of the fair value of undeveloped land positions in Australia that were impaired was based on appraisals from third parties. 5. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS Additional information regarding selected balance sheet accounts at June 30, 2024 and December 31, 2023 is presented below (in thousands): June 30, 2024 December 31, 2023 Accounts receivable, net: Trade $ 84,047 $ 93,527 Unbilled revenue 36,895 46,331 Other 3,625 3,563 Total accounts receivable 124,567 143,421 Allowance for credit losses ( 230 ) ( 199 ) Total accounts receivable, net $ 124,337 $ 143,222 June 30, 2024 December 31, 2023 Inventories: Finished goods and purchased products $ 6,829 $ 5,648 Raw materials 1,524 1,334 Total inventories $ 8,353 $ 6,982 11 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated Useful Life (in years) June 30, 2024 December 31, 2023 Property, plant and equipment, net: Land $ 25,600 $ 27,988 Accommodations assets 3 — 15 1,341,272 1,378,408 Buildings and leasehold improvements 7 — 20 13,945 14,603 Machinery and equipment 4 — 7 14,026 13,255 Office furniture and equipment 3 — 7 67,830 67,248 Vehicles 3 — 5 8,847 10,025 Construction in progress 6,023 12,087 Total property, plant and equipment 1,477,543 1,523,614 Accumulated depreciation ( 1,240,701 ) ( 1,253,051 ) Total property, plant and equipment, net $ 236,842 $ 270,563 June 30, 2024 December 31, 2023 Accrued liabilities: Accrued compensation $ 26,024 $ 33,854 Accrued taxes, other than income taxes 3,584 3,997 Other 2,599 2,672 Total accrued liabilities $ 32,207 $ 40,523 June 30, 2024 December 31, 2023 Contract liabilities (Deferred revenue): Current contract liabilities (1) $ 4,187 $ 4,849 Noncurrent contract liabilities (1) 6,790 8,068 Total contract liabilities (Deferred revenue) $ 10,977 $ 12,917 (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 decrease in deferred revenue from December 31, 2023 to June 30, 2024 was due to revenue recognized over the contracted terms related to advance payments received from a customer for village enhancements in Australia. 6. ASSETS HELD FOR SALE As of December 31, 2023, assets held for sale included certain assets in the United States (U.S.). These assets were recorded at the estimated fair value less costs to sell, which exceeded or equaled their carry values. In the second quarter of 2024, we sold the land at our Louisiana location for no gain. During the third quarter of 2023, we entered into a definitive agreement to sell our McClelland Lake Lodge assets for approximately $ 36 million. The related assets had no remaining carrying value. During the third and fourth quarters of 2023, we recognized $ 14.2 million in dismantle costs and received $ 28.2 million in cash proceeds associated with the sale. During the first quarter of 2024, we recognized the remaining $ 1.0 million in dismantle costs and received the remaining $ 7.8 million in cash proceeds. The following table summarizes the carrying amount as of June 30, 2024 and December 31, 2023 of the assets classified as held for sale (in thousands): 12 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2024 December 31, 2023 Assets held for sale: Property, plant and equipment, net $ — $ 5,873 Total assets held for sale $ — $ 5,873 7. EARNINGS PER SHARE We calculate our basic earnings per share by dividing net income (loss) attributable to Civeo Corporation 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. The calculation of basic and diluted earnings per share attributable to Civeo common shareholders is presented below for the periods indicated (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Basic net income (loss) attributable to Civeo Corporation $ 8,227 $ 4,463 $ 3,094 $ ( 1,890 ) Diluted net income (loss) attributable to Civeo Corporation $ 8,227 $ 4,463 $ 3,094 $ ( 1,890 ) Denominator: Weighted average shares outstanding - basic 14,518 14,970 14,586 15,064 Dilutive shares - share-based awards 82 30 92 — Weighted average shares outstanding - diluted 14,600 15,000 14,678 15,064 Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.57 $ 0.30 $ 0.21 $ ( 0.13 ) Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1) $ 0.56 $ 0.30 $ 0.21 $ ( 0.13 ) (1) Computations may reflect rounding adjustments. Share-based awards excluded from the calculation of weighted-average common shares outstanding because the effect is anti-dilutive for the three and six months ended June 30, 2024 and June 30, 2023 totaled fewer than 0.1 million shares. 13 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. DEBT As of June 30, 2024 and December 31, 2023, long-term debt consisted of the following (in thousands): June 30, 2024 December 31, 2023 U.S. revolving credit facility; weighted average interest rate of 10.5 % for the six month period ended June 30, 2024 $ — $ — Canadian revolving credit facility; weighted average interest rate of 8.7 % for the six month period ended June 30, 2024 47,489 65,554 Australian revolving credit facility; weighted average interest rate of 7.3 % for the six month period ended June 30, 2024 — — Total debt $ 47,489 $ 65,554 Credit Agreement As of June 30, 2024, our Credit Agreement (as then amended to date, the Credit Agreement) provided for 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. A C$ 100.0 million term loan facility provided under the Credit Agreement was fully repaid on December 31, 2023. The Credit Agreement was amended effective June 28, 2024 to, among other things, change the benchmark interest rate for certain Canadian dollar-denominated loans in the Canadian Revolving Facility from Canadian Dollar Offered Rate to Adjusted Term Canadian Overnight Repo Rate Average (CORRA). U.S. dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to Adjusted Term Secured Overnight Financing Rate (SOFR), which is equal to Term SOFR plus a 10 basis point adjustment, 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 Adjusted Term CORRA (which is equal to the Term CORRA plus an adjustment of 29.547 basis points for one month terms or 32.138 basis points for three month terms) 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 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 a 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. 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 June 30, 2024. 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 14 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) subsidiaries. As of June 30, 2024, we had seven lenders that were parties to the Credit Agreement, with total revolving commitments ranging from $ 13.0 million to $ 60.6 million. As of June 30, 2024, we had outstanding letters of credit of $ 0.3 million under the U.S. facility, zero under the Australian facility and $ 0.7 million under the Canadian facility. We also had outstanding bank guarantees of A$ 1.6 million under the Australian facility. 9. INCOME TAXES Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned. We operate in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 15 % to 30 %. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions. On January 1, 2024, the Organization for Economic Cooperation and Development Pillar Two rules became effective and established a minimum 15% tax rate on certain multinational enterprises. The Pillar Two rules have been implemented in Canada and Australia, with the U.S. still uncertain to date. The applicable tax law changes with respect to Pillar Two have been considered for the jurisdictions in which we operate, and we do not anticipate the Pillar Two rules to have a materially adverse impact on our financial results. 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 June 30, 2024 and 2023, Canada and the U.S. were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Our income tax expense for the three months ended June 30, 2024 totaled $ 3.8 million, or 33.6 % of pretax income, compared to income tax expense of $ 2.9 million, or 40.9 % of pretax income, for the three months ended June 30, 2023. Our effective tax rate for the three months ended June 30, 2024 and 2023 was impacted by Canada and the U.S. being considered 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 six months ended June 30, 2024 totaled $ 5.3 million, or 70.0 % of pretax income, compared to income tax expense of $ 4.1 million, or 209.0 % of pretax income, for the six months ended June 30, 2023. Our effective tax rate for the six months ended June 30, 2024 and 2023 was impacted by Canada and the U.S. being considered loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. 10. COMMITMENTS AND CONTINGENCIES We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Our accumulated other comprehensive loss increased $ 8.5 million from $ 380.7 million at December 31, 2023 to $ 389.2 million at June 30, 2024, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the six months of 2024 were primarily driven by the Australian dollar and the Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$ 215 million and A$ 203 million, respectively, at June 30, 2024. 15 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. SHARE REPURCHASE PROGRAMS AND DIVIDENDS Share Repurchase Programs In August 2023 and 2022, 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 and 685,000 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Dollar-value of shares repurchased $ 6,644 $ 4,199 $ 9,852 $ 7,970 Shares repurchased 274.1 212.2 407.2 380.9 Average price paid per share $ 24.21 $ 19.75 $ 24.17 $ 20.90 Dividends Our Board declared the following quarterly dividends for the six months ended June 30, 2024. The dividends are eligible dividends pursuant to the Income Tax Act (Canada). Date Declared Record Date Payment Date Per Share Amount April 26, 2024 May 27, 2024 June 17, 2024 $ 0.25 February 2, 2024 February 26, 2024 March 18, 2024 $ 0.25 13. SHARE-BASED COMPENSATION Certain key employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board and the Compensation Committee of our Board to approve and grant awards of options, awards of restricted shares, performance share awards, phantom share units and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. Approximately 3.0 million Civeo common shares are authorized to be issued under the Civeo Plan. Outstanding Awards Phantom Share Units. On March 2, 2024, we granted 184,640 phantom share units under the Civeo Plan, which vest in three equal annual installments beginning on March 2, 2025. We also granted 84,408 phantom share units under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on March 2, 2025. During the second quarter of 2024, we granted an additional 25,241 phantom share units under the Civeo Plan. Phantom share units are settled in cash upon vesting. During the three months ended June 30, 2024 and 2023, we recognized compensation expense associated with phantom share units totaling $ 1.6 million and $ 1.4 million, respectively. During the six months ended June 30, 2024 and 2023, we recognized compensation expense associated with phantom share units totaling $ 2.9 million and $ 3.2 million, respectively. At June 30, 2024, unrecognized compensation cost related to phantom share units was $ 10.4 million, as remeasured at June 30, 2024, which is expected to be recognized over a weighted average period of 2.0 years. 16 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Performance Share Awards. On March 2, 2024, we granted 122,978 performance share awards under the Civeo Plan, which cliff vest after three years 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 on the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group of other companies and the payout percentage associated with Civeo's three year growth in EBITDA over the performance period relative to a preset 2026 EBITDA target. The portion of the performance share awards tied to the 2026 EBITDA target 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. No share-based compensation expense is recognized if the performance criteria are not probable of being achieved. During the three months ended June 30, 2024 and 2023, we recognized compensation expense associated with performance share awards totaling $ 0.3 million and $ 0.9 million, respectively. During the six months ended June 30, 2024 and 2023, we recognized compensation expense associated with performance share awards totaling $ 0.6 million and $ 1.5 million, respectively. No performance share awards vested during the three months ended June 30, 2024 and 2023. The total fair value of performance share awards that vested during the six months ended June 30, 2024 and 2023 was $ 2.8 million and zero , respectively. At June 30, 2024, unrecognized compensation cost related to performance share awards was $ 2.8 million, which is expected to be recognized over a weighted average period of 1.7 years. Restricted Share Awards / Restricted Share Units / Deferred Share Awards. On May 15, 2024, we granted 42,125 restricted share and deferred share awards to our non-employee directors, which vest in their entirety on May 14, 2025. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended June 30, 2024 and 2023 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 six months ended June 30, 2024 and 2023 totaled $ 0.5 million and $ 0.5 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended June 30, 2024 and 2023 was $ 1.2 million and $ 0.8 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the six months ended June 30, 2024 and 2023 was $ 1.2 million and $ 0.9 million, respectively. At June 30, 2024, unrecognized compensation cost related to restricted share awards, restricted share units and deferred share awards was $ 0.9 million, which is expected to be recognized over a weighted average period of 0.9 years. 17 CIVEO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. SEGMENT AND RELATED INFORMATION In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified two reportable segments, Canada and Australia, which represent our strategic focus on hospitality services and workforce accommodations. Financial information by business segment for each of the three and six months ended June 30, 2024 and 2023 is summarized in the following table (in thousands): Total revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three months ended June 30, 2024 Canada $ 79,527 $ 9,252 $ 4,927 $ 1,647 $ 737,275 Australia 108,608 7,695 11,717 3,652 207,465 Corporate, other and eliminations 578 112 ( 3,532 ) 17 ( 461,506 ) Total $ 188,713 $ 17,059 $ 13,112 $ 5,316 $ 483,234 Three months ended June 30, 2023 Canada $ 95,470 $ 13,363 $ 3,177 $ 2,608 $ 737,764 Australia 82,544 7,371 9,176 4,104 191,062 Corporate, other and eliminations 829 ( 33 ) ( 2,181 ) 233 ( 369,864 ) Total $ 178,843 $ 20,701 $ 10,172 $ 6,945 $ 558,962 Six months ended June 30, 2024 Canada $ 146,687 $ 18,648 $ 5,481 $ 2,742 $ 737,275 Australia 200,345 14,932 17,684 8,170 207,465 Corporate, other and eliminations 7,801 249 ( 11,834 ) 17 ( 461,506 ) Total $ 354,833 $ 33,829 $ 11,331 $ 10,929 $ 483,234 Six months ended June 30, 2023 Canada $ 184,923 $ 27,502 $ ( 1,325 ) $ 4,069 $ 737,764 Australia 159,533 14,918 14,073 7,129 191,062 Corporate, other and eliminations 1,978 ( 57 ) ( 6,480 ) 519 ( 369,864 ) Total $ 346,434 $ 42,363 $ 6,268 $ 11,717 $ 558,962 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 2024, beliefs with respect to liquidity needs and expectations with respect to growth strategies and opportunities, 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, 2023 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 natural resources 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.