What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-07-24 compared with 2020-04-24 · 177 added, 77 removed, 231 unchanged (52% of the section changed)

6 unchanged sentences

• statements regarding our business strategy and any other business plans, forecasts or objectives, any or all of which are subject to change;

statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, or other financial items;

• statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items;

• statements regarding our backlog and commercial contracts and rates thereunder;

• statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts;

statements regarding the ongoing COVID-19 pandemic and the recent oil price decline, and their respective effects and results, our protocols and plans, the continuation of our current backlog, the spot market, our cost reduction plans and our ability to manage current changes;

• statements regarding the ongoing COVID-19 pandemic and recent oil price volatility, and their respective effects and results, our protocols and plans, the continuation of our current backlog, the spot market, our cost reduction plans and our ability to manage current changes;

• statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto;

9 unchanged sentences

These factors include:

the results and effects of the ongoing COVID-19 pandemic and the recent oil price decline and actions by customers, suppliers and partners with respect thereto;

• the results and effects of the ongoing COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;

• the impact of domestic and global economic conditions and the future impact of such conditions on the oil and gas industry and the demand for our services;

the general impact of oil and gas price fluctuations and the cyclical nature of the oil and gas industry;

• the general impact of oil and gas price volatility and the cyclical nature of the oil and gas industry;

• the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;

29 unchanged sentences

We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations.

Our services cover the lifecycle of an offshore oil or gas field.

Our services also include subsea cable burial and seabed clearing services for the offshore renewable energy sector.

With the delivery in November 2019 and the commencement of operations in January 2020 of the Q7000 , our well intervention fleet currently includes seven purpose-built well intervention vessels, six IRSs, three SILs and one Riserless Open-water Abandonment Module (“ROAM”).

7 unchanged sentences

Economic Outlook and Industry Influences

Demand for our services is primarily influenced by the condition of the oil and gas industry, and in particular, the willingness of oil and gas companies to spend on operational activities and capital projects.

Demand for our services is primarily influenced by the condition of the oil and gas industry and the offshore renewable energy sector, and in particular, the willingness of oil and gas companies to spend on operational activities and capital projects.

The performance of our business is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:

2 unchanged sentences

• political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in the Middle East and other oil-producing regions;

actions taken by OPEC and/or OPEC+, including actions such as the oil price war during the first quarter 2020;

• actions taken by OPEC and/or OPEC+;

• the availability and discovery rate of new oil and natural gas reserves in offshore areas;

10 unchanged sentences

• domestic and international tax laws, regulations and policies.

Crude oil prices declined significantly in 2014 and have been volatile since then.

Brent crude oil prices fluctuated between $53 and $75 per barrel during 2019 before declining precipitously in the first quarter 2020 to lows below $20 per barrel due to the ongoing COVID-19 pandemic as well as the price war among OPEC+ nations during the first quarter 2020.

Low oil prices and the volatility and uncertainty in prices have caused oil and gas operators recently to drastically reduce spending (both operational activities and capital spending), which has decreased the demand and rates for services provided by all offshore services providers.

Crude oil prices declined significantly in 2014 and have been volatile since then, most recently experiencing a precipitous decline through April 2020 due to the ongoing COVID-19 pandemic as well as the price war among OPEC+ nations during the first quarter 2020.

Prices have since recovered slightly as OPEC+ nations have cut production, fears of vast oversupply and a lack of storage capacity have subsided, and economic shutdowns resulting from the pandemic have eased in certain regions.

However, oil prices remained low through the second quarter 2020 and their recovery remains tepid.

The decline in oil prices and the volatility and uncertainty in prices have caused oil and gas operators to drastically reduce spending (on both operational activities and capital projects), which has decreased the demand and rates for services provided by all offshore services providers.

Historically, drilling rigs have been the asset class used for offshore well intervention work, and our customers have used drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities.

This rig overhang, combined with lower volumes of work for drilling rig contractors, affects the utilization and/or rates we can achieve for our assets and services.

Rig day rates are also a pricing indicator for our services.

Rig overhang, combined with lower volumes of work for and lower day rates quoted by drilling rig contractors, affects the utilization and/or rates we can achieve for our assets and services.

Furthermore, additional volatile and uncertain macroeconomic conditions in some regions and countries around the world, such as West Africa, Brazil, China and the U.K.

2 unchanged sentences

Rig overhang had reduced, and customer activity and oil prices had recovered to some extent.

However, that recovery has now been halted with the ongoing COVID-19 pandemic as well as the OPEC+ price war during the first quarter 2020.

While the full impact of these recent events, including the duration of the decrease in economic activity due to COVID-19 and the resulting impact on the demand and price of oil, is unknown, we expect that the industry may be depressed through 2021.

However, the ongoing COVID-19 pandemic has contributed to a slower recovery.

While the full impact of the COVID-19 pandemic, including the duration of the decrease in economic activity and the resulting impact on the demand and price of oil, is unknown, we expect that the industry may be depressed through 2021 and possibly beyond.

We are seeing and expect to continue to see operators reducing spending and deferring work, asserting claims of force majeure and/or cancelling contracts and rig contractors lowering prices, stacking rigs, furloughing employees, and recognizing losses.

These developments also have impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce.

The COVID-19 pandemic and the OPEC+ price war have resulted in a significant decrease in the price of oil and caused significant disruption and uncertainty in the oil and gas market.

While these events did not materially impact our operating results or financial condition during the first quarter 2020, we did incur related impairment losses and our customers have begun to reduce their spending, which we anticipate will reduce the demand for our services at least in the near term and perhaps longer.

Additionally, these events have created challenges with our supply chain and human capital resources, including challenges with offshore crew changes due to travel restrictions and quarantine measures.

These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce.

The COVID-19 pandemic and the decrease in the price of oil have impacted our operating results in the second quarter 2020.

Most if not all of our customers have drastically cut their spending, which has reduced the demand and rates for our services.

We have warm-stacked two of our vessels as a result of decreased demand:

the Seawell in the North Sea and the Q7000 which recently completed a project offshore Nigeria.

The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of COVID-19 on our offshore workforce and challenges with offshore crew changes due to travel restrictions and quarantine measures.

We have also recognized a loss related to the impairment of our goodwill.

While these market disruptions may be temporary, we cannot reliably estimate the duration of the COVID-19 pandemic or current market conditions, or the ultimate impact they will have on our financial position, results of operations and cash flows.

Although this sustained period of market weakness and volatility has been exacerbated by the ongoing COVID-19 pandemic and the OPEC+ price war, over the longer term we expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells.

For more information on COVID-19 and its actual and potential impact on Helix, please refer to the risk factor described under Item 1A.

“Risk Factors” in this Quarterly Report.

Despite this current period of market weakness and volatility, over the longer term we expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells.

As oil and gas companies re-assess and focus their budgetary spend allocations, we expect that it may be weighted towards production enhancement activities rather than exploration projects as enhancement is less expensive per incremental barrel of oil than new exploration.

11 unchanged sentences

In addition to serving the oil and gas market, our Robotics assets are contracted for the development of renewable energy projects (wind farms).

As of March 31, 2020 , our consolidated backlog that is supported by written agreements or contracts totaled $678 million , of which $392 million is expected to be performed over the remainder of 2020.

As of June 30, 2020, our consolidated backlog that is supported by written agreements or contracts totaled $574 million, of which $263 million is expected to be performed over the remainder of 2020.

The substantial majority of our backlog is associated with our Well Intervention business segment.

As of March 31, 2020 , our well intervention backlog was $471 million , including $306 million expected to be performed over the remainder of 2020.

Our contract with BP to provide well intervention services with our Q5000 semi-submersible vessel, our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 1 and Siem Helix 2 chartered vessels, and our fixed fee agreement for the HP I represent approximately 85% of our total backlog as of March 31, 2020 .

As of June 30, 2020, our well intervention backlog was $365 million, including $198 million expected to be performed over the remainder of 2020.

Backlog is not necessarily a reliable indicator of revenues derived from these contracts as services may be added or subtracted;

19 unchanged sentences

Non-cash impairment losses on goodwill and other long-lived assets and gains and losses on equity investments are also added back if applicable.

To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the provision for current expected credit losses, if any.

To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision for current expected credit losses, if any.

In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments and other than temporary loss on note receivable, which are excluded from EBITDA as a component of net other income or expense.

1 unchanged sentence

In the following reconciliation, we provide amounts as reflected in our accompanying condensed consolidated financial statements unless otherwise noted.

The reconciliation of our net income to EBITDA and Adjusted EBITDA is as follows (in thousands):

The reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Net income (loss) $ 5,450 $ 16,823 $ (8,478) $ 18,141

1 unchanged sentence

Net interest expense 7,063 2,205 12,809 4,303

Other (income) expense, net

Loss on extinguishment of long-term debt — 18 — 18

Other expense, net 2,069 1,311 12,496 145

Depreciation and amortization 33,969 28,003 65,567 56,512

Goodwill impairment — — 6,689 —

Provision for current expected credit losses

EBITDA 48,280 51,236 67,719 82,319

Gain on disposition of assets, net (473) — (473) —

General provision for current expected credit losses 108 — 694 —

Realized losses from foreign exchange contracts not designated as hedging instruments — (912) (682) (1,781)

1 unchanged sentence

The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands):

Three Months Ended

Six Months Ended

Cash flows from operating activities $ 6,042 $ 32,561

1 unchanged sentence

Free cash flow $ (11,039) $ 7,628

Comparison of Three Months Ended March 31, 2020 and 2019

Comparison of Three Months Ended June 30, 2020 and 2019

The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Three Months Ended

June 30, Increase/

2020 2019 Amount Percent

Net revenues —

Well Intervention $ 145,841 $ 159,074 $ (13,233) (8) %

Robotics 50,836 45,446 5,390 12 %

Production Facilities 13,593 15,621 (2,028) (13) %

Intercompany eliminations (11,123) (18,413) 7,290

$ 199,147 $ 201,728 $ (2,581) (1) %

Gross profit (loss) —

Well Intervention $ 15,287 $ 30,237 $ (14,950) (49) %

Robotics 11,092 5,137 5,955 116 %

Production Facilities 3,670 4,900 (1,230) (25) %

Corporate, eliminations and other (473) (340) (133)

$ 29,576 $ 39,934 $ (10,358) (26) %

Gross margin —

Well Intervention 10% 19%

Robotics 22% 11%

Production Facilities 27% 31%

3 unchanged sentences

Robotics assets (3)

49/34% 51/41%

Chartered robotics vessels 6/95% 4/92%

1 unchanged sentence

(2) Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period.

The average utilization rates of chartered robotics vessels during the three -month periods ended March 31, 2020 and 2019 included 272 and 84 spot vessel days, respectively, at near full utilization.

The average utilization rates of chartered robotics vessels during the three-month periods ended June 30, 2020 and 2019 included 342 and 24 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and ROVDrill.

2 unchanged sentences

Three Months Ended

June 30, Increase/

Well Intervention $ 3,910 $ 9,812 $ (5,902)

Robotics 7,213 8,601 (1,388)

$ 11,123 $ 18,413 $ (7,290)

Net Revenues.

Our total net revenues increased by 9% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting higher revenues from our Well Intervention business segment with the addition of the Q7000 , offset in part by lower revenues from our Robotics business segment.

Our Well Intervention revenues increased by 15% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting higher revenues with the commencement of operations of the Q7000 in Nigeria in January 2020 and higher utilization on our North Sea vessels.

This revenue increase was partially offset by a reduction in vessel utilization in the Gulf of Mexico, with both the Q4000 and the Q5000 completing scheduled regulatory certification inspections during the period.

Robotics revenues decreased by 10% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting the decrease in trenching activity and a reduction in ROV, trencher and ROVDrill utilization as compared to the same period in 2019.

Our results included 42 vessel trenching days during the three months ended March 31, 2020 compared to 133 days during the same period in 2019.

These reductions were partially offset by higher spot vessel utilization, which increased to 272 days from 84 days in the prior year period.

Our Production Facilities revenues increased by 2% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting higher production revenues from the oil and gas properties that we acquired from Marathon Oil in January 2019 (Note 2).

Our consolidated net revenues for the three-month period ended June 30, 2020 decreased by 1% as compared to the same period in 2019, reflecting lower revenues from our Well Intervention and Production Facilities business segments, offset in part by higher revenues from our Robotics business segment and lower intercompany eliminations.

Our Well Intervention revenues decreased by 8% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower utilization on the Seawell as the vessel entered warm stack mode in April 2020, offset in part by 12 days of utilization on the Q7000 for operations in Nigeria prior to the vessel being warm stacked in April 2020.

Robotics revenues increased by 12% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting increased chartered vessel days and improvements in chartered vessel utilization, including significant increases in spot vessel days primarily due to an offshore wind farm site clearance project in the North Sea and a marine salvage project offshore Australia, offset in part by lower ROV and trenching activity.

Our results included 499 vessel days and 119 trenching days during the three-month period ended June 30, 2020 as compared to 273 vessel days and 229 trenching days during the same period in 2019.

Our Production Facilities revenues decreased by 13% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas production revenues.

The decrease in intercompany eliminations was primarily attributable to a $5.3 million elimination in the three-month period ended June 30, 2019 of revenues that our Well Intervention business segment earned associated with its commencement of P&A work on behalf of our Production Facilities segment.

Gross Profit (Loss).

Our total gross profit decreased by 88% for the three -month period ended March 31, 2020 as compared to the same period in 2019 reflecting lower gross profit in our Well Intervention business segment.

The gross profit related to our Well Intervention business segment decreased by 109% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting a reduction in vessel utilization in the Gulf of Mexico, with both the Q4000 and the Q5000 completing scheduled regulatory certification inspections during the period, offset in part by the contribution from the Q7000 and higher profits in the North Sea.

The gross loss related to our Robotics segment decreased by 71% for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting a reduction in costs related to the termination of the Grand Canyon vessel charter in November 2019 and the expiration of the Grand Canyon II hedge in July 2019, offset in part by lower revenues.

The gross profit related to our Production Facilities segment decreased by 12% for the three -month period ended March 31, 2020 as compared to the same period in 2019 primarily reflecting significantly lower direct costs as the HP I vessel went into regulatory dry dock for recertification during three -month period ended March 31, 2020 .

The recertification costs are typically deferred and amortized.

Our consolidated gross profit decreased by 26% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower gross profit in our Well Intervention and Production Facilities business segments, offset in part by higher gross profit in our Robotics business segment.

The gross profit related to our Well Intervention segment decreased by 49% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower revenues on the Seawell and stacking costs incurred on the Q7000 .

The gross profit related to our Robotics segment increased by 116% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting higher revenues as well as lower costs due to the expiration of the Grand Canyon II hedge in July 2019 and the Grand Canyon III hedge in February 2020 (Note 19).

The gross profit related to our Production Facilities segment decreased by 25% for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas production revenues.

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses for the three-month period ended June 30, 2020 included a $1.7 million credit loss related to a receivable in our Robotics business segment (Note 17).

Excluding this charge, our selling, general and administrative expenses decreased by $2.7 million for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting cost-saving measures during the second quarter 2020.

Net Interest Expense.

Our net interest expense increased by $4.9 million for the three-month period ended June 30, 2020 as compared to the same period in 2019.

Net interest expense for the three-month period ended June 30, 2019 included $5.2 million in capitalized interest as a result of the completion of the Q7000 (Note 7).

Other Expense, Net.

Net other expense increased by $0.8 million for the three-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting higher foreign currency transaction losses due to the weakening of the British pound.

Income Tax Provision (Benefit).

Income tax benefit was $0.3 million for the three-month period ended June 30, 2020 as compared to an income tax provision of $2.9 million for the same period in 2019.

The effective tax rates for the three-month periods ended June 30, 2020 and 2019 were (5.2)% benefit and 14.6% expense, respectively.

The variance in the effective tax rate was primarily due to the earnings mix between our higher and lower tax rate jurisdictions (Note 8).

Comparison of Six Months Ended June 30, 2020 and 2019

The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Six Months Ended

June 30, Increase/

2020 2019 Amount Percent

Net revenues —

Well Intervention $ 286,493 $ 281,305 $ 5,188 2 %

Robotics 86,094 84,487 1,607 2 %

Production Facilities 29,134 30,874 (1,740) (6) %

Intercompany eliminations (21,553) (28,115) 6,562

$ 380,168 $ 368,551 $ 11,617 3 %

Gross profit (loss) —

Well Intervention $ 14,031 $ 43,747 $ (29,716) (68) %

Robotics 10,625 3,548 7,077 199 %

Production Facilities 7,877 9,671 (1,794) (19) %

Corporate, eliminations and other (947) (778) (169)

$ 31,586 $ 56,188 $ (24,602) (44) %

Gross margin —

Well Intervention 5% 16%

Robotics 12% 4%

Production Facilities 27% 31%

Total company 8% 15%

Number of vessels or robotics assets (1) / Utilization (2)

Well Intervention vessels 7/72% 6/84%

Robotics assets (3)

49/34% 51/40%

Chartered robotics vessels 6/92% 4/90%

(1) Represents the number of vessels or robotics assets as of the end of the period, including vessels under both short-term and long-term charters, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.

The average utilization rates of chartered robotics vessels during the six-month periods ended June 30, 2020 and 2019 included 614 and 108 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and ROVDrill.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.

Intercompany segment revenues are as follows (in thousands):

Six Months Ended

June 30, Increase/

Well Intervention $ 7,214 $ 13,037 $ (5,823)

Robotics 14,339 15,078 (739)

$ 21,553 $ 28,115 $ (6,562)

Net Revenues.

Our consolidated net revenues increased by 3% for the six-month period ended June 30, 2020 as compared to the same period in 2019, reflecting higher revenues from our Well Intervention and Robotics business segments as well as lower intercompany eliminations, offset in part by lower revenues from our Production Facilities business segment.

Our Well Intervention revenues increased by 2% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting higher revenues due to the addition of the Q7000 to our Well Intervention fleet with the commencement of the vessel's operations in Nigeria in January 2020 as well as higher utilization on the Well Enhancer .

These revenue increases were partially offset by lower utilization on the Seawell as the vessel entered warm stack mode in April 2020 as well as lower vessel utilization in the Gulf of Mexico as both the Q4000 and the Q5000 had scheduled regulatory certification inspections during the first quarter 2020.

Robotics revenues increased by 2% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting increased chartered vessel days and higher chartered vessel utilization, including significant increases in spot vessel days primarily due to an offshore wind farm site clearance project in the North Sea and a marine salvage project offshore Australia, offset in part by the decrease in trenching activity and a reduction in ROV, trencher and ROVDrill utilization as compared to the same period in 2019.

Our results included 904 vessel days and 161 trenching days during the six-month period ended June 30, 2020 as compared to 584 vessel days and 365 trenching days during the same period in 2019.

Our Production Facilities revenues decreased by 6% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas production revenues.

The decrease in intercompany eliminations was primarily attributable to a $5.3 million elimination in the six-month period ended June 30, 2019 of revenues that our Well Intervention business segment earned associated with its commencement of P&A work on behalf of our Production Facilities segment.

Gross Profit (Loss).

Our consolidated gross profit decreased by 44% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower gross profit in our Well Intervention business segment.

The gross profit related to our Well Intervention business segment decreased by 68% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting the warm stacking of the Seawell and the Q7000 beginning in April 2020 as well as lower vessel utilization in the Gulf of Mexico.

The gross profit related to our Robotics segment increased by 199% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting higher revenues as well as the expiration of the Grand Canyon II hedge in July 2019 and the Grand Canyon III hedge in February 2020 (Note 19).

The gross profit related to our Production Facilities segment decreased by 19% for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas production revenues.

Goodwill Impairment.

The $6.7 million impairment charge for the three -month period ended March 31, 2020 reflects the write-off of the entire goodwill balance associated with STL (Note 6).

The $6.7 million impairment charge for the six-month period ended June 30, 2020 reflects the write-off of the entire goodwill balance associated with STL (Note 6).

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses increased by $0.4 million for the three -month period ended March 31, 2020 as compared to the same period in 2019 .

The increase was primarily attributable to the $0.6 million provision for current expected credit losses as a result of the adoption of ASU No.

2016-13 in 2020 (Note 17).

Our selling, general and administrative expenses for the six-month period ended June 30, 2020 included a $2.4 million provision for current expected credit losses (Note 17).

Excluding this charge, our selling, general and administrative expenses decreased by $3.1 million for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting cost-saving measures during the second quarter 2020.

Net Interest Expense.

Our net interest expense increased by $3.6 million for the three -month period ended March 31, 2020 as compared to the same period in 2019 , primarily reflecting lower capitalized interest.

Capitalized interest totaled $1.2 million for the three -month period ended March 31, 2020 as compared to $5.0 million for the same period in 2019 as a result of the completion of the Q7000 .

Other Income (Expense), Net.

We reported net other expense of $10.4 million for the three -month period ended March 31, 2020 as compared to net other income of $1.2 million for the same period in 2019 , primarily reflecting foreign currency transaction losses in the three -month period ended March 31, 2020 as compared to foreign currency transaction gains in the same period in 2019 due to the weakening of the British pound.

Our net interest expense increased by $8.5 million for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower capitalized interest.

Capitalized interest totaled $1.2 million for the six-month period ended June 30, 2020 as compared to $10.2 million for the same period in 2019 as a result of the completion of the Q7000 (Note 7).

Other Expense, Net.

Net other expense increased by $12.4 million for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting higher foreign currency transaction losses due to the weakening of the British pound.

Income Tax Provision (Benefit).

Income tax benefit was $21.1 million for the three -month period ended March 31, 2020 as compared to an income tax provision of $0.3 million for the same period in 2019 .

The effective tax rates for the three -month periods ended March 31, 2020 and 2019 were 60.2% benefit and 19.7% expense, respectively.

The variance in the effective tax rate was primarily attributable to our carrying back certain net operating losses to prior periods with higher income tax rates as well as the result of the consolidation of certain U.S.

branch operations with the Helix U.S.

consolidated tax group (Note 8).

Income tax benefit was $21.4 million for the six-month period ended June 30, 2020 as compared to an income tax provision of $3.2 million for the same period in 2019.

The effective tax rates for the six-month periods ended June 30, 2020 and 2019 were 71.6% benefit and 15.0% expense, respectively.

The variance in the effective tax rate was primarily due to our carrying back certain net operating losses to prior periods with higher income tax rates as well as the restructuring of certain foreign subsidiaries (Note 8).

LIQUIDITY AND CAPITAL RESOURCES

The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):

2020 December 31,

Net working capital $ 191,532 $ 153,508

Long-term debt (1)

304,834 306,122

Liquidity (2)

350,814 379,533

(1) Long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital.

2 unchanged sentences

(2) Liquidity, as defined by us, is equal to cash and cash equivalents plus available capacity under the Revolving Credit Facility, which capacity is reduced by letters of credit drawn against that facility.

Our liquidity at March 31, 2020 included cash and cash equivalents of $159.4 million and $172.6 million of available borrowing capacity under the Revolving Credit Facility (Note 7).

Our liquidity at June 30, 2020 included cash and cash equivalents of $178.4 million and $172.4 million of available borrowing capacity under the Revolving Credit Facility (Note 7).

Our liquidity at December 31, 2019 included cash and cash equivalents of $208.4 million and $171.1 million of available borrowing capacity under the Revolving Credit Facility.

The carrying amount of our long-term debt, including current maturities, net of unamortized debt discounts and debt issuance costs, is as follows (in thousands):

2020 December 31,

Term Loan (matures December 2021) $ 31,214 $ 32,869

2 unchanged sentences

2022 Notes (mature May 2022) (1)

117,634 115,765

2023 Notes (mature September 2023) (1)

110,103 108,115

Total debt $ 386,862 $ 405,853

(1) The 2022 Notes and the 2023 Notes will increase to their face amounts through accretion of the debt discounts through May 1, 2022 and September 15, 2023, respectively.

The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):

Three Months Ended

Six Months Ended

Cash provided by (used in):

3 unchanged sentences

Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt.

Given the ongoing COVID-19 pandemic, challenging market conditions and recent market events resulting in industry-wide spending cuts, we continue to remain focused on maintaining a strong balance sheet and adequate liquidity.

Over the near term, we plan to reduce, defer or cancel certain planned capital expenditures and reduce our overall cost structures commensurate with our expected level of activities.

The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have begun to impact our revenues and we expect these events to continue to impact our results into the near future.

Our operating cash flows are impacted to the extent we cannot reduce costs or replace those revenues.

Despite these challenges, we continue to remain focused on maintaining a strong balance sheet and adequate liquidity.

Over the near term, we are reducing, deferring or canceling certain planned capital expenditures and reducing our overall cost structure commensurate with our expected level of activities.

We have lowered our capital expenditure outlook and reduced operating costs through various measures including warm stacking two of our vessels.

These costs should return with increases in activity.

We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.

The ongoing COVID-19 pandemic has contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital.

The ongoing COVID-19 pandemic and its continued strain on the financial sector have also contributed to limited access to certain capital markets.

A prolonged period of weak, or a significant decrease in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt.

Current global and market conditions have increased the potential for that difficulty.

Furthermore, during any period of sustained weak economic activity and reduced EBITDA, our ability to fully access the Revolving Credit Facility may be impacted.

At March 31, 2020 , our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.6 million , net of $2.4 million of letters of credit issued under that facility.

Decreases in our revenues and EBITDA, including as may be attributable to the fallout from the ongoing COVID-19 pandemic, may limit our ability to fully access the Revolving Credit Facility.

At June 30, 2020, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.4 million, net of $2.6 million of letters of credit issued under that facility.

We currently do not anticipate borrowing under the Revolving Credit Facility other than for the issuance of letters of credit.

Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control.

Our failure to comply with these covenants and other restrictions could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.

Our failure to comply with these covenants and other restrictions could lead to an event of default.

Operating Cash Flows

Total cash flows used in operating activities decreased by $17.0 million for the three -month period ended March 31, 2020 as compared to the same period in 2019 primarily reflecting changes in our working capital.

Total cash flows provided by operating activities decreased by $26.5 million for the six-month period ended June 30, 2020 as compared to the same period in 2019, primarily reflecting lower operating income and increases in working capital.

Investing Activities

2 unchanged sentences

Significant (uses) sources of cash associated with investing activities are as follows (in thousands):

Three Months Ended

Six Months Ended

Capital expenditures:

Well Intervention $ (16,888) $ (26,621)

Robotics (255) (139)

Production Facilities — (109)

Other (436) (589)

STL acquisition, net — (4,081)

Proceeds from sale of assets 498 2,525

Net cash used in investing activities $ (17,081) $ (29,014)

Our capital expenditures primarily included payments associated with the construction and completion of the Q7000 (see below).

In September 2013, we entered into a contract for the construction of the Q7000 , a newbuild semi-submersible well intervention vessel built to U.K.

North Sea standards.

Pursuant to the contract and subsequent amendments, 20% of the contract price was paid upon the signing of the contract, 20% was paid in each of 2016, 2017 and 2018, and the remaining 20% was paid upon the delivery of the vessel in November 2019.

At March 31, 2020 , our total investment in the Q7000 was $539.3 million , including $346.0 million of installment payments to the shipyard.

The vessel commenced operations in Nigeria in January 2020.

Our capital expenditures primarily included payments associated with the construction and completion of the Q7000 , which was completed and commenced operations in January 2020.

Financing Activities

Cash flows from financing activities consist primarily of proceeds from debt and equity transactions and repayments of our long-term debt.

Net cash outflows from financing activities of $18.4 million for the three -month period ended March 31, 2020 primarily reflect the repayment of $13.4 million of our indebtedness (Note 7).

Net cash outflows from financing activities of $14.1 million for the three -month period ended March 31, 2019 primarily reflect the repayment of $13.3 million of our indebtedness.

Net cash outflows from financing activities of $28.1 million for the six-month period ended June 30, 2020 primarily reflect the repayment of $23.2 million of our indebtedness (Note 7).

Net cash outflows from financing activities of $22.5 million for the six-month period ended June 30, 2019 primarily reflect the repayment of $19.9 million of our indebtedness.

Free Cash Flow

Free cash flow increased by $16.3 million for the three -month period ended March 31, 2020 as compared to the same period in 2019 primarily attributable to the increase in operating cash flows.

Free cash flow decreased by $18.7 million for the six-month period ended June 30, 2020 as compared to the same period in 2019 primarily attributable to the decrease in operating cash flows.

Free cash flow is a non-GAAP financial measure.

1 unchanged sentence

We anticipate that our capital expenditures, including capitalized interest and regulatory certification costs for our vessels and systems, will approximate $38 million for 2020.

We believe that cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will provide the capital necessary to continue funding our 2020 operating needs and to meet our debt obligations due in 2020 .

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual cash obligations as of March 31, 2020 and the scheduled years in which the obligations are contractually due (in thousands):

The following table summarizes our contractual cash obligations as of June 30, 2020 and the scheduled years in which the obligations are contractually due (in thousands):

1 Year 1-3 Years 3-5 Years More Than

Term Loan $ 31,500 $ 3,500 $ 28,000 $ — $ —

Nordea Q5000 Loan 71,428 71,428 — — —

MARAD Debt 60,054 7,378 15,879 17,503 19,294

2022 Notes (2)

125,000 — 125,000 — —

2023 Notes (3)

125,000 — — 125,000 —

Interest related to debt (4)

41,179 16,565 20,101 3,702 811

Property and equipment 3,942 3,812 130 — —

Operating leases (5)

311,727 100,465 176,947 30,265 4,050

Total cash obligations $ 769,830 $ 203,148 $ 366,057 $ 176,470 $ 24,155

Excludes unsecured letters of credit outstanding at March 31, 2020 totaling $2.4 million .

(1) Excludes unsecured letters of credit outstanding at June 30, 2020 totaling $2.6 million.

These letters of credit may be issued to support various obligations, such as contractual obligations, contract bidding and insurance activities.

1 unchanged sentence

The 2022 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds $18.06 per share, which is 130% of the conversion price.

At March 31, 2020 , the conversion trigger was not met.

At June 30, 2020, the conversion trigger was not met.

See Note 7 for additional information.

1 unchanged sentence

The 2023 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds $12.31 per share, which is 130% of the conversion price.

At March 31, 2020 , the conversion trigger was not met.

At June 30, 2020, the conversion trigger was not met.

See Note 7 for additional information.

Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at March 31, 2020 for variable rate debt.

(4) Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at June 30, 2020 for variable rate debt.

(5) Operating leases include vessel charters and facility and equipment leases.

At March 31, 2020 , our commitment related to long-term vessel charters totaled approximately $299.2 million, of which $111.5 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of March 31, 2020 .

At June 30, 2020, our commitment related to long-term vessel charters totaled approximately $278.5 million, of which $105.1 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of June 30, 2020.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

5 unchanged sentences

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