What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-22 compared with 2020-07-24 · 121 added, 97 removed, 311 unchanged (41% of the section changed)

9 unchanged sentences

• 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 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 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 spending and cost reduction plans and our ability to manage changes;

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

13 unchanged sentences

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

• the ability to effectively bid and perform our contracts, including the impact of equipment problems or failure;

• the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure;

• the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets;

22 unchanged sentences

Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement.

All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement.

This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

4 unchanged sentences

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”).

Our robotics equipment currently includes 44 work-class ROVs, four trenchers and one ROVDrill.

Our well intervention fleet includes seven purpose-built well intervention vessels, six IRSs, three SILs and one Riserless Open-water Abandonment Module (“ROAM”).

Our robotics equipment includes 44 work-class ROVs, four trenchers and one ROVDrill.

We also charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations.

Our well intervention and robotic operations are geographically dispersed throughout the world.

Our Production Facilities segment includes the HP I , the HFRS and several wells and related infrastructure associated with the Droshky Prospect.

Our well intervention and robotics operations are geographically dispersed throughout the world.

Our Production Facilities segment includes the HP I , the HFRS, our ownership interest in Independence Hub and our ownership of oil and gas properties.

Our alliance with Schlumberger leverages the parties’ capabilities to provide a unique, fully integrated offering to clients, combining marine support with well access and control technologies.

We and Schlumberger jointly developed a 15,000 working p.s.i.

IRS, which was completed and placed into service in January 2018, and our first ROAM, which is currently available to customers.

IRS (“15K IRS”) and the ROAM, which are currently available to customers.

Economic Outlook and Industry Influences

1 unchanged sentence

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:

• worldwide economic activity and general economic and business conditions, including available access to global capital and capital markets;

• worldwide economic activity and general economic and business conditions, including access to global capital and capital markets;

• the global supply and demand for oil and natural gas;

15 unchanged sentences

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.

However, oil prices remained low through the third 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.

1 unchanged sentence

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.

Rig overhang, combined with lower volumes of work 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, the ongoing COVID-19 pandemic has contributed to a slower recovery.

However, the ongoing COVID-19 pandemic has resulted in a period of market weakness.

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.

We are seeing and expect to continue to see operators reducing spending and deferring work, driving down the rates they are presently willing to pay for services, asserting claims of force majeure and/or cancelling contracts and rig contractors likewise are lowering prices, stacking rigs, furloughing employees, and recognizing losses.

We believe the uncertainty and other conditions of the current environment will make it more difficult for us to secure long-term contracts for our vessels and systems, as operators may be less willing to commit to future spending.

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.

The COVID-19 pandemic and the decrease in the price of oil impacted our operating results in the third 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.

We warm-stacked two of our vessels in April 2020 as a result of decreased demand:

the Seawell in the North Sea and the Q7000 , which completed a project offshore Nigeria in the first quarter 2020.

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.

We also recognized a loss during the second quarter 2020 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.

15 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 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 June 30, 2020, our well intervention backlog was $365 million, including $198 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 83% of our total backlog as of June 30, 2020.

As of September 30, 2020, our consolidated backlog that is supported by written agreements or contracts totaled $481 million, of which $130 million is expected to be performed over the remainder of 2020.

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

As of September 30, 2020, our well intervention backlog was $271 million, including $93 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;

6 unchanged sentences

Well Intervention, Robotics and Production Facilities.

All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our consolidated results of operations.

All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements.

Non-GAAP Financial Measures

14 unchanged sentences

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 (loss) to EBITDA and Adjusted EBITDA is as follows (in thousands):

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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

Net income $ 24,445 $ 31,622 $ 15,967 $ 49,763

Income tax provision (benefit) 5,232 3,539 (16,132) 6,739

Net interest expense 7,598 1,901 20,407 6,204

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

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

(Gain) loss on extinguishment of long-term debt (9,239) — (9,239) 18

Other (income) expense, net (8,824) 2,285 3,672 2,430

Depreciation and amortization 33,985 27,908 99,552 84,420

2 unchanged sentences

Gain on disposition of assets, net (440) — (913) —

General provision for current expected credit losses 108 — 694 —

General provision (release) for current expected credit losses (38) — 656 —

Realized losses from foreign exchange contracts not designated as hedging instruments — (982) (682) (2,763)

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities $ 58,628 $ 89,877

1 unchanged sentence

Free cash flow $ 40,373 $ 46,791

Comparison of Three Months Ended June 30, 2020 and 2019

Comparison of Three Months Ended September 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/

September 30, Increase/

2020 2019 Amount Percent

23 unchanged sentences

(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 June 30, 2020 and 2019 included 342 and 24 spot vessel days, respectively, at near full utilization.

The average utilization rates of chartered robotics vessels during the three-month periods ended September 30, 2020 and 2019 included 291 and 28 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 amounts are derived primarily from equipment and services provided to other business segments.

Intercompany segment revenues are as follows (in thousands):

Three Months Ended

June 30, Increase/

September 30, Increase/

Well Intervention $ 4,120 $ 15,318 $ (11,198)

2 unchanged sentences

Net Revenues.

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.

Our consolidated net revenues for the three-month period ended September 30, 2020 decreased by 9% as compared to the same period in 2019, reflecting lower revenues from our Well Intervention and Robotics segments, offset in part by higher revenues from our Production Facilities segment and lower intercompany eliminations.

Our Well Intervention revenues decreased by 17% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower utilization in the North Sea as the Seawell was warm stacked during the quarter and lower utilization in the Gulf of Mexico on the Q4000 and the 15K IRS system as well as weaker foreign currency rates in Brazil.

Robotics revenues decreased by 4% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting a decrease in trenching and ROV activities, offset in part by increased vessel days due to the ongoing wind farm site clearance project in the North Sea.

Our results included 450 vessel days, and 154 trenching days during the three-month period ended September 30, 2020 as compared to 292 vessel days and 241 trenching days during the same period in 2019.

Our Production Facilities revenues increased by 3% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting higher oil and gas production, offset in part by lower prices.

The decrease in intercompany eliminations was primarily attributable to a $10.6 million elimination of revenues that our Well Intervention segment earned in the three-month period ended September 30, 2019 associated with its P&A work on the Droshky oil and gas properties on behalf of our Production Facilities segment.

Gross Profit (Loss).

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.

Our consolidated gross profit decreased by 37% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.

The gross profit related to our Well Intervention segment decreased by 47% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower revenues as well as stacking costs incurred on the Q7000 .

The gross profit related to our Robotics segment decreased by 23% for the three-month period ended September 30, 2020 as compared to the same period in 2019, reflecting lower revenues and the types of projects performed.

The gross profit related to our Production Facilities segment increased by 34% for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting higher oil and gas production revenues and a reduction in direct costs on the HP I .

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.

Our selling, general and administrative expenses for the three-month period ended September 30, 2020 were consistent with those for the same period in 2019.

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.

Our net interest expense increased by $5.7 million for the three-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting the cessation of interest capitalization with the completion of the Q7000 in the first quarter 2020.

Net interest expense for the three-month period ended September 30, 2019 excluded $5.1 million in capitalized interest associated with the Q7000 (Note 7).

Gain on Extinguishment of Long-Term Debt.

The $9.2 million gain on extinguishment of long-term debt for the three-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes (Note 7).

Other Income (Expense), Net.

Net other income was $8.8 million for the three-month period ended September 30, 2020 as compared to net other expense of $2.3 million for the same period in 2019, primarily reflecting foreign currency transaction gains due to the strengthening of the British pound during the third quarter 2020.

Income Tax Provision.

Income tax provision was $5.2 million for the three-month period ended September 30, 2020 as compared to $3.5 million for the same period in 2019.

The effective tax rates for the three-month periods ended September 30, 2020 and 2019 were 17.6% and 10.1%, 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

Comparison of Nine Months Ended September 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/

Nine Months Ended

September 30, Increase/

2020 2019 Amount Percent

23 unchanged sentences

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.

The average utilization rates of chartered robotics vessels during the nine-month periods ended September 30, 2020 and 2019 included 905 and 137 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 amounts are derived primarily from equipment and services provided to other business segments.

Intercompany segment revenues are as follows (in thousands):

Six Months Ended

June 30, Increase/

Nine Months Ended

September 30, Increase/

Well Intervention $ 11,334 $ 28,355 $ (17,021)

2 unchanged sentences

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.

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

Our Well Intervention revenues decreased by 5% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower revenues in the Gulf of Mexico and Brazil and on the Seawell , which has been warm stacked since April 2020.

Vessel utilization in the Gulf of Mexico has been impacted by scheduled regulatory certification inspections on the Q4000 and the Q5000 during the first quarter 2020.

These revenue decreases were offset in part by higher revenues in the North Sea, which included higher utilization on the Well Enhancer and revenues on the Q7000 with the commencement of the vessel's operations in Nigeria in January 2020.

Robotics revenues declined nominally for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower ROV and trencher utilization, offset in part by higher chartered vessel days, including a significant increase 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.

Our results included 1,353 vessel days and 315 trenching days during the nine-month period ended September 30, 2020 as compared to 875 vessel days and 606 trenching days during the same period in 2019.

Our Production Facilities revenues decreased by 3% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas prices, offset in part by production increases.

The decrease in intercompany eliminations was primarily attributable to a $15.9 million elimination of revenues that our Well Intervention segment earned in the nine-month period ended September 30, 2019 associated with its P&A work on the Droshky oil and gas properties 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.

Our consolidated gross profit decreased by 40% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower gross profit in our Well Intervention and Production Facilities segments, offset in part by higher gross profit in our Robotics segment.

The gross profit related to our Well Intervention segment decreased by 58% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower revenues, which included the warm stacking of the Seawell as well as lower vessel utilization in the Gulf of Mexico, and stacking costs associated with the Q7000 .

The gross profit related to our Robotics segment increased by 31% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower costs, which included the expiration of the Grand Canyon II hedge in July 2019 and the Grand Canyon III hedge in February 2020 (Note 19), offset in part by lower revenues.

The gross profit related to our Production Facilities segment decreased by 5% for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower oil and gas production revenues, offset in part by a reduction in direct costs on the HP 1 .

Goodwill Impairment.

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).

The $6.7 million impairment charge for the nine-month period ended September 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 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.

Our selling, general and administrative expenses for the nine-month period ended September 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 nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting net cost-saving measures during the second and third quarters 2020.

Net Interest Expense.

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).

Our net interest expense increased by $14.2 million for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting lower capitalized interest.

Capitalized interest totaled $1.2 million for the nine-month period ended September 30, 2020 as compared to $15.3 million for the same period in 2019 associated with the Q7000 (Note 7).

Gain on Extinguishment of Long-Term Debt.

The $9.2 million gain on extinguishment of long-term debt for the nine-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes (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.

Net other expense increased by $1.2 million for the nine-month period ended September 30, 2020 as compared to the same period in 2019, primarily reflecting higher foreign currency transaction losses.

Income Tax Provision (Benefit).

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).

Income tax benefit was $16.1 million for the nine-month period ended September 30, 2020 as compared to an income tax provision of $6.7 million for the same period in 2019.

The effective tax rates for the nine-month periods ended September 30, 2020 and 2019 were 9,777.0% benefit and 11.9% expense, respectively.

The higher effective tax rate for the nine-month period ended September 30, 2020 was due to our recognition of discrete benefits during the period related to the restructuring of certain foreign subsidiaries and our carrying back certain net operating losses to prior periods with higher income tax rates under tax law changes associated with the CARES Act whereas we had only nominal pre-tax losses (Note 8).

LIQUIDITY AND CAPITAL RESOURCES

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

September 30,

2020 December 31,

8 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 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 September 30, 2020 included cash and cash equivalents of $259.3 million and $144.7 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):

September 30,

2020 December 31,

6 unchanged sentences

26,669 108,115

2026 Notes (mature February 2026) (1)

Total debt $ 356,946 $ 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.

(1) The 2022 Notes, the 2023 Notes and the 2026 Notes will increase to their face amounts through accretion of the debt discounts through May 1, 2022, September 15, 2023 and February 15, 2026, respectively.

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

Six Months Ended

Nine Months Ended

September 30,

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.

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.

The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our current year 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.

Despite these challenges, we 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.

Over the mid-term, we have extended our debt maturity profile with the refinancing of a portion of our convertible senior notes maturing in 2022 and 2023 for convertible senior notes due 2026.

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

3 unchanged sentences

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

In August 2020, we were able to refinance a portion of our 2022 Notes and 2023 Notes for the 2026 Notes.

The yield on the 2026 Notes is significantly higher than that of the notes we exchanged.

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.

1 unchanged sentence

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.

At September 30, 2020, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $144.7 million, net of $3.4 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.

2 unchanged sentences

Operating Cash Flows

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.

Total cash flows provided by operating activities decreased by $31.2 million for the nine-month period ended September 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):

Six Months Ended

Nine Months Ended

September 30,

Capital expenditures:

9 unchanged sentences

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 $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.

Net cash outflows from financing activities of $42.0 million for the nine-month period ended September 30, 2020 primarily reflect the issuance of the 2026 Notes, the repurchase of the 2022 Notes and 2023 Notes, and the 2026 Capped Calls as described above and below as well as the repayment of $36.6 million of scheduled maturities related to our other indebtedness (Note 7).

Net cash outflows from financing activities of $35.6 million for the nine-month period ended September 30, 2019 primarily reflect the repayment of $33.2 million scheduled maturities of our indebtedness.

In August 2020, we issued $200 million of the 2026 Notes, which have a conversion price of approximately $6.97 per share.

We used the proceeds from the issuance to fund the repurchase of $90 million of the 2022 Notes and $95 million of the 2023 Notes and to acquire the 2026 Capped Calls to offset potential dilution of our common stock by increasing the effective conversion price of the 2026 Notes to approximately $8.42 per share.

The issuance proceeds were also used to fund the issuance costs related to the 2026 Notes.

Free Cash Flow

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 decreased by $6.4 million for the nine-month period ended September 30, 2020 as compared to the same period in 2019 primarily attributable to the decrease in operating cash flows, offset by a decrease in capital expenditures.

Free cash flow is a non-GAAP financial measure.

2 unchanged sentences

Contractual Obligations and Commercial Commitments

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):

The following table summarizes our contractual cash obligations as of September 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

6 unchanged sentences

30,000 — 30,000 — —

2026 Notes (4)

200,000 — — — 200,000

Interest related to debt (5)

4 unchanged sentences

Total cash obligations $ 796,470 $ 197,089 $ 307,319 $ 67,719 $ 224,343

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

(1) Excludes unsecured letters of credit outstanding at September 30, 2020 totaling $3.4 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 June 30, 2020, the conversion trigger was not met.

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

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

See Note 7 for additional information.

(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.

(4) Notes mature in February 2026.

The 2026 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 $9.06 per share, which is 130% of the conversion price.

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

See Note 7 for additional information.

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

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

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.

At September 30, 2020, our commitment related to long-term vessel charters totaled approximately $255.0 million, of which $96.4 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 September 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