What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-22 compared with 2021-07-28 · 120 added, 101 removed, 259 unchanged (46% of the section changed)

37 unchanged sentences

● 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 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 impact of current and future laws and governmental regulations and how they will be interpreted or enforced, including related to litigation and similar claims in which we may be involved;

● the future impact of international activity such as the U.K.’s exit from the European Union, known as Brexit, and trade agreements on our business, operations and financial condition;

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

22 unchanged sentences

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;

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

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

6 unchanged sentences

● 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 Environmental, Social and Governance (“ESG”) 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;

7 unchanged sentences

● domestic and international tax laws, regulations and policies.

Crude oil prices historically have been volatile, which 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 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.

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

Prices have recovered their losses from 2020 and are at their highest levels since 2014, but their stability remains uncertain.

The decline in oil prices in 2020 and the overall volatility and uncertainty in prices, in addition to the shift in resource allocation to renewable energy, 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.

1 unchanged sentence

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.

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.

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 our industry will continue to be felt through 2021 and possibly longer.

The uncertainty and other conditions of the current environment have made it more difficult for us to renew or secure long-term contracts for our vessels and systems, as operators have been less willing to commit to future spending.

Furthermore, additional volatile and uncertain macroeconomic conditions as well as ESG initiatives in some regions and countries around the world 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.

The ongoing COVID-19 pandemic has resulted in a new period of market weakness and challenges to us.

While the full impact of the COVID-19 pandemic, including the duration of its negative impact on economic activity, remains unknown, we expect that the impact of COVID-19 on our industry will continue to be felt through 2021 and possibly longer.

The uncertainty and other conditions of the current environment have resulted in challenges to renew or secure long-term contracts for our vessels and systems, as operators have been 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 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.

The COVID-19 pandemic and its effects on our industry and the global economy have impacted our 2020 and 2021 operating results to date.

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

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.

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

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

As oil and gas companies evaluate their budgetary spend allocations, we expect that they may be weighted towards production enhancement of existing wells rather than new exploration projects as enhancement is less expensive per incremental barrel of oil than exploration.

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

Our well intervention and robotics operations service the lifecycle of an oil and gas field and 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:

(1) the need to extend the life of subsea wells is significant to the commercial viability of the wells as P&A costs are considered;

(2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells;

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.

Our well intervention and robotics operations service the lifecycle of an oil and gas field and provide P&A services at the end of the life of a field as required by governmental regulations, and we believe that we have a competitive advantage in performing well intervention services efficiently.

We expect the fundamentals for our business will 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 expectation is based on multiple factors, including (1) maintaining the optimal production of a well through enhancement is fundamental to maximizing the overall economics of well production;

(2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling;

and (3) extending the production of offshore wells not only maximizes a well’s production economics but also enables the financial benefit of delaying P&A costs, which can be substantial.

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.

3 unchanged sentences

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

As of June 30, 2021, our consolidated backlog that is supported by written agreements or contracts totaled $291 million, of which $153 million is expected to be performed over the remainder of 2021.

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 51% of our total backlog as of June 30, 2021.

As of September 30, 2021, our consolidated backlog that is supported by written agreements or contracts totaled approximately $231 million, of which $69 million is expected to be performed over the remainder of 2021.

Our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 2 chartered vessel and our fixed fee agreement for the HP I represent approximately 43% of our total backlog as of September 30, 2021.

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

11 unchanged sentences

Users of this financial information should consider the types of events and transactions that are excluded from these measures.

We measure our operating performance based on EBITDA and free cash flow.

EBITDA and free cash flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP.

We use EBITDA and free cash flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants.

We believe that our measures of EBITDA and free cash flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures.

We measure our operating performance based on EBITDA, Adjusted EBITDA and free cash flow.

EBITDA, Adjusted EBITDA and free cash flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP.

We use EBITDA, Adjusted EBITDA and free cash flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants.

We believe that our measures of EBITDA, Adjusted EBITDA and free cash flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures.

Other companies may calculate their measures of EBITDA, Adjusted EBITDA and free cash flow differently from the way we do, which may limit their usefulness as comparative measures.

2 unchanged sentences

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.

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

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.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss)

Income tax benefit

Income tax provision (benefit)

Net interest expense

(Gain) loss on extinguishment of long-term debt

Other (income) expense, net

6 unchanged sentences

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

1 unchanged sentence

Free cash flow

Comparison of Three Months Ended June 30, 2021 and 2020

Comparison of Three Months Ended September 30, 2021 and 2020

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

Three Months Ended

September 30,

Net revenues —

16 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, 2021 and 2020 included 61 and 342 spot vessel days, respectively, at near full utilization.

The average utilization rates of chartered robotics vessels during the three-month periods ended September 30, 2021 and 2020 included 176 and 291 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and ROVDrill.

2 unchanged sentences

Three Months Ended

September 30,

Well Intervention

Net Revenues.

Our consolidated net revenues for the three-month period ended June 30, 2021 decreased by 19% 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 9% for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting lower vessel utilization and rates due to the completion of our long-term contract on the Q5000 in the Gulf of Mexico and our short-term extension at lower rates on the Siem Helix 1 in Brazil during the quarter, offset in part by higher utilization on the Q7000 in Nigeria.

Our Robotics revenues decreased by 38% for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting fewer vessel days due to a significant drop in spot vessel days attributable to site clearance projects in the North Sea as well as a reduction in trenching activities.

Our results included 236 vessel days and 84 trenching days during the three-month period ended June 30, 2021 as compared to 499 vessel days and 119 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 5% for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues from the new HFRS agreement that went into effect on April 1, 2021, offset in part by lower oil and gas production.

Our consolidated net revenues for the three-month period ended September 30, 2021 decreased by 7% 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 7% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower rates and vessel utilization in the Gulf of Mexico and Brazil, offset in part by higher utilization in the North Sea and on the Q7000 in West Africa.

Our revenues in the Gulf of Mexico and Brazil were negatively impacted by the completion of our long-term contracts on the Q5000 during the second quarter 2021 and the Siem Helix 1 during the third quarter 2021.

Our revenues in the North Sea and West Africa benefitted from utilization on the Seawell and the Q7000 , both of which were stacked during the three-month period ended September 30, 2020.

Our Robotics revenues decreased by 14% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting fewer vessel days, including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities.

Our results included 358 vessel days and 90 trenching days during the three-month period ended September 30, 2021 as compared to 450 vessel days and 154 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 31% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas prices, higher production volumes from our wells and higher revenues from the HFRS agreement.

Gross Profit (Loss).

Our consolidated gross profit decreased by $26.4 million for the three-month period ended June 30, 2021 as compared to the same period in 2020, 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 $17.8 million for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues as well as higher costs associated with our increased activity in the North Sea and West Africa, offset in part by cost reduction efforts in the Gulf of Mexico associated with lower utilization during the current quarter.

The gross profit related to our Robotics segment decreased by $8.8 million for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects, offset in part by lower operating costs.

The gross profit related to our Production Facilities segment increased by $1.4 million for the three-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting higher HFRS revenues and a reduction in direct costs.

Our consolidated gross profit decreased by $31.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.

Our Well Intervention segment had a gross loss of $9.6 million for the three-month period ended September 30, 2021 as compared to a gross profit of $21.9 million for the same period in 2020, primarily reflecting lower segment revenues as well as higher costs associated with our activity in West Africa, which resumed in the first quarter 2021.

The gross profit related to our Robotics segment decreased by $1.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects.

The gross profit related to our Production Facilities segment increased by $0.8 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues during the current quarter.

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses were $13.4 million for the three-month period ended June 30, 2021 as compared to $15.9 million for the same period in 2020, primarily reflecting lower credit loss reserves.

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 14).

Our selling, general and administrative expenses were $13.3 million for the three-month period ended September 30, 2021 as compared to $16.1 million for the same period in 2020, primarily reflecting lower employee compensation costs.

Net Interest Expense.

Our net interest expense totaled $5.9 million for the three-month period ended June 30, 2021 as compared to $7.1 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with our 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No.

Our net interest expense totaled $5.9 million for the three-month period ended September 30, 2021 as compared to $7.6 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No.

2020-06 beginning January 1, 2021 (Note 5).

Gain (Loss) on Extinguishment of Long-Term Debt.

The $0.1 million loss on extinguishment of long-term debt for the three-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facility (Note 5).

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.

Other Income (Expense), Net.

Net other income was $1.0 million for the three-month period ended June 30, 2021 as compared to net other expense of $2.1 million for the same period in 2020, primarily reflecting foreign currency transaction gains due to the strengthening of the British pound.

Income Tax Benefit.

Income tax benefit was $2.0 million for the three-month period ended June 30, 2021 as compared to $0.3 million for the same period in 2020.

The effective tax rates for the three-month periods ended June 30, 2021 and 2020 were 12.6% and (5.2)%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act in 2020 (Note 6).

Comparison of Six Months Ended June 30, 2021 and 2020

Net other expense was $4.0 million for the three-month period ended September 30, 2021 primarily due to foreign currency transaction losses reflecting the weakening of the British pound.

Net other income was $8.8 million for the same period in 2020 primarily due to foreign currency transaction gains reflecting the strengthening of the British pound.

Income Tax Provision (Benefit).

Income tax benefit was $1.1 million for the three-month period ended September 30, 2021 as compared to a $5.2 million provision for the same period in 2020.

The effective tax rates for the three-month periods ended September 30, 2021 and 2020 were 5.3% and 17.6%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act in 2020 (Note 6).

Comparison of Nine Months Ended September 30, 2021 and 2020

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

Six Months Ended

Nine Months Ended

September 30,

Net revenues —

16 unchanged sentences

The average utilization rates of chartered robotics vessels during the six-month periods ended June 30, 2021 and 2020 included 64 and 614 spot vessel days, respectively, at near full utilization.

The average utilization rates of chartered robotics vessels during the nine-month periods ended September 30, 2021 and 2020 included 240 and 905 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and ROVDrill.

1 unchanged sentence

Intercompany segment revenues are as follows (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Well Intervention

Net Revenues.

Our consolidated net revenues for the six-month period ended June 30, 2021 decreased by 14% 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 7% for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting lower vessel utilization in the North Sea, lower utilization on the Q4000 and lower rates on the Q5000 in the Gulf of Mexico, and our short-term extension at lower rates on the Siem Helix 1 in Brazil in 2021, offset in part by higher utilization on the Q7000 in Nigeria.

Robotics revenues decreased by 38% for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting fewer vessel days due to a significant drop in spot vessel days attributable to site clearance projects in the North Sea as well as decreased utilization of ROVs and ROVDrill, offset in part by an increase in trenching activities.

Our results included 401 vessel days and 156 trenching days during the six-month period ended June 30, 2021 as compared to 904 vessel days and 161 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 5% for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting higher HFRS revenues and oil and gas production.

Our consolidated net revenues for the nine-month period ended September 30, 2021 decreased by 12% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments and higher intercompany eliminations, offset in part by higher revenues from our Production Facilities segment.

Our Well Intervention revenues decreased by 7% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower rates on the Q5000 and lower rates and utilization on the Q4000 in the Gulf of Mexico as well as lower rates and utilization on the Siem Helix 1 in Brazil.

These revenue decreases were offset in part by higher rates and utilization on the Seawell in the North Sea and on the Q7000 in West Africa, both of which were stacked for most of the first nine months in 2020.

Our Robotics revenues decreased by 29% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, reflecting fewer vessel days, including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities.

Our results included 759 vessel days and 246 trenching days during the nine-month period ended September 30, 2021 as compared to 1,353 vessel days and 315 trenching days during the same period in 2020.

Our Production Facilities revenues increased by 14% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher HFRS revenues, higher oil and gas prices and higher production volumes from our wells.

The increase in intercompany eliminations was primarily attributable to higher elimination of revenues that our Well Intervention segment earned associated with its P&A work on our Droshky oil and gas properties on behalf of our Production Facilities segment during the nine-month period ended September 30, 2021.

Gross Profit (Loss).

Our consolidated gross profit decreased by $13.8 million for the six-month period ended June 30, 2021 as compared to the same period in 2020, 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 $7.8 million for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting higher costs associated with our increased activity in the North Sea and West Africa, offset in part by our overall cost reduction efforts.

The gross profit related to our Robotics segment decreased by $9.3 million for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects, offset in part by lower operating costs.

The gross profit related to our Production Facilities segment increased by $4.4 million for the six-month period ended June 30, 2021 as compared to the same period in 2020, primarily reflecting higher HFRS revenues, higher oil and gas production revenues and a reduction in direct costs.

Our consolidated gross profit decreased by $45.5 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.

Our Well Intervention segment had a gross loss of $3.4 million for the nine-month period ended September 30, 2021 as compared to a gross profit of $35.9 million for the same period in 2020, primarily reflecting lower segment revenues as well as higher costs associated with our resumed activity in West Africa during the current period.

The gross profit related to our Robotics segment decreased by $10.8 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects.

The gross profit related to our Production Facilities segment increased by $5.2 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues during the current period.

Goodwill Impairment.

The $6.7 million charge in the six-month period ended June 30, 2020 reflects the impairment of the entire goodwill balance, which related to our acquisition of a controlling interest in STL (Note 10).

The $6.7 million charge in the nine-month period ended September 30, 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 were $28.6 million for the six-month period ended June 30, 2021 as compared to $32.2 million for the same period in 2020, primarily reflecting lower credit loss reserves.

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 14).

Our selling, general and administrative expenses were $42.0 million for the nine-month period ended September 30, 2021 as compared to $48.3 million for the same period in 2020, primarily reflecting lower credit loss reserves and employee compensation costs.

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 14).

Net Interest Expense.

Our net interest expense totaled $12.0 million for the six-month period ended June 30, 2021 as compared to $12.8 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with our 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No.

Our net interest expense totaled $17.9 million for the nine-month period ended September 30, 2021 as compared to $20.4 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No.

2020-06 beginning January 1, 2021 (Note 5), offset in part by the cessation of interest capitalization with the completion of the Q7000 in 2020.

Net interest expense for the six-month period ended June 30, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).

Other Income (Expense), Net.

Net other income was $2.6 million for the six-month period ended June 30, 2021 as compared to net other expense of $12.5 million for the same period in 2020, primarily reflecting foreign currency transaction gains due to the strengthening of the British pound.

Net interest expense for the nine-month period ended September 30, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).

Gain (Loss) on Extinguishment of Long-Term Debt.

The $0.1 million loss on extinguishment of long-term debt for the nine-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facility (Note 5).

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.

Other Expense, Net.

Net other expense was $1.4 million for the nine-month period ended September 30, 2021 as compared to $3.7 million for the same period in 2020 primarily due to foreign currency transaction losses reflecting the weakening of the British pound in each of those periods.

Income Tax Benefit.

Income tax benefit was $1.9 million for the six-month period ended June 30, 2021 as compared to an income tax benefit of $21.4 million for the same period in 2020.

The effective tax rates for the six-month periods ended June 30, 2021 and 2020 were 10.0% and 71.6%, respectively.

The decrease in the effective tax rate was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act and the foreign subsidiary restructuring in 2020 (Note 6).

Income tax benefit was $2.9 million for the nine-month period ended September 30, 2021 as compared to $16.1 million for the same period in 2020.

The effective tax rates for the nine-month periods ended September 30, 2021 and 2020 were 7.5% and 9,777.0%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act and the foreign subsidiary restructuring in 2020 (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,

Net working capital (1)

2 unchanged sentences

(1) Current maturities of our long-term debt of $42.8 million and $90.7 million, respectively, are included in net working capital and excluded from long-term debt.

Long-term debt as of June 30, 2021 is net of unamortized debt issuance costs.

Long-term debt as of September 30, 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 June 30, 2021 included $243.9 million of cash and cash equivalents and $172.3 million of available borrowing capacity under the Revolving Credit Facility (Note 5).

Our liquidity at June 30, 2021 excluded $71.3 million of restricted cash securing a short-term project related letter of credit, the restriction from which is expected to be released upon completion of the project.

(2) Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under our credit facility.

Our liquidity at September 30, 2021 included $237.5 million of cash and cash equivalents and $69.6 million of available borrowing capacity under the ABL Facility (Note 5).

Our liquidity at September 30, 2021 excluded $71.3 million of restricted cash securing a short-term project related letter of credit, the restriction from which is expected to be released upon completion of the project.

Our liquidity at December 31, 2020 included $291.3 million of cash and cash equivalents and $160.2 million of available borrowing capacity under the Revolving Credit Facility.

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

Term Loan (matures December 2021)

September 30,

Term Loan (repaid September 2021) (1)

Nordea Q5000 Loan (matured January 2021) (2)

6 unchanged sentences

Long-term debt

(1) The Term Loan was fully repaid in September 2021 concurrent with our entering into the ABL Facility (Note 5).

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

(3) 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 .

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

(4) Amounts 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):

Six Months Ended

Nine Months Ended

September 30,

Cash provided by (used in):

7 unchanged sentences

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.

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

We have at the same time continued to de-lever our balance sheet with the repayment of the Nordea Q5000 Loan in January 2021 and the Term Loan in September 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.

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

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.

2 unchanged sentences

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 June 30, 2021, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.3 million, net of $2.7 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.

Current global and market conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we are able to secure financing.

Decreases in our borrowing base may limit our ability to fully access the ABL Facility.

At September 30, 2021, our available borrowing capacity under the ABL Facility was $69.6 million, net of $2.2 million of letters of credit issued under that facility.

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

Operating Cash Flows

Net cash flows provided by operating activities were $92.5 million for the six-month period ended June 30, 2021 as compared to $6.0 million for the same period in 2020.

The increase in operating cash flows primarily reflects improvements in working capital, lower recertification and dry dock costs, and higher income tax refunds in 2021.

Net cash flows provided by operating activities were $121.3 million for the nine-month period ended September 30, 2021 as compared to $58.6 million for the same period in 2020.

The increase in operating cash flows primarily reflects improvements in working capital, lower recertification and dry dock costs, and the receipt in 2021 of $18.9 million in income tax refunds related to the CARES Act.

Investing Activities

1 unchanged sentence

Capital expenditures also include interest on property and equipment under development.

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

Six Months Ended

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

Nine Months Ended

September 30,

Capital expenditures:

3 unchanged sentences

Net cash used in investing activities

Our capital expenditures during the six-month period ended June 30, 2020 primarily included payments associated with the construction and completion of the Q7000 , which commenced operations in January 2020.

Our capital expenditures during the nine-month period ended September 30, 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 and repayments related to our long-term debt.

Net cash outflows from financing activities of $62.8 million for the six-month period ended June 30, 2021 primarily reflect the repayment of $59.1 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 $28.1 million for the six-month period ended June 30, 2020 primarily reflect the repayment of $23.2 million of our indebtedness (Note 5).

Net cash outflows from financing activities of $95.7 million for the nine-month period ended September 30, 2021 primarily reflect the repayment of $90.9 million related to our indebtedness, including the final maturity of $53.6 million of the Nordea Q5000 Loan and $28.0 million in full repayment of the Term Loan (Note 5).

Net cash outflows from financing activities of $42.0 million for the nine-month period ended September 30, 2020 primarily reflect the repayment of $36.6 million of our indebtedness and entry into the 2026 Capped Calls as well as the repurchase of a portion of the 2022 Notes and 2023 Notes with proceeds from the issuance of the 2026 Notes (Note 5).

Free Cash Flow

Free cash flow increased by $96.8 million for the six-month period ended June 30, 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 increased by $73.5 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020.

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

Free cash flow is a non-GAAP financial measure.

1 unchanged sentence

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual cash obligations as of June 30, 2021 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, 2021 and the scheduled years in which the obligations are contractually due (in thousands):

2022 Notes (2)

5 unchanged sentences

Total cash obligations

(1) Excludes unsecured letters of credit outstanding at June 30, 2021 totaling $2.7 million.

(1) Excludes unsecured letters of credit outstanding at September 30, 2021 totaling $2.2 million.

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

5 unchanged sentences

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 June 30, 2021 for variable rate debt.

(5) Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at September 30, 2021 for variable rate debt.

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

At June 30, 2021, our commitment related to long-term vessel charters totaled approximately $195.3 million, of which $79.9 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 June 30, 2021.

At September 30, 2021, our commitment related to long-term vessel charters totaled approximately $180.3 million, of which $73.4 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, 2021.

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