|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
|
Percentage
|
|
2020
|
|
2019
|
|
Change
|
|
Percentage
|
Average Canadian dollar to U.S. dollar
|
$0.751
|
|
$0.757
|
|
(0.01)
|
|
(0.8)%
|
|
$0.739
|
|
$0.752
|
|
($0.01)
|
|
(1.7)%
|
Average Australian dollar to U.S. dollar
|
$0.716
|
|
$0.686
|
|
0.03
|
|
4.3%
|
|
$0.677
|
|
$0.699
|
|
($0.02)
|
|
(3.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Change
|
|
Percentage
|
Canadian dollar to U.S. dollar
|
$0.750
|
|
$0.770
|
|
(0.02)
|
|
(2.6)%
|
Australian dollar to U.S. dollar
|
$0.716
|
|
$0.702
|
|
0.01
|
|
1.9%
|
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
Capital Expenditures. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities. In April 2020, we revised downward our 2020 capital expenditure plans and we currently expect that our 2020 capital expenditures, exclusive of any expansionary spending, which is contingent on obtaining customer contracts, will total less than $15 million, compared to 2019 capital expenditures of $29.8 million. We may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19. See “Liquidity and Capital Resources” below for further discussion of 2020 capital expenditures.
Results of Operations
Unless otherwise indicated, discussion of results for the three and nine months ended September 30, 2020, is based on a comparison to the corresponding period of 2019.
Results of Operations – Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
($ in thousands)
|
Revenues
|
|
|
|
|
|
Canada
|
$
|
71,785
|
|
|
$
|
91,071
|
|
|
$
|
(19,286)
|
|
Australia
|
64,685
|
|
|
47,743
|
|
|
16,942
|
|
U.S. and other
|
6,387
|
|
|
9,349
|
|
|
(2,962)
|
|
Total revenues
|
142,857
|
|
|
148,163
|
|
|
(5,306)
|
|
Costs and expenses
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
Canada
|
51,393
|
|
|
62,277
|
|
|
(10,884)
|
|
Australia
|
38,529
|
|
|
28,664
|
|
|
9,865
|
|
U.S. and other
|
7,512
|
|
|
8,539
|
|
|
(1,027)
|
|
Total cost of sales and services
|
97,434
|
|
|
99,480
|
|
|
(2,046)
|
|
Selling, general and administrative expenses
|
13,462
|
|
|
14,334
|
|
|
(872)
|
|
Depreciation and amortization expense
|
24,820
|
|
|
31,196
|
|
|
(6,376)
|
|
Impairment expense
|
—
|
|
|
—
|
|
|
—
|
|
Other operating income
|
51
|
|
|
277
|
|
|
(226)
|
|
Total costs and expenses
|
135,767
|
|
|
145,287
|
|
|
(9,520)
|
|
Operating income
|
7,090
|
|
|
2,876
|
|
|
4,214
|
|
|
|
|
|
|
|
Interest expense and income, net
|
(4,029)
|
|
|
(7,298)
|
|
|
3,269
|
|
Other income
|
4,542
|
|
|
2,849
|
|
|
1,693
|
|
Income (loss) before income taxes
|
7,603
|
|
|
(1,573)
|
|
|
9,176
|
|
Income tax (expense) benefit
|
(180)
|
|
|
6,629
|
|
|
(6,809)
|
|
Net income
|
7,423
|
|
|
5,056
|
|
|
2,367
|
|
Less: Net income attributable to noncontrolling interest
|
434
|
|
|
60
|
|
|
374
|
|
Net income attributable to Civeo Corporation
|
6,989
|
|
|
4,996
|
|
|
1,993
|
|
Less: Dividends attributable to preferred shares
|
472
|
|
|
464
|
|
|
8
|
|
Net income attributable to Civeo common shareholders
|
$
|
6,517
|
|
|
$
|
4,532
|
|
|
$
|
1,985
|
|
We reported net income attributable to Civeo for the quarter ended September 30, 2020 of $6.5 million, or $0.03 per diluted share.
We reported net income attributable to Civeo for the quarter ended September 30, 2019 of $4.5 million, or $0.02 per diluted share. As further discussed below, net income included a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.
Revenues. Consolidated revenues decreased $5.3 million, or 4%, in the third quarter of 2020 compared to the third quarter of 2019. This decrease was primarily due to lower revenue in Canada resulting from lower occupancy at oil sands lodges related to the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and a weaker Canadian dollar relative to the U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019 contributed to decreased revenues. These items were partially offset by (i) higher revenues in Australia due to increased activity at the Action villages and increased occupancy at our Bowen Basin villages, (ii) higher revenue in Canada due to increased mobile camp activity from a pipeline project and an increase from food service activity, (iii) increased activity in our offshore rental business in the U.S. and (iv) a stronger Australian dollar relative to the U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services decreased $2.0 million, or 2%, in the third quarter of 2020 compared to the third quarter of 2019. This decrease was primarily due to lower cost of sales and services in Canada resulting from lower occupancy at oil sands lodges related to the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and a weaker Canadian dollar relative to the U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019 contributed to decreased cost of sales and services. These items were partially offset by increased cost of sales and services due to (i) increased activity at the Action villages and increased occupancy at our Bowen Basin villages in Australia, (ii) increased mobile camp activity and the implementation of enhanced COVID-19 measures in Canada, (iii) increased activity in our offshore rental business in the U.S. and (iv) a stronger Australian dollar relative to the U.S. dollar in the third quarter of 2020 compared to the third quarter of 2019. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $0.9 million, or 6%, in the third quarter of 2020 compared to the third quarter of 2019. This decrease was primarily due to reduced compensation as a result of workforce reductions, lower share-based compensation expense, lower professional fees and lower travel and entertainment expenses, partially offset by higher incentive compensation costs. The decrease in share-based compensation was due to a reduction in the amount of restricted share and performance share awards outstanding and the reduction in our stock price associated with phantom share awards during the third quarter of 2020 compared to the third quarter of 2019.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $6.4 million, or 20%, in the third quarter of 2020 compared to the third quarter of 2019. The decrease was primarily due to (i) certain assets becoming fully depreciated during 2019, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019 and (iii) the impairment of certain long-lived assets in Canada and the U.S. during the first quarter of 2020. These items were partially offset by additional intangible amortization expense related to the acceleration of the Action trade name in Australia.
Operating Income. Consolidated operating income increased $4.2 million, or 147%, in the third quarter of 2020 compared to the third quarter of 2019, primarily due to lower depreciation and amortization expense, lower SG&A expense and increased activity levels in Australia, partially offset by decreased activity levels in Canada and U.S. markets.
Interest Expense and Income, net. Net interest expense decreased by $3.3 million, or 45%, in the third quarter of 2020 compared to the third quarter of 2019, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019, partially offset by increases from the 2020 write-off of debt issuance costs associated with the Amended Credit Agreement.
Other Income. Consolidated other income increased $1.7 million, or 59%, in the third quarter of 2020 compared to the third quarter of 2019, primarily due to $3.6 million of other income related to proceeds from the CEWS, partially offset by a lower gain on sale of assets in 2020 compared to 2019. The third quarter of 2019 included a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.
Income Tax (Expense) Benefit. Our income tax expense for the three months ended September 30, 2020 totaled $0.2 million, or 2.4% of pretax income, compared to a income tax benefit of $6.6 million, or 421.4% of pretax loss, for the three months ended September 30, 2019. Our effective tax rate for the three months ended September 30, 2020 was impacted by tax expense of $0.1 million related to foreign withholding and U.S. state income taxes. Our effective tax rate for the three months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action. Under ASC 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year-to-date provision.
Other Comprehensive Income (Loss). Other comprehensive income increased $23.2 million in the third quarter of 2020 compared to the third quarter of 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar increased 2% in the third quarter of 2020 compared to a 1% decrease in the third quarter of 2019. The Australian dollar exchange rate compared to the U.S. dollar increased 4% in the third quarter of 2020 compared to a 4% decrease in the third quarter of 2019.
Segment Results of Operations – Canadian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
49,798
|
|
|
$
|
79,939
|
|
|
$
|
(30,141)
|
|
Mobile facility rental revenue (2)
|
13,135
|
|
|
3,048
|
|
|
10,087
|
|
Food service and other services revenue (3)
|
8,852
|
|
|
8,084
|
|
|
768
|
|
Manufacturing revenue (4)
|
—
|
|
|
—
|
|
|
—
|
|
Total revenues
|
$
|
71,785
|
|
|
$
|
91,071
|
|
|
$
|
(19,286)
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
32,490
|
|
|
$
|
49,377
|
|
|
$
|
(16,887)
|
|
Mobile facility rental cost
|
8,557
|
|
|
2,059
|
|
|
6,498
|
|
Food service and other services cost
|
7,595
|
|
|
7,319
|
|
|
276
|
|
Manufacturing cost
|
164
|
|
|
150
|
|
|
14
|
|
Indirect other costs
|
2,587
|
|
|
3,372
|
|
|
(785)
|
|
Total cost of sales and services
|
$
|
51,393
|
|
|
$
|
62,277
|
|
|
$
|
(10,884)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
28.4
|
%
|
|
31.6
|
%
|
|
(3.2)
|
%
|
|
|
|
|
|
|
Average daily rate for lodges (5)
|
$
|
96
|
|
|
$
|
91
|
|
|
$
|
5
|
|
|
|
|
|
|
|
Total billed rooms for lodges (6)
|
508,449
|
|
|
875,891
|
|
|
(367,442)
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
$
|
0.751
|
|
|
$
|
0.757
|
|
|
$
|
(0.01)
|
|
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile camps for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)Billed rooms represent total billed days for the periods presented.
Our Canadian segment reported revenues in the third quarter of 2020 that were $19.3 million, or 21%, lower than the third quarter of 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 1% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $0.8 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 21% decrease in revenues. This decrease was driven by lower occupancy at oil sands lodges, where billed rooms were down 42% year-over-year. This decrease was related to the COVID-19 pandemic and lower oil prices. Partially offsetting this was increased mobile camp activity from a pipeline project.
Our Canadian segment cost of sales and services decreased $10.9 million, or 17%, in the third quarter of 2020 compared to the third quarter of 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 1% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $0.5 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by lower occupancy at our oil sands lodges. This decrease was related to the COVID-19 pandemic and lower oil prices. Additionally, lower costs resulted from reduced indirect other costs due to a continued focus on cost containment and
operational efficiencies, partially offset by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic and increased mobile camp activity.
Our Canadian segment gross margin as a percentage of revenues decreased from 31.6% in the third quarter of 2019 to 28.4% in the third quarter of 2020. This was primarily driven by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.
Segment Results of Operations – Australian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
39,470
|
|
|
$
|
33,056
|
|
|
$
|
6,414
|
|
Food service and other services revenue (2)
|
25,215
|
|
|
$
|
14,687
|
|
|
$
|
10,528
|
|
Total revenues
|
$
|
64,685
|
|
|
$
|
47,743
|
|
|
$
|
16,942
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
16,401
|
|
|
$
|
14,954
|
|
|
$
|
1,447
|
|
Food service and other services cost
|
21,161
|
|
|
12,807
|
|
|
8,354
|
|
Indirect other cost
|
967
|
|
|
903
|
|
|
64
|
|
Total cost of sales and services
|
$
|
38,529
|
|
|
$
|
28,664
|
|
|
$
|
9,865
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
40.4
|
%
|
|
40.0
|
%
|
|
0.5
|
%
|
|
|
|
|
|
|
Average daily rate for villages (3)
|
$
|
77
|
|
|
$
|
73
|
|
|
$
|
4
|
|
|
|
|
|
|
|
Total billed rooms for villages (4)
|
513,587
|
|
|
454,859
|
|
|
58,728
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
$
|
0.716
|
|
|
$
|
0.686
|
|
|
$
|
0.03
|
|
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for the periods presented.
Our Australian segment reported revenues in the third quarter of 2020 that were $16.9 million, or 35%, higher than the third quarter of 2019. The strengthening of the average exchange rates for Australian dollars relative to the U.S. dollar by 4% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $2.8 million period-over-period increase in revenues and a $4 increase in the average daily rate. Excluding the impact of the stronger Australian exchange rates, the Australian segment experienced a 30% increase in revenues largely due to increased activity at the Action villages and increased occupancy at our Bowen Basin villages.
Our Australian segment cost of sales increased $9.9 million, or 34%, in the third quarter of 2020 compared to the third quarter of 2019. The increase was largely driven by increased activity at the Action villages, increased occupancy at our Bowen Basin villages and the strengthening of the Australian dollar.
Our Australian segment gross margin as a percentage of revenues increased to 40.4% in the third quarter of 2020 from 40.0% in the third quarter of 2019. This was primarily driven by improved margins at our Bowen Basin villages as a result of increased occupancy.
Segment Results of Operations – U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
$
|
6,387
|
|
|
$
|
9,349
|
|
|
$
|
(2,962)
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
$
|
7,512
|
|
|
$
|
8,539
|
|
|
$
|
(1,027)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
(17.6)
|
%
|
|
8.7
|
%
|
|
(26.3)
|
%
|
Our U.S. segment reported revenues in the third quarter of 2020 that were $3.0 million, or 32%, lower than the third quarter of 2019. This was primarily due to reduced occupancy at our West Permian and Killdeer lodges and reduced U.S. drilling activity affecting our wellsite business. These decreases were partially offset by increased activity in our offshore rental business, as two fabrication projects were completed in the third quarter.
Our U.S. segment cost of sales decreased $1.0 million, or 12%, in the third quarter of 2020 compared to the third quarter of 2019. The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges and reduced U.S. drilling activity affecting our wellsite business. These decreases were partially offset by increased activity in our offshore rental business.
Our U.S. segment gross margin as a percentage of revenues decreased from 8.7% in the third quarter of 2019 to (17.6)% in the third quarter of 2020 primarily due to reduced activity in most areas of the business and reduced operating efficiencies at lower activity levels.
Results of Operations – Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
($ in thousands)
|
Revenues
|
|
|
|
|
|
Canada
|
$
|
204,119
|
|
|
$
|
235,943
|
|
|
$
|
(31,824)
|
|
Australia
|
170,869
|
|
|
107,160
|
|
|
63,709
|
|
U.S. and other
|
21,363
|
|
|
35,763
|
|
|
(14,400)
|
|
Total revenues
|
396,351
|
|
|
378,866
|
|
|
17,485
|
|
Costs and expenses
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
Canada
|
158,130
|
|
|
176,200
|
|
|
(18,070)
|
|
Australia
|
102,995
|
|
|
59,718
|
|
|
43,277
|
|
U.S. and other
|
22,755
|
|
|
28,432
|
|
|
(5,677)
|
|
Total cost of sales and services
|
283,880
|
|
|
264,350
|
|
|
19,530
|
|
Selling, general and administrative expenses
|
38,889
|
|
|
42,960
|
|
|
(4,071)
|
|
Depreciation and amortization expense
|
72,527
|
|
|
92,974
|
|
|
(20,447)
|
|
Impairment expense
|
144,120
|
|
|
5,546
|
|
|
138,574
|
|
Other operating expense (income)
|
755
|
|
|
109
|
|
|
646
|
|
Total costs and expenses
|
540,171
|
|
|
405,939
|
|
|
134,232
|
|
Operating loss
|
(143,820)
|
|
|
(27,073)
|
|
|
(116,747)
|
|
|
|
|
|
|
|
Interest expense and income, net
|
(13,458)
|
|
|
(20,604)
|
|
|
7,146
|
|
Other income
|
17,209
|
|
|
6,882
|
|
|
10,327
|
|
Loss before income taxes
|
(140,069)
|
|
|
(40,795)
|
|
|
(99,274)
|
|
Income tax benefit
|
8,509
|
|
|
13,963
|
|
|
(5,454)
|
|
Net loss
|
(131,560)
|
|
|
(26,832)
|
|
|
(104,728)
|
|
Less: Net income attributable to noncontrolling interest
|
914
|
|
|
60
|
|
|
854
|
|
Net loss attributable to Civeo Corporation
|
(132,474)
|
|
|
(26,892)
|
|
|
(105,582)
|
|
Less: Dividends attributable to preferred shares
|
1,411
|
|
|
1,384
|
|
|
27
|
|
Net loss attributable to Civeo common shareholders
|
$
|
(133,885)
|
|
|
$
|
(28,276)
|
|
|
$
|
(105,609)
|
|
We reported net loss attributable to Civeo for the nine months ended September 30, 2020 of $133.9 million, or $0.79 per diluted share. As further discussed below, net loss included (i) a $93.6 million pre-tax loss ($93.6 million after-tax, or $0.55 per diluted share) resulting from the impairment of goodwill in our Canadian reporting unit included in Impairment expense, (ii) a $38.1 million pre-tax loss ($38.1 million after-tax, or $0.22 per diluted share) resulting from the impairment of long-lived assets in our Canadian reporting unit included in Impairment expense and (iii) a $12.4 million pre-tax loss ($12.4 million after-tax, or $0.07 per diluted share) resulting from the impairment of long-lived assets in our U.S. reporting unit included in Impairment expense. Net loss was partially offset by $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.
We reported net loss attributable to Civeo for the nine months ended September 30, 2019 of $28.3 million, or $0.17 per diluted share. As further discussed below, net loss included (i) a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense and (ii) a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer.
Revenues. Consolidated revenues increased $17.5 million, or 5%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and higher mobile camp revenues in Canada related to a pipeline project. These items were partially offset by lower revenue from reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 also offset the increased revenues. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services increased $19.5 million, or 7%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to the Action acquisition and increased occupancy at our Bowen Basin villages in Australia and higher cost of sales and services in Canada due to increased mobile camp activity from a pipeline project. These items were partially offset by decreased cost of sales and services due to reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 offset the increased cost of sales and services. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $4.1 million, or 9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This decrease was primarily due to lower share-based compensation expense and lower travel and entertainment expenses, partially offset by higher incentive compensation costs. The decrease in share-based compensation was due to a reduction in the amount of phantom share awards outstanding and the reduction in our stock price during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $20.4 million, or 22%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease was primarily due to (i) certain assets and intangibles becoming fully depreciated during 2019, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (iii) the impairment of certain long-lived assets in Canada and the U.S. during the first quarter of 2020 and (iv) weaker Canadian and Australian dollars relative to the U.S. dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. These items were partially offset by additional depreciation and intangible amortization expense related to our acquisition in 2019.
Impairment Expense. Impairment expense of $144.1 million in the nine months ended September 30, 2020 included the following items:
•Pre-tax impairment expense of $93.6 million related to the impairment of goodwill in our Canadian reporting unit.
•Pre-tax impairment expense of $38.1 million associated with long-lived assets in our Canadian reporting unit.
•Pre-tax impairment expense of $12.4 million associated with long-lived assets in our U.S. reporting unit.
Impairment expense of $5.5 million in the nine months ended September 30, 2019 was associated with long-lived assets in our Australian segment. This includes $1.0 million of impairment expense related to an error corrected in the second quarter 2019. We identified a liability related to an ARO at one of our villages in Australia that should have been recorded in 2011. We determined that the error was not material to our previously issued financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and therefore, corrected the error in the second quarter of 2019. Specifically, we recorded the following amounts in our second quarter 2019 unaudited consolidated statements of operations related to prior periods: (i) additional accretion expense related to the ARO of $0.9 million, (ii) additional depreciation and amortization expense of $0.5 million related to amortization of the asset retirement cost and (iii) additional impairment expense related to the impairment of the asset retirement cost of $1.0 million offset by recognition of an ARO liability totaling $2.3 million as of June 30, 2019.
See Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating Loss. Consolidated operating loss increased $116.7 million, or 431%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to impairments of goodwill and long-lived assets, partially offset by increased activity levels in Australia, as well as lower depreciation and amortization expense.
Interest Expense and Income, net. Net interest expense decreased by $7.1 million, or 35%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.
Other Income. Consolidated other income increased $10.3 million, or 150%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to $9.7 million of other income related to proceeds from the CEWS and $4.7 million of other income associated with the settlement of a representations and warranties claim
related to the Noralta acquisition, partially offset by a lower gain on sale of assets in 2020 compared to 2019. The nine months ended September 30, 2019 included $2.6 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues and a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer.
Income Tax Benefit. Our income tax benefit for the nine months ended September 30, 2020 totaled $8.5 million, or 6.1% of pretax loss, compared to an income tax benefit of $14.0 million, or 34.2% of pretax loss, for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, Canada and the U.S. were considered loss jurisdictions for tax accounting purposes and were not included in the annual effective tax rate computation for purposes of computing the interim tax provision. Although Australia was not considered a loss jurisdiction for the nine months ended September 30, 2020, our effective tax rate was impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction. Our effective tax rate for the nine months ended September 30, 2020 was impacted by a deferred tax benefit of $9.0 million, offset by a valuation allowance of $0.1 million, against the Canadian net deferred tax assets. For the nine months ended September 30, 2019, the U.S. was considered a loss jurisdiction. Additionally, the effective tax rate for the nine months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate, as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.
Other Comprehensive Income (Loss). Other comprehensive loss increased $2.4 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 3% in the nine months ended September 30, 2020 compared to a 3% increase in the nine months ended September 30, 2019. The Australian dollar exchange rate compared to the U.S. dollar increased 2% in the nine months ended September 30, 2020 compared to a 4% decrease in the nine months ended September 30, 2019.
Segment Results of Operations – Canadian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
Revenues ($ in thousands)
|
|
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
156,068
|
|
|
$
|
203,774
|
|
|
$
|
(47,706)
|
|
|
|
Mobile facility rental revenue (2)
|
21,715
|
|
|
5,648
|
|
|
16,067
|
|
|
|
Food service and other services revenue (3)
|
26,336
|
|
|
25,507
|
|
|
829
|
|
|
|
Manufacturing revenue (4)
|
—
|
|
|
1,014
|
|
|
(1,014)
|
|
|
|
Total revenues
|
$
|
204,119
|
|
|
$
|
235,943
|
|
|
$
|
(31,824)
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
|
|
Accommodation cost
|
$
|
109,143
|
|
|
$
|
137,140
|
|
|
$
|
(27,997)
|
|
|
|
Mobile facility rental cost
|
17,099
|
|
|
4,735
|
|
|
12,364
|
|
|
|
Food service and other services cost
|
23,773
|
|
|
23,620
|
|
|
153
|
|
|
|
Manufacturing cost
|
461
|
|
|
1,007
|
|
|
(546)
|
|
|
|
Indirect other cost
|
7,654
|
|
|
9,698
|
|
|
(2,044)
|
|
|
|
Total cost of sales and services
|
$
|
158,130
|
|
|
$
|
176,200
|
|
|
$
|
(18,070)
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
22.5
|
%
|
|
25.3
|
%
|
|
(2.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for lodges (5)
|
$
|
95
|
|
|
$
|
91
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Total billed rooms for lodges (6)
|
1,626,668
|
|
|
2,241,510
|
|
|
(614,842)
|
|
|
|
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
$
|
0.739
|
|
|
$
|
0.752
|
|
|
$
|
(0.01)
|
|
|
|
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile camps for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)Billed rooms represent total billed days for the periods presented.
Our Canadian segment reported revenues in the nine months ended September 30, 2020 that were $31.8 million, or 13%, lower than the nine months ended September 30, 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 2% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $3.4 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 12% decrease in revenues. This decrease was driven by reduced occupancy at our lodges in the oil sands region related to lower oil prices and the COVID-19 pandemic. Partially offsetting these items, revenue was favorably impacted by increased mobile camp activity from a pipeline project.
Our Canadian segment cost of sales and services decreased $18.1 million, or 10%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 2% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $2.7 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by reduced occupancy at our lodges in the north oil sands region and reduced indirect other costs from a continued focus on cost containment and operational efficiencies. These decreases were partially offset by increased mobile camp activity from a pipeline project and increased costs related to the implementation of enhanced measures during the COVID-19 pandemic.
Our Canadian segment gross margin as a percentage of revenues decreased from 25.3% in the nine months ended September 30, 2019 to 22.5% in the nine months ended September 30, 2020. This was primarily driven by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.
Segment Results of Operations – Australian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
106,988
|
|
|
$
|
92,473
|
|
|
$
|
14,515
|
|
Food service and other services revenue (2)
|
63,881
|
|
|
14,687
|
|
|
49,194
|
|
Total revenues
|
$
|
170,869
|
|
|
$
|
107,160
|
|
|
$
|
63,709
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
46,665
|
|
|
$
|
44,816
|
|
|
$
|
1,849
|
|
Food service and other services cost
|
53,627
|
|
|
12,807
|
|
|
40,820
|
|
Indirect other cost
|
2,703
|
|
|
2,095
|
|
|
608
|
|
Total cost of sales and services
|
$
|
102,995
|
|
|
$
|
59,718
|
|
|
$
|
43,277
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
39.7
|
%
|
|
44.3
|
%
|
|
(4.5)
|
%
|
|
|
|
|
|
|
Average daily rate for villages (3)
|
$
|
72
|
|
|
$
|
74
|
|
|
$
|
(2)
|
|
|
|
|
|
|
|
Total billed rooms for villages (4)
|
1,487,819
|
|
|
1,253,856
|
|
|
233,963
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
$
|
0.677
|
|
|
$
|
0.699
|
|
|
$
|
(0.02)
|
|
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for the periods presented.
Our Australian segment reported revenues in the nine months ended September 30, 2020 that were $63.7 million, or 59%, higher than the nine months ended September 30, 2019. Action contributed $63.9 million in revenues in the nine months ended September 30, 2020. The weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 3% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $2.2 million period-over-period decrease in revenues and a $2 reduction in the average daily rate. Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced a 64% increase in revenues primarily due to the Action acquisition. In addition, increased activity at our Bowen Basin villages was partially offset by decreased activity at our Western Australia villages.
Our Australian segment cost of sales increased $43.3 million, or 72%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily driven by the Action acquisition. Increases related to increased activity at our Bowen Basin villages were partially offset by decreased activity at our Western Australia villages and the weakening of the Australian dollar.
Our Australian segment gross margin as a percentage of revenues decreased to 39.7% in the nine months ended September 30, 2020 from 44.3% in the nine months ended September 30, 2019. This was primarily driven by Action, which has a service-only business model and therefore results in lower overall gross margins than the accommodation business, partially offset by improved margins at our Bowen Basin villages as a result of increased occupancy.
Segment Results of Operations – U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
$
|
21,363
|
|
|
$
|
35,763
|
|
|
$
|
(14,400)
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
$
|
22,755
|
|
|
$
|
28,432
|
|
|
$
|
(5,677)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
(6.5)
|
%
|
|
20.5
|
%
|
|
(27.0)
|
%
|
Our U.S. segment reported revenues in the nine months ended September 30, 2020 that were $14.4 million, or 40%, lower than the nine months ended September 30, 2019. This was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business, partially offset by increased activity in our offshore rental business, as there were a greater number of large fabrication jobs completed in the period.
Our U.S. segment cost of sales decreased $5.7 million, or 20%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease was driven by reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business, partially offset by increased activity in our offshore rental business, as there were a greater number of large fabrication jobs completed in the period.
Our U.S. segment gross margin as a percentage of revenues decreased from 20.5% in the nine months ended September 30, 2019 to (6.5)% in the nine months ended September 30, 2020 primarily due to reduced activity at our lodges and wellsite markets and reduced operating efficiencies at lower activity levels.
Liquidity and Capital Resources
In September 2020, we entered into an amendment to our Credit Agreement, which reduced total lender commitments by $96.2 million. For additional information regarding the Amended Credit Agreement, see "Amended Credit Agreement" below.
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions and pay dividends. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Amended Credit
Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Lender commitments (1)
|
$
|
167,300
|
|
|
$
|
263,500
|
|
Reductions in availability (2)
|
—
|
|
|
(6,591)
|
|
Borrowings against revolving credit capacity
|
(85,175)
|
|
|
(134,117)
|
|
Outstanding letters of credit
|
(3,433)
|
|
|
(2,031)
|
|
Unused availability
|
78,692
|
|
|
120,761
|
|
Cash and cash equivalents
|
6,938
|
|
|
3,331
|
|
Total available liquidity
|
$
|
85,630
|
|
|
$
|
124,092
|
|
(1)We also have a A$2.0 million bank guarantee facility. We had bank guarantees of A$0.7 million under this facility outstanding as of both September 30, 2020 and December 31, 2019, respectively.
(2)As of September 30, 2020, there were no reductions in our availability under the Amended Credit Agreement. As of December 31, 2019, $6.6 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.
Cash totaling $80.7 million was provided by operations during the nine months ended September 30, 2020, compared to $33.5 million provided by operations during the nine months ended September 30, 2019. During the nine months ended September 30, 2020 and 2019, $4.6 million was provided by working capital and $29.4 million was used in working capital, respectively. The increase in cash provided by working capital in 2020 compared to 2019 is largely due to decreased accounts receivable balances in Canada.
Cash was provided by investing activities during the nine months ended September 30, 2020 in the amount of $1.7 million, compared to cash used in investing activities during the nine months ended September 30, 2019 in the amount of $34.7 million. The decrease in cash used in investing activities was primarily due to lower capital expenditures and $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition in the nine months ended September 30, 2020. This compares to $16.9 million to fund the Action acquisition in the nine months ended September 30, 2019. Capital expenditures totaled $6.2 million and $25.5 million during the nine months ended September 30, 2020 and 2019, respectively. The decrease in capital expenditures from 2019 to 2020 was related primarily to the completion of the Sitka Lodge expansion, which occurred during 2019.
We expect our capital expenditures for 2020, exclusive of any expansionary spending, to be less than $15 million, which excludes any expansionary projects, the spending for which is contingent on obtaining customer contracts. Whether planned expenditures will actually be spent in 2020 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Amended Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the economic environment in our industry improve and the transaction economics are deemed to be attractive to us. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the prices of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19.
Net cash of $79.6 million was used in financing activities during the nine months ended September 30, 2020 primarily due to net repayments under our revolving credit facilities of $44.5 million, repayments of term loan borrowings of $31.1 million, $1.5 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuance costs of $2.6 million. Net cash of $2.8 million was used in financing activities during the nine months ended September 30, 2019 primarily due to repayments of term loan borrowings of $26.1 million, $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuances costs of $1.9 million, partially offset by net borrowings under our revolving credit facilities of $29.5 million.
The following table summarizes the changes in debt outstanding during the nine months ended September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
|
|
$
|
359,080
|
|
Borrowings under revolving credit facilities
|
|
|
|
|
|
|
324,611
|
|
Repayments of borrowings under revolving credit facilities
|
|
|
|
|
|
|
(369,122)
|
|
Repayments of term loans
|
|
|
|
|
|
|
(31,092)
|
|
Translation
|
|
|
|
|
|
|
(10,931)
|
|
Balance at September 30, 2020
|
|
|
|
|
|
|
$
|
272,546
|
|
We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months. If our plans or assumptions change, including as a result of the impact of COVID-19 or the decline in the price of and demand for oil, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.
Amended Credit Agreement
As of December 31, 2019, our Credit Agreement, as then amended, provided for: (i) a $263.5 million revolving credit facility scheduled to mature on November 30, 2021 for certain lenders, allocated as follows: (A) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $183.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $285.4 million term loan facility scheduled to mature on November 30, 2021 for certain lenders in favor of Civeo.
On September 3, 2020, the third amendment to the Credit Agreement (as so amended, the Amended Credit Agreement) became effective, which, among other things:
•Extended the maturity date by 18 months of the commitments and loans of each lender remaining a lender following the effectiveness of the Amended Credit Agreement to May 30, 2023. Certain lenders are not extending the maturity date of their commitments and loans; the loans of the non-extending lenders were paid in full primarily with borrowings under the facility, and their commitments terminated on the date the Amended Credit Agreement became effective.
•Increased the margin applicable to loans and the commitment fee payable on the commitments of the lenders. Prior to entering into the Amended Credit Agreement, (i) the margin applicable to Eurocurrency loans, BBSY rate loans and B/A loans ranged from 2.25% to 4.00%, (ii) the margin applicable to ABR loans, Canadian Prime rate loans and U.S. Base rate loans ranged from 1.25% to 3.00% and (iii) the commitment fee ranged from 0.51% to 0.90%, in each case increasing as the total leverage ratio of the parent borrower and its subsidiaries increased from less than 2.00 to 1.00 to greater than 4.00 to 1.00. Following entry into the Amended Credit Agreement, these ranges have increased to (i) 3.50% to 4.50%, (ii) 2.50% to 3.50% and (iii) 0.875% to 1.125%, respectively, in each case as the total leverage ratio increases from less than 2.50 to 1.00 to greater than 3.50 to 1.00.
•Decreased (i) the U.S. revolving commitments from $20.0 million to $10.0 million, (ii) the maximum permitted amount of U.S. L/C exposure from $15.0 million to $10.0 million to match the reduction in the U.S. revolving commitments, (iii) the Canadian revolving commitments from $183.5 million to $122.3 million and (iv) the Australian revolving commitments from $60.0 million to $35.0 million.
We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:
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|
|
|
|
|
|
|
|
Period Ended
|
Maximum Leverage Ratio
|
September 30, 2020
|
3.75 :
|
1.00
|
December 31, 2020 and thereafter
|
3.50 :
|
1.00
|
U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.50% to 4.50%, or a base rate plus 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Amended Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.50% to 4.50%, or a Canadian Prime rate plus a margin of 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.50% to 4.50%, based on a ratio of our total debt to consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Amended Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.75 to 1.0 (as of September 30, 2020). As noted above, the permitted maximum leverage ratio to 3.5 to 1.0 beginning December 31, 2020. Following a qualified offering of indebtedness with gross proceeds in excess of $150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of September 30, 2020.
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of September 30, 2020, we had eight lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $22.4 million to $71.1 million. As of September 30, 2020, we had outstanding letters of credit of $0.3 million under the U.S. facility, $0.5 million under the Australian facility and $2.6 million under the Canadian facility.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board of Directors deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Amended Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future.
The preferred shares we issued in the Noralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially $10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares’ liquidation preference, or any combination thereof. Quarterly dividends were paid in-kind on September 30, 2020, thereby increasing the liquidation preference to $10,511 per share as of September 30, 2020. We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash.
Off-Balance Sheet Arrangements
As of September 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
For additional information about our contractual obligations, refer to “Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2019. As of September 30, 2020, except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.