What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-28 compared with 2020-10-22 · 110 added, 231 removed, 201 unchanged (63% of the section changed)

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

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

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

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● statements regarding potential developments, industry trends, performance or industry ranking;

● statements regarding global, market or investor sentiment with respect to fossil fuels;

● statements regarding our existing activities in, and future expansion into, the offshore renewable energy market;

● statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business;

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● 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 volatility and the cyclical nature of the oil and gas industry;

● the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services;

● the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market;

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

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● the availability of capital (including any financing) to fund our business strategy and/or operations;

• the impact of current and future laws and governmental regulations, including tax and accounting developments, such as the U.S.

Tax Cuts and Jobs Act and the CARES Act and regulations thereunder;

• the impact of U.K.’s exit from the European Union, known as Brexit, on our business, operations and financial condition, which is unknown at this time;

● the impact of current and future laws and governmental regulations and how they will be interpreted or enforced;

● the future impact of U.K.’s exit from the European Union (the “EU”), known as Brexit, and related trade agreements between the U.K.

and the EU on our business, operations and financial condition;

● the effect of adverse weather conditions and/or other risks associated with marine operations;

● the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;

• the effectiveness of our current and future hedging activities;

● the effectiveness of our future hedging activities;

● the potential impact of a loss of one or more key employees;

● the impact of general, market, industry or business conditions.

Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described under Item 1A.

“Risk Factors” in this Quarterly Report, and Item 1A.

“Risk Factors” and Item 7.

Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K.

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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.

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

The services we offer to the oil and gas market cover the lifecycle of an offshore oil or gas field, and the services we offer to the renewable energy market are currently focused on offshore wind farm projects and cable burial operations.

Our well intervention fleet includes seven purpose-built well intervention vessels, six IRSs, three SILs and the ROAM.

Our robotics equipment includes 42 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.

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

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

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

Economic Outlook and Industry Influences

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:

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

The performance of our business is also largely affected by 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 access to global capital and capital markets;

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

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

● political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions;

● actions taken by OPEC and/or OPEC+ ;

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● the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations;

● the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community;

● the sale and expiration dates of offshore leases globally;

● governmental restrictions on oil and gas leases;

● technological advances affecting energy exploration, production, transportation and consumption;

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● weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic;

● laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement;

● environmental and other governmental regulations;

● domestic and international tax laws, regulations and policies.

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 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.

Crude oil prices historically have been volatile, which volatility has been exacerbated recently due to the ongoing COVID-19 pandemic as well as actions taken by OPEC+ nations.

Prices have since recovered to pre-COVID-19 levels, but their stability and recovery remain uncertain.

The decline in oil prices in 2020 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 offshore oil and gas 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.

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following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further volatility into our operations and/or financial results.

We saw improvements in 2019 as compared to 2018 and expected to see a continued recovery as we entered 2020.

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

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, 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.

The ongoing COVID-19 pandemic has resulted in a new 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, remains unknown, we expect that the impact of COVID-19 on the industry will continue to be felt through 2021 and possibly longer.

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 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 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 and its effects on our industry and the global economy impacted our 2020 and 2021 operating results to date.

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

We warm-stacked two of our vessels in 2020 as a result of decreased demand and government lock-downs, and the Seawell in the North Sea remains stacked to date.

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 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.

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.

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Moreover, as the subsea tree base expands and ages, the demand for P&A services should persist.

We believe that we have a competitive advantage in performing well intervention services efficiently.

Our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations.

We believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services.

Our well intervention and robotics operations are intended to service the lifecycle of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations.

We believe that we have a competitive advantage in performing well intervention services efficiently and we believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services.

This belief is based on multiple factors, including:

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and (3) in past cycles, well intervention and workover have been some of the first activities to recover, and in a prolonged market downturn are important to the commercial viability of deepwater wells.

Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and government subsidies for renewable energy projects.

We provide services and methodologies that we believe are critical to maximizing production economics.

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

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

We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions.

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 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.

As of March 31, 2021, our consolidated backlog that is supported by written agreements or contracts totaled $358 million, of which $239 million is expected to be performed over the remainder of 2021.

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.

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 78% of our total backlog as of September 30, 2020.

As of March 31, 2021, our well intervention backlog was $162 million, all of which is expected to be performed over the remainder of 2021.

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

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Well Intervention, Robotics and Production Facilities.

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

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

Non-GAAP Financial Measures

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We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense.

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

Non-cash impairment losses on goodwill and other long-lived assets and non-cash 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 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.

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

We define free cash flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets.

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):

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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

Income tax provision (benefit)

Net interest expense

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

Other (income) expense, net

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Goodwill impairment

EBITDA 53,197 67,255 120,916 149,574

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

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

General provision for current expected credit losses

Realized losses from foreign exchange contracts not designated as hedging instruments

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

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

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Free cash flow

Comparison of Three Months Ended September 30, 2020 and 2019

Comparison of Three Months Ended March 31, 2021 and 2020

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

Three Months Ended

September 30, Increase/

2020 2019 Amount Percent

Net revenues —

Well Intervention

Robotics 49,802 51,909 (2,107) (4) %

Production Facilities

Intercompany eliminations

$ 193,490 $ 212,609 $ (19,119) (9) %

Gross profit (loss) —

Well Intervention

Robotics 8,452 10,998 (2,546) (23) %

Production Facilities

Corporate, eliminations and other

$ 34,628 $ 55,074 $ (20,446) (37) %

Gross margin —

Well Intervention

Robotics 17% 21%

Production Facilities

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Robotics assets (3)

49/37% 51/44%

Chartered robotics vessels

(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.

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

(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 September 30, 2020 and 2019 included 291 and 28 spot vessel days, respectively, at near full utilization.

The average utilization rates of chartered robotics vessels during the three-month periods ended March 31, 2021 and 2020 included three and 272 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and ROVDrill.

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Three Months Ended

September 30, Increase/

Well Intervention

Robotics 7,162 7,965 (803)

$ 11,282 $ 23,283 $ (12,001)

Net Revenues.

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 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 September 30, 2020 were consistent with those for the same period in 2019.

Net Interest Expense.

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 Nine Months Ended September 30, 2020 and 2019

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

Nine Months Ended

September 30, Increase/

2020 2019 Amount Percent

Net revenues —

Well Intervention $ 427,296 $ 451,511 $ (24,215) (5) %

Robotics 135,896 136,396 (500) — %

Production Facilities 43,301 44,651 (1,350) (3) %

Intercompany eliminations (32,835) (51,398) 18,563

$ 573,658 $ 581,160 $ (7,502) (1) %

Gross profit (loss) —

Well Intervention $ 35,936 $ 84,761 $ (48,825) (58) %

Robotics 19,077 14,546 4,531 31 %

Production Facilities 12,549 13,152 (603) (5) %

Corporate, eliminations and other (1,348) (1,197) (151)

$ 66,214 $ 111,262 $ (45,048) (40) %

Gross margin —

Well Intervention 8% 19%

Robotics 14% 11%

Production Facilities 29% 29%

Total company 12% 19%

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

Well Intervention vessels 7/71% 6/88%

Robotics assets (3)

49/35% 51/42%

Chartered robotics vessels 5/93% 4/92%

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.

Intercompany segment revenues are as follows (in thousands):

Nine Months Ended

September 30, Increase/

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

Robotics 21,501 23,043 (1,542)

$ 32,835 $ 51,398 $ (18,563)

Net Revenues.

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.

Our consolidated net revenues for the three-month period ended March 31, 2021 decreased by 10% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments, offset in part by higher revenues from our Production Facilities segment.

Our Well Intervention revenues decreased by 5% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting lower vessel utilization in the North Sea and West Africa during the quarter, offset in part by higher utilization in the Gulf of Mexico.

Utilization in the Gulf of Mexico during the first quarter 2020 was lower due to our scheduled regulatory certification inspections for the Q4000 and the Q5000 .

Robotics revenues decreased by 37% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting a reduction in vessel days as well as decreased utilization of ROVs and ROVDrill, offset in part by an increase in trenching activities.

Our results included 165 vessel days and 72 trenching days during the three-month period ended March 31, 2021 as compared to 405 vessel days and 42 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 6% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas production revenues.

Gross Profit (Loss).

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 .

Our consolidated gross profit increased by $12.6 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher gross profit in our Well Intervention and Production Facilities segments, offset in part by higher gross loss in our Robotics segment.

The gross profit related to our Well Intervention segment increased by $10.0 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher revenues on the Q5000 and cost reduction efforts associated with lower utilization in the North Sea and West Africa during idle periods.

The gross loss related to our Robotics segment increased by $0.5 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting lower revenues, offset in part by lower operating costs.

The gross profit related to our Production Facilities segment increased by $3.0 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas production revenues and a reduction in direct costs.

Goodwill Impairment.

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).

The $6.7 million charge in the three-month period ended March 31, 2020 reflects the impairment of the entire goodwill balance, which related to our acquisition of a controlling interest in STL (Note 10).

Selling, General and Administrative Expenses.

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.

Our selling, general and administrative expenses were $15.2 million for the three-month period ended March 31, 2021 as compared to $16.3 million for the same period in 2020, primarily reflecting lower credit loss reserves and lower employee compensation costs.

Net Interest Expense.

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 $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.

Our net interest expense totaled $6.1 million for the three-month period ended March 31, 2021 as compared to $5.7 million for the same period in 2020, 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 March 31, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).

Other Income (Expense), Net.

Net other income was $1.6 million for the three-month period ended March 31, 2021 as compared to net other expense of $10.4 million for the same period in 2020, primarily reflecting foreign currency transaction gains due to the strengthening of the British pound.

Income Tax Provision (Benefit).

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).

Income tax provision was $0.1 million for the three-month period ended March 31, 2021 as compared to an income tax benefit of $21.1 million for the same period in 2020.

The effective tax rates for the three-month periods ended March 31, 2021 and 2020 were (4.0)% and 60.2%, respectively.

The decrease in the effective tax rate was primarily attributable to the absence of tax benefits derived from the CARES Act recorded in the same period last year, which included the carrying back of 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 and the earnings mix between our higher and lower tax rate jurisdictions (Note 6).

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,

Net working capital (1)

Long-term debt (1)

283,545 306,122

Liquidity (2)

404,007 379,533

(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.

Long-term debt is also net of unamortized debt discounts and debt issuance costs.

See Note 7 for information relating to our long-term debt.

(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 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).

(1) Current maturities of our long-term debt of $36.5 million and $90.7 million, respectively, are included in net working capital and excluded from long-term debt.

Long-term debt as of March 31, 2021 is net of unamortized debt issuance costs.

Long-term debt as of December 31, 2020 is net of unamortized debt discounts and debt issuance costs.

See Note 5 for information relating to our long-term debt, including the impact of our adoption of ASU No.

(2) Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under the Revolving Credit Facility.

Our liquidity at March 31, 2021 included cash and cash equivalents of $204.8 million and $172.2 million of available borrowing capacity under the Revolving Credit Facility (Note 5).

Our liquidity at March 31, 2021 excluded $65.6 million of restricted cash securing a project related letter of credit (short-term), the restriction from which is expected to be released upon completion of the project.

Our liquidity at December 31, 2020 included cash and cash equivalents of $291.3 million and $160.2 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,

The carrying amounts of our long-term debt are as follows (in thousands):

Term Loan (matures December 2021)

Nordea Q5000 Loan (matures January 2021) 62,341 89,031

Nordea Q5000 Loan (matured January 2021) (1)

MARAD Debt (matures February 2027)

2022 Notes (mature May 2022) (2)

33,205 115,765

2023 Notes (mature September 2023) (2)

26,669 108,115

2026 Notes (mature February 2026) (2)

Total debt (3)

(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.

Less current maturities

Long-term debt

(1) The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5).

(2) As a result of the adoption of ASU No.

2020-06 beginning January 1, 2021, there is no longer any debt discount associated with the 2022 Notes, the 2023 Notes and the 2026 Notes (Note 1) .

(3) Amounts include current maturities and are net of any unamortized debt discounts and debt issuance costs .

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

Nine Months Ended

September 30,

Three Months Ended

Cash provided by (used in):

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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 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.

The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted 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 replace those revenues or reduce costs.

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.

We have reduced, deferred or cancelled certain planned capital expenditures and reduced our overall cost structure commensurate with our level of activities.

In 2020, we extended our debt maturity profile with refinancing a portion of our 2022 Notes and 2023 Notes in favor of the 2026 Notes.

Notwithstanding, we have at the same time continued to de-lever our balance sheet with the repayment of our Nordea Q5000 Loan in January 2021.

We have reduced operating costs through various measures including warm stacking our vessels when idle.

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.

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.

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

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 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.

The ongoing COVID-19 pandemic and its impact on the energy and financial markets have 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 yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes.

The COVID-19 pandemic has also contributed to limited access to certain capital markets.

An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt, and our failure to comply with these covenants and other restrictions could lead to an event of default.

Current global and market conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we secure a replacement of, or our lenders’ willingness to continue to participate in, our credit facility, which expires December 2021.

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

At March 31, 2021, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.2 million, net of $2.8 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.

Operating Cash Flows

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.

Net cash flows provided by operating activities were $39.9 million for the three-month period ended March 31, 2021 as compared to net cash flows used by operating activities of $17.2 million for the same period in 2020.

The $57.1 million increase in operating cash flows primarily reflects lower operating loss and decreases in working capital.

Investing Activities

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

Nine Months Ended

September 30,

Three Months Ended

Capital expenditures:

Well Intervention

Robotics (255) (388)

Production Facilities

Other (449) (802)

STL acquisition, net — (4,081)

Proceeds from sale of assets 938 2,550

Net cash used in investing activities

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

Our capital expenditures during the three-month period ended March 31, 2020 primarily included payments associated with the construction and completion of the Q7000 , which 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 $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.

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

Net cash outflows from financing activities of $59.9 million for the three-month period ended March 31, 2021 primarily reflect the repayment of $58.2 million of scheduled maturities related to our indebtedness, including the final maturity of $53.6 million of our Nordea Q5000 Loan (Note 5).

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 5).

Free Cash Flow

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 increased by $68.2 million for the three-month period ended March 31, 2021 as compared to the same period in 2020.

The increase was primarily attributable to the increase in operating cash flows and the decrease in capital expenditures.

Free cash flow is a non-GAAP financial measure.

See “RESULTS OF OPERATIONS” above for the definition and calculation of free cash flow.

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

Contractual Obligations and Commercial Commitments

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

Term Loan $ 30,625 $ 3,500 $ 27,125 $ — $ —

Nordea Q5000 Loan 62,500 62,500 — — —

MARAD Debt 56,410 7,560 16,270 17,935 14,645

The following table summarizes our contractual cash obligations as of March 31, 2021 and the scheduled years in which the obligations are contractually due (in thousands):

2022 Notes (2)

35,000 — 35,000 — —

2023 Notes (3)

30,000 — 30,000 — —

2026 Notes (4)

200,000 — — — 200,000

Interest related to debt (5)

91,636 21,640 34,903 29,421 5,672

Property and equipment

Operating leases (6)

283,242 94,976 163,877 20,363 4,026

Total cash obligations

(1) Excludes unsecured letters of credit outstanding at September 30, 2020 totaling $3.4 million.

(1) Excludes unsecured letters of credit outstanding at March 31, 2021 totaling $2.8 million.

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

(2) Notes mature in May 2022.

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

See Note 5 for additional information.

(3) Notes mature in September 2023.

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

See Note 5 for additional information.

(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 5 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.

(5) Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at March 31, 2021 for variable rate debt.

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

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.

At March 31, 2021, our commitment related to long-term vessel charters totaled approximately $215.8 million, of which $86.9 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, 2021.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our discussion and analysis of our financial condition and results of operations, as reflected in the accompanying condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP.

Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP.

As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

3 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