SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
10-Q
| ||
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20202021
or
| ||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from__________ to__________
Commission File Number: 001-32936
001-32936
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
| | | |
Minnesota | 95-3409686 | ||
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
3505 West Sam Houston Parkway North | | | |
Suite 400 | | | |
HoustonTexas | | 77043 | |
(Address of principal executive offices) | | (Zip Code) |
(
281) 618–0400(Registrant'sRegistrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | | HLX | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | ||||
Large accelerated filer☐ | Accelerated filer | Non-accelerated filer ☐ | Smaller reporting company☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑þ No
As of April 17, 2020, 150,005,46622, 2021, 150,723,988 shares of common stock were outstanding.
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2
Item 1.
Financial StatementsHELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(in thousands)
March 31, 2020 | December 31, 2019 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 159,351 | $ | 208,431 | |||
Restricted cash | 52,374 | 54,130 | |||||
Accounts receivable, net of allowance for credit losses of $1,371 and $0, respectively | 147,120 | 125,457 | |||||
Other current assets | 71,755 | 50,450 | |||||
Total current assets | 430,600 | 438,468 | |||||
Property and equipment | 2,880,657 | 2,922,274 | |||||
Less accumulated depreciation | (1,070,733 | ) | (1,049,637 | ) | |||
Property and equipment, net | 1,809,924 | 1,872,637 | |||||
Operating lease right-of-use assets | 187,553 | 201,118 | |||||
Other assets, net | 86,074 | 84,508 | |||||
Total assets | $ | 2,514,151 | $ | 2,596,731 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 90,425 | $ | 69,055 | |||
Accrued liabilities | 45,227 | 62,389 | |||||
Current maturities of long-term debt | 90,837 | 99,731 | |||||
Current operating lease liabilities | 53,063 | 53,785 | |||||
Total current liabilities | 279,552 | 284,960 | |||||
Long-term debt | 303,584 | 306,122 | |||||
Operating lease liabilities | 137,411 | 151,827 | |||||
Deferred tax liabilities | 104,930 | 112,132 | |||||
Other non-current liabilities | 36,286 | 38,644 | |||||
Total liabilities | 861,763 | 893,685 | |||||
Redeemable noncontrolling interests | 3,323 | 3,455 | |||||
Shareholders’ equity: | |||||||
Common stock, no par, 240,000 shares authorized, 149,962 and 148,888 shares issued, respectively | 1,316,401 | 1,318,961 | |||||
Retained earnings | 430,726 | 445,370 | |||||
Accumulated other comprehensive loss | (98,062 | ) | (64,740 | ) | |||
Total shareholders’ equity | 1,649,065 | 1,699,591 | |||||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 2,514,151 | $ | 2,596,731 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 204,802 | | $ | 291,320 |
Restricted cash | |
| 65,579 | |
| — |
Accounts receivable, net of allowance for credit losses of $1,665 and $3,469, respectively | |
| 132,314 | |
| 132,233 |
Other current assets | |
| 86,242 | |
| 102,092 |
Total current assets | |
| 488,937 | |
| 525,645 |
Property and equipment | |
| 2,956,804 | |
| 2,948,907 |
Less accumulated depreciation | |
| (1,197,712) | |
| (1,165,943) |
Property and equipment, net | |
| 1,759,092 | |
| 1,782,964 |
Operating lease right-of-use assets | |
| 136,210 | |
| 149,656 |
Other assets, net | |
| 37,510 | |
| 40,013 |
Total assets | | $ | 2,421,749 | | $ | 2,498,278 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 55,148 | | $ | 50,022 |
Accrued liabilities | |
| 76,486 | |
| 87,035 |
Current maturities of long-term debt | |
| 36,478 | |
| 90,651 |
Current operating lease liabilities | |
| 50,321 | |
| 51,599 |
Total current liabilities | |
| 218,433 | |
| 279,307 |
Long-term debt | |
| 299,560 | |
| 258,912 |
Operating lease liabilities | |
| 88,576 | |
| 101,009 |
Deferred tax liabilities | |
| 100,655 | |
| 110,821 |
Other non-current liabilities | |
| 3,105 | |
| 3,878 |
Total liabilities | |
| 710,329 | |
| 753,927 |
Redeemable noncontrolling interests | |
| 3,960 | |
| 3,855 |
Shareholders’ equity: | |
|
| |
|
|
Common stock, 0 par, 240,000 shares authorized, 150,715 and 150,341 shares issued, respectively | |
| 1,286,380 | |
| 1,327,592 |
Retained earnings | |
| 468,087 | |
| 464,524 |
Accumulated other comprehensive loss | |
| (47,007) | |
| (51,620) |
Total shareholders’ equity | |
| 1,707,460 | |
| 1,740,496 |
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | | $ | 2,421,749 | | $ | 2,498,278 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands, except per share amounts)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Net revenues | | $ | 163,415 | | $ | 181,021 | |
Cost of sales | |
| 148,791 | |
| 179,011 | |
Gross profit | |
| 14,624 | |
| 2,010 | |
Goodwill impairment | |
| — | |
| (6,689) | |
Selling, general and administrative expenses | |
| (15,179) | |
| (16,348) | |
Loss from operations | |
| (555) | |
| (21,027) | |
Net interest expense | |
| (6,053) | |
| (5,746) | |
Other income (expense), net | |
| 1,617 | |
| (10,427) | |
Royalty income and other | |
| 2,057 | |
| 2,179 | |
Loss before income taxes | |
| (2,934) | |
| (35,021) | |
Income tax provision (benefit) | |
| 116 | |
| (21,093) | |
Net loss | |
| (3,050) | |
| (13,928) | |
Net loss attributable to redeemable noncontrolling interests | |
| (172) | |
| (1,990) | |
Net loss attributable to common shareholders | | $ | (2,878) | | $ | (11,938) | |
| | | | | | | |
Loss per share of common stock: | |
|
| |
|
| |
Basic | | $ | (0.02) | | $ | (0.09) | |
Diluted | | $ | (0.02) | | $ | (0.09) | |
| | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
Basic | |
| 149,935 | |
| 148,863 | |
Diluted | |
| 149,935 | |
| 148,863 | |
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net revenues | $ | 181,021 | $ | 166,823 | |||
Cost of sales | 179,011 | 150,569 | |||||
Gross profit | 2,010 | 16,254 | |||||
Goodwill impairment | (6,689 | ) | — | ||||
Selling, general and administrative expenses | (16,348 | ) | (15,985 | ) | |||
Income (loss) from operations | (21,027 | ) | 269 | ||||
Equity in losses of investment | (20 | ) | (40 | ) | |||
Net interest expense | (5,746 | ) | (2,098 | ) | |||
Other income (expense), net | (10,427 | ) | 1,166 | ||||
Royalty income and other | 2,199 | 2,345 | |||||
Income (loss) before income taxes | (35,021 | ) | 1,642 | ||||
Income tax provision (benefit) | (21,093 | ) | 324 | ||||
Net income (loss) | (13,928 | ) | 1,318 | ||||
Net loss attributable to redeemable noncontrolling interests | (1,990 | ) | — | ||||
Net income (loss) attributable to common shareholders | $ | (11,938 | ) | $ | 1,318 | ||
Earnings (loss) per share of common stock: | |||||||
Basic | $ | (0.09 | ) | $ | 0.01 | ||
Diluted | $ | (0.09 | ) | $ | 0.01 | ||
Weighted average common shares outstanding: | |||||||
Basic | 148,863 | 147,421 | |||||
Diluted | 148,863 | 147,751 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net income (loss) | $ | (13,928 | ) | $ | 1,318 | ||
Other comprehensive income (loss), net of tax: | |||||||
Net unrealized loss on hedges arising during the period | (96 | ) | (149 | ) | |||
Reclassifications to net (income) loss | 427 | 1,846 | |||||
Income taxes on hedges | (66 | ) | (342 | ) | |||
Net change in hedges, net of tax | 265 | 1,355 | |||||
Foreign currency translation gain (loss) | (33,587 | ) | 2,802 | ||||
Other comprehensive income (loss), net of tax | (33,322 | ) | 4,157 | ||||
Comprehensive income (loss) | (47,250 | ) | 5,475 | ||||
Less comprehensive loss attributable to redeemable noncontrolling interests: | |||||||
Net loss | (1,990 | ) | — | ||||
Foreign currency translation loss | (228 | ) | — | ||||
Comprehensive loss attributable to redeemable noncontrolling interests | (2,218 | ) | — | ||||
Comprehensive income (loss) attributable to common shareholders | $ | (45,032 | ) | $ | 5,475 |
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Net loss | | $ | (3,050) |
| $ | (13,928) | |
Other comprehensive income (loss), net of tax: | |
|
|
| |
| |
Net unrealized loss on hedges arising during the period | |
| — |
| | (96) | |
Reclassifications into earnings | |
| — |
| | 427 | |
Income taxes on hedges | |
| — |
| | (66) | |
Net change in hedges, net of tax | |
| — |
| | 265 | |
Foreign currency translation gain (loss) | |
| 4,613 |
| | (33,587) | |
Other comprehensive income (loss), net of tax | |
| 4,613 |
| | (33,322) | |
Comprehensive income (loss) | |
| 1,563 |
| | (47,250) | |
Less comprehensive loss attributable to redeemable noncontrolling interests: | |
|
|
| |
| |
Net loss | |
| (172) |
| | (1,990) | |
Foreign currency translation gain (loss) | |
| 36 |
| | (228) | |
Comprehensive loss attributable to redeemable noncontrolling interests | |
| (136) |
| | (2,218) | |
Comprehensive income (loss) attributable to common shareholders | | $ | 1,699 |
| $ | (45,032) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | Redeemable Noncontrolling Interests | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, December 31, 2019 | 148,888 | $ | 1,318,961 | $ | 445,370 | $ | (64,740 | ) | $ | 1,699,591 | $ | 3,455 | ||||||||||
Net loss | — | — | (11,938 | ) | — | (11,938 | ) | (1,990 | ) | |||||||||||||
Expected credit losses recognized in retained earnings upon adoption of ASU 2016-13 | — | — | (620 | ) | — | (620 | ) | — | ||||||||||||||
Foreign currency translation adjustments | — | — | — | (33,587 | ) | (33,587 | ) | (228 | ) | |||||||||||||
Unrealized gain on hedges, net of tax | — | — | — | 265 | 265 | — | ||||||||||||||||
Accretion of redeemable noncontrolling interests | — | — | (2,086 | ) | — | (2,086 | ) | 2,086 | ||||||||||||||
Activity in company stock plans, net and other | 1,074 | (4,730 | ) | — | — | (4,730 | ) | — | ||||||||||||||
Share-based compensation | — | 2,170 | — | — | 2,170 | — | ||||||||||||||||
Balance, March 31, 2020 | 149,962 | $ | 1,316,401 | $ | 430,726 | $ | (98,062 | ) | $ | 1,649,065 | $ | 3,323 |
Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | Redeemable Noncontrolling Interests | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, December 31, 2018 | 148,203 | $ | 1,308,709 | $ | 383,034 | $ | (73,964 | ) | $ | 1,617,779 | $ | — | ||||||||||
Net income | — | — | 1,318 | — | 1,318 | — | ||||||||||||||||
Reclassification of deferred gain from sale and leaseback transaction to retained earnings | — | — | 4,560 | — | 4,560 | — | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | 2,802 | 2,802 | — | ||||||||||||||||
Unrealized gain on hedges, net of tax | — | — | — | 1,355 | 1,355 | — | ||||||||||||||||
Activity in company stock plans, net and other | 582 | (659 | ) | — | — | (659 | ) | — | ||||||||||||||
Share-based compensation | — | 2,688 | — | — | 2,688 | — | ||||||||||||||||
Balance, March 31, 2019 | 148,785 | $ | 1,310,738 | $ | 388,912 | $ | (69,807 | ) | $ | 1,629,843 | $ | — |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | |
| |
| | | | | | | | | | Other | | Total | | Redeemable | |||
| | Common Stock | | Retained | | Comprehensive | | Shareholders’ | | Noncontrolling | |||||||
|
| Shares |
| Amount |
| Earnings |
| Loss |
| Equity |
| Interests | |||||
Balance, December 31, 2020 |
| 150,341 | | $ | 1,327,592 | | $ | 464,524 | | $ | (51,620) | | $ | 1,740,496 |
| $ | 3,855 |
Net loss |
| — | |
| — | |
| (2,878) | |
| — | |
| (2,878) |
| | (172) |
Cumulative-effect adjustments upon adoption of ASU No. 2020-06 |
| — | |
| (41,456) | |
| 6,682 | |
| — | |
| (34,774) |
| | — |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| 4,613 | |
| 4,613 |
| | 36 |
Accretion of redeemable noncontrolling interests |
| — | |
| — | |
| (241) | |
| — | |
| (241) |
| | 241 |
Activity in company stock plans, net and other |
| 374 | |
| (1,600) | |
| — | |
| — | |
| (1,600) |
| | — |
Share-based compensation |
| — | |
| 1,844 | |
| — | |
| — | |
| 1,844 |
| | — |
Balance, March 31, 2021 |
| 150,715 | | $ | 1,286,380 | | $ | 468,087 | | $ | (47,007) | | $ | 1,707,460 |
| $ | 3,960 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | |
| |
| | | | | | | | | | Other | | Total | | Redeemable | |||
| | Common Stock | | Retained | | Comprehensive | | Shareholders’ | | Noncontrolling | |||||||
|
| Shares |
| Amount |
| Earnings |
| Loss |
| Equity |
| Interests | |||||
Balance, December 31, 2019 |
| 148,888 | | $ | 1,318,961 | | $ | 445,370 | | $ | (64,740) | | $ | 1,699,591 |
| $ | 3,455 |
Net loss |
| — | |
| — | |
| (11,938) | |
| — | |
| (11,938) |
| | (1,990) |
Credit losses recognized in retained earnings upon adoption of ASU No. 2016-13 |
| — | |
| — | |
| (620) | |
| — | |
| (620) |
| | — |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| (33,587) | |
| (33,587) |
| | (228) |
Unrealized gain on hedges, net of tax |
| — | |
| — | |
| — | |
| 265 | |
| 265 |
| | — |
Accretion of redeemable noncontrolling interests |
| — | |
| — | |
| (2,086) | |
| — | |
| (2,086) |
| | 2,086 |
Activity in company stock plans, net and other |
| 1,074 | |
| (4,730) | |
| — | |
| — | |
| (4,730) |
| | — |
Share-based compensation |
| — | |
| 2,170 | |
| — | |
| — | |
| 2,170 |
| | — |
Balance, March 31, 2020 |
| 149,962 | | $ | 1,316,401 | | $ | 430,726 | | $ | (98,062) | | $ | 1,649,065 |
| $ | 3,323 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
| | |
|
Net loss | | $ | (3,050) | | $ | (13,928) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
|
|
Depreciation and amortization | |
| 34,566 | |
| 31,598 |
Goodwill impairment | |
| — | |
| 6,689 |
Amortization of debt discounts | |
| — | |
| 1,633 |
Amortization of debt issuance costs | |
| 810 | |
| 833 |
Share-based compensation | |
| 1,904 | |
| 2,259 |
Deferred income taxes | |
| (892) | |
| (6,517) |
Unrealized gain on derivative contracts, net | |
| — | |
| (601) |
Unrealized foreign currency (gain) loss | |
| (951) | |
| 9,237 |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable, net | |
| (463) | |
| (25,375) |
Income tax receivable | |
| 6,256 | |
| (17,033) |
Other current assets | |
| 9,361 | |
| (5,475) |
Accounts payable and accrued liabilities | |
| (4,881) | |
| 15,563 |
Other, net | |
| (2,791) | |
| (16,105) |
Net cash provided by (used in) operating activities | |
| 39,869 | |
| (17,222) |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Capital expenditures | |
| (1,329) | |
| (12,389) |
Net cash used in investing activities | |
| (1,329) | |
| (12,389) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Repayment of Term Loan | |
| (875) | |
| (875) |
Repayment of Nordea Q5000 Loan | |
| (53,572) | |
| (8,929) |
Repayment of MARAD Debt | |
| (3,734) | |
| (3,556) |
Debt issuance costs | |
| (43) | |
| (212) |
Payments related to tax withholding for share-based compensation | |
| (1,878) | |
| (5,150) |
Proceeds from issuance of ESPP shares | |
| 217 | |
| 331 |
Net cash used in financing activities | |
| (59,885) | |
| (18,391) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | |
| 406 | |
| (2,834) |
Net decrease in cash and cash equivalents and restricted cash | |
| (20,939) | |
| (50,836) |
Cash and cash equivalents and restricted cash: | |
|
| |
|
|
Balance, beginning of year | |
| 291,320 | |
| 262,561 |
Balance, end of period | | $ | 270,381 | | $ | 211,725 |
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (13,928 | ) | $ | 1,318 | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation and amortization | 31,598 | 28,509 | |||||
Goodwill impairment | 6,689 | — | |||||
Amortization of debt discounts | 1,633 | 1,513 | |||||
Amortization of debt issuance costs | 833 | 902 | |||||
Share-based compensation | 2,259 | 2,719 | |||||
Deferred income taxes | (6,517 | ) | (10 | ) | |||
Equity in losses of investment | 20 | 40 | |||||
Unrealized gain on derivative contracts, net | (601 | ) | (829 | ) | |||
Unrealized foreign currency (gain) loss | 9,237 | (1,128 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | (25,375 | ) | (22,584 | ) | |||
Income tax receivable | (17,033 | ) | (2,370 | ) | |||
Other current assets | (5,475 | ) | (13,129 | ) | |||
Accounts payable and accrued liabilities | 15,543 | (15,899 | ) | ||||
Other, net | (16,105 | ) | (13,298 | ) | |||
Net cash used in operating activities | (17,222 | ) | (34,246 | ) | |||
Cash flows from investing activities: | |||||||
Capital expenditures | (12,389 | ) | (11,655 | ) | |||
Proceeds from sale of assets | — | 25 | |||||
Other | — | (326 | ) | ||||
Net cash used in investing activities | (12,389 | ) | (11,956 | ) | |||
Cash flows from financing activities: | |||||||
Repayment of term loans | (875 | ) | (936 | ) | |||
Repayment of Nordea Q5000 Loan | (8,929 | ) | (8,929 | ) | |||
Repayment of MARAD Debt | (3,556 | ) | (3,387 | ) | |||
Debt issuance costs | (212 | ) | (113 | ) | |||
Payments related to tax withholding for share-based compensation | (5,150 | ) | (826 | ) | |||
Proceeds from issuance of ESPP shares | 331 | 136 | |||||
Net cash used in financing activities | (18,391 | ) | (14,055 | ) | |||
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (2,834 | ) | 821 | ||||
Net decrease in cash and cash equivalents and restricted cash | (50,836 | ) | (59,436 | ) | |||
Cash and cash equivalents and restricted cash: | |||||||
Balance, beginning of year | 262,561 | 279,459 | |||||
Balance, end of period | $ | 211,725 | $ | 220,023 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. dollars and are consistent in all material respects with those applied in our 20192020 Annual Report on Form 10-K (our “2019“2020 Form 10-K”) with the exception of the impact of early adopting the new credit loss accounting standard in 2020Accounting Standards Update (“ASU”) No. 2020-06 on a modified retrospective basis beginning January 1, 2021 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income and statements of cash flows, as applicable. The operating results for the three-month period ended March 31, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021. Our balance sheet as of December 31, 20192020 included herein has been derived from the audited balance sheet as of December 31, 20192020 included in our 20192020 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual audited consolidated financial statements and notes thereto included in our 20192020 Form 10-K.
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
New accounting standards
In MarchAugust 2020, the World Health Organization classifiedFASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,” which simplifies the outbreakaccounting for certain financial instruments with characteristics of COVID-19 as a pandemic. The nature of COVID-19 ledliabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, this ASU removes from GAAP the requirement to worldwide shutdowns and halting of commercial and interpersonal activity, as governments around the world imposed regulations in efforts to control the spread of COVID-19separate certain convertible instruments, such as shelter-in-place orders, quarantines, executive ordersour Convertible Senior Notes Due 2022, Convertible Senior Notes Due 2023 and similar restrictions. AsConvertible Senior Notes Due 2026 (Note 5), into liability and equity components. Consequently, those convertible instruments will be accounted for in their entirety as liabilities measured at their amortized cost. We elected to early adopt ASU No. 2020-06 on a result,modified retrospective basis beginning January 1, 2021. The adoption of this ASU increased our long-term debt and decreased our common stock by $44.1 million and $41.5 million, respectively, as we reclassified the global economy has been markedconversion features associated with our various outstanding convertible senior notes from equity to long-term debt. The adoption of this ASU also increased our retained earnings and decreased deferred tax liabilities by significant slowdown$6.7 million and uncertainty, which has led$9.3 million, respectively. Subsequent to a precipitous decline in oil prices in responseits adoption, the ASU is also expected to demand concerns, further exacerbated byreduce our interest expense as there will no longer be debt discounts to amortize associated with our outstanding convertible senior notes. Additionally, the price war among membersASU no longer permits the treasury stock method for convertible instruments and instead requires the application of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”) during the first quarter 2020 and global storage considerations. The decline in oil prices has resulted in a significantly weaker outlook for oil and gas producers, who have begunif-converted method to cut their capital and operating budgets. Our financial statements for the three-month period ended March 31, 2020 reflectcalculate the impact of these events and current market conditions, which include namely the recognition of goodwill impairment losses (Note 6) and tax benefits resulting from the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Note 8). The continued spread of COVID-19 or deterioration in oil prices could result in further adverse impactour convertible senior notes on our results of operations, cash flows and financial position, including further asset impairments.
We do not expect any other newrecently issued accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.
Note 2 — Company Overview
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We provideTraditionally, our services and methodologies that we believe are critical to maximizing production economics. Our services coverhave covered the lifecycle of an offshore oil or gas field. In recent years, we have seen an increasing demand for our services from the offshore renewable energy market. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our life of fieldNorth Sea operations are subject to seasonal changes in demand, which generally peaks in the summer months and declines in the winter months. Our services are segregated into 3 reportable business segments: Well Intervention, Robotics and Production Facilities (Note 13)10).
Our Well Intervention segment includesprovides services enabling our vessels and/customers to safely access offshore wells for the purpose of performing well enhancement or equipment used to perform well intervention services primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa.decommissioning operations. Our well intervention vessels include the
Our Robotics segment provides offshore construction, cable trenching, seabed clearance, inspection, repair and maintenance services to both the oil and gas and the renewable energy markets globally. Our Robotics services also complement well intervention services. Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and a ROVDrill, which are designed to complement well intervention services and offshore construction to both the oil and gas and the renewable energy markets. Our Robotics segment also includes 2 robotics support vessels under long-term charter, the
Our Production Facilities segment includes the
Helix ProducerI (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”)
Other current assets consist of the following (in thousands):
March 31, 2020 | December 31, 2019 | ||||||
Contract assets (Note 10) | $ | 5,882 | $ | 740 | |||
Prepaids | 13,039 | 12,635 | |||||
Deferred costs (Note 10) | 28,481 | 28,340 | |||||
Income tax receivable | 16,982 | 1,261 | |||||
Other | 7,371 | 7,474 | |||||
Total other current assets | $ | 71,755 | $ | 50,450 |
Other assets, net consist of the following (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Deferred recertification and dry dock costs, net | | $ | 19,073 |
| $ | 21,464 |
Deferred costs (Note 7) | |
| 916 |
| | 861 |
Charter deposit (1) | |
| 12,544 |
| | 12,544 |
Intangible assets with finite lives, net | |
| 3,756 |
| | 3,809 |
Other | |
| 1,221 |
| | 1,335 |
Total other assets, net | | $ | 37,510 |
| $ | 40,013 |
March 31, 2020 | December 31, 2019 | ||||||
Prepaids | $ | 694 | $ | 777 | |||
Deferred recertification and dry dock costs, net | 30,545 | 16,065 | |||||
Deferred costs (Note 10) | 8,594 | 14,531 | |||||
Charter deposit (1) | 12,544 | 12,544 | |||||
Other receivable (2) | 27,914 | 27,264 | |||||
Goodwill (Note 6) | — | 7,157 | |||||
Intangible assets with finite lives, net | 3,680 | 3,847 | |||||
Other | 2,103 | 2,323 | |||||
Total other assets, net | $ | 86,074 | $ | 84,508 |
(1) | This amount is deposited with the owner of the Siem Helix 2 to offset certain payment obligations associated with the vessel at the end of the charter term. |
9
March 31, 2020 | December 31, 2019 | ||||||
Accrued payroll and related benefits | $ | 17,469 | $ | 31,417 | |||
Investee losses in excess of investment (Note 4) | 2,673 | 4,069 | |||||
Deferred revenue (Note 10) | 11,376 | 11,568 | |||||
Derivative liability (Note 19) | 26 | 1,002 | |||||
Other | 13,683 | 14,333 | |||||
Total accrued liabilities | $ | 45,227 | $ | 62,389 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Accrued payroll and related benefits | | $ | 20,327 |
| $ | 24,768 |
Accrued interest | | | 3,010 | | | 7,098 |
Deferred revenue (Note 7) | |
| 9,614 |
| | 8,140 |
Asset retirement obligations (Note 11) | |
| 30,961 |
| | 30,913 |
Other | |
| 12,574 |
| | 16,116 |
Total accrued liabilities | | $ | 76,486 |
| $ | 87,035 |
Other non-current liabilities consist of the following (in thousands):
March 31, 2020 | December 31, 2019 | ||||||
Deferred revenue (Note 10) | $ | 5,860 | $ | 8,286 | |||
Asset retirement obligations (Note 14) | 28,934 | 28,258 | |||||
Other | 1,492 | 2,100 | |||||
Total other non-current liabilities | $ | 36,286 | $ | 38,644 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Deferred revenue (Note 7) | | $ | 1,333 |
| $ | 1,869 |
Other | |
| 1,772 |
| | 2,009 |
Total other non-current liabilities | | $ | 3,105 |
| $ | 3,878 |
We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. We also sublease some of our facilities under non-cancelable sublease agreements.
The following table details the components of our lease cost (in thousands):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Operating lease cost | $ | 16,323 | $ | 18,133 | |||
Variable lease cost | 3,212 | 3,075 | |||||
Short-term lease cost | 7,174 | 4,158 | |||||
Sublease income | (279 | ) | (353 | ) | |||
Net lease cost | $ | 26,430 | $ | 25,013 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Operating lease cost | | $ | 16,216 |
| $ | 16,323 |
Variable lease cost | |
| 3,484 |
| | 3,212 |
Short-term lease cost | |
| 1,732 |
| | 7,174 |
Sublease income | |
| (349) |
| | (279) |
Net lease cost | | $ | 21,083 |
| $ | 26,430 |
Maturities of our operating lease liabilities as of March 31, 20202021 are as follows (in thousands):
| | | | | | | | | |
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | 52,620 | | $ | 5,825 |
| $ | 58,445 |
One to two years | |
| 52,105 | |
| 5,249 |
| | 57,354 |
Two to three years | |
| 24,203 | |
| 4,637 |
| | 28,840 |
Three to four years | |
| — | |
| 4,205 |
| | 4,205 |
Four to five years | |
| — | |
| 1,591 |
| | 1,591 |
Over five years | |
| 0 | |
| 3,884 |
| | 3,884 |
Total lease payments | | $ | 128,928 | | $ | 25,391 |
| $ | 154,319 |
Less: imputed interest | |
| (11,088) | |
| (4,334) |
| | (15,422) |
Total operating lease liabilities | | $ | 117,840 | | $ | 21,057 |
| $ | 138,897 |
| | | | | | | | | |
Current operating lease liabilities | | $ | 45,598 | | $ | 4,723 |
| $ | 50,321 |
Non-current operating lease liabilities | |
| 72,242 | |
| 16,334 |
| | 88,576 |
Total operating lease liabilities | | $ | 117,840 | | $ | 21,057 |
| $ | 138,897 |
10
Vessels | Facilities and Equipment | Total | |||||||||
Remainder of 2020 | $ | 44,316 | $ | 4,619 | $ | 48,935 | |||||
2021 | 54,184 | 5,630 | 59,814 | ||||||||
2022 | 52,106 | 5,109 | 57,215 | ||||||||
2023 | 34,580 | 4,565 | 39,145 | ||||||||
2024 | 2,470 | 4,299 | 6,769 | ||||||||
Thereafter | — | 5,954 | 5,954 | ||||||||
Total lease payments | $ | 187,656 | $ | 30,176 | $ | 217,832 | |||||
Less: imputed interest | (21,611 | ) | (5,747 | ) | (27,358 | ) | |||||
Total operating lease liabilities | $ | 166,045 | $ | 24,429 | $ | 190,474 | |||||
Current operating lease liabilities | $ | 48,296 | $ | 4,767 | $ | 53,063 | |||||
Non-current operating lease liabilities | 117,749 | 19,662 | 137,411 | ||||||||
Total operating lease liabilities | $ | 166,045 | $ | 24,429 | $ | 190,474 |
Maturities of our operating lease liabilities as of December 31, 20192020 are as follows (in thousands):
Vessels | Facilities and Equipment | Total | |||||||||
2020 | $ | 60,210 | $ | 6,610 | $ | 66,820 | |||||
2021 | 54,564 | 5,888 | 60,452 | ||||||||
2022 | 52,106 | 5,257 | 57,363 | ||||||||
2023 | 34,580 | 4,622 | 39,202 | ||||||||
2024 | 2,470 | 4,349 | 6,819 | ||||||||
Thereafter | — | 6,251 | 6,251 | ||||||||
Total lease payments | $ | 203,930 | $ | 32,977 | $ | 236,907 | |||||
Less: imputed interest | (24,846 | ) | (6,449 | ) | (31,295 | ) | |||||
Total operating lease liabilities | $ | 179,084 | $ | 26,528 | $ | 205,612 | |||||
Current operating lease liabilities | $ | 48,716 | $ | 5,069 | $ | 53,785 | |||||
Non-current operating lease liabilities | 130,368 | 21,459 | 151,827 | ||||||||
Total operating lease liabilities | $ | 179,084 | $ | 26,528 | $ | 205,612 |
| | | | | | | | | |
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | 54,621 | | $ | 6,028 |
| $ | 60,649 |
One to two years | |
| 52,106 | |
| 5,435 |
| | 57,541 |
Two to three years | |
| 34,580 | |
| 4,649 |
| | 39,229 |
Three to four years | |
| 2,470 | |
| 4,374 |
| | 6,844 |
Four to five years | |
| — | |
| 2,340 |
| | 2,340 |
Over five years | |
| — | |
| 4,054 |
| | 4,054 |
Total lease payments | | $ | 143,777 | | $ | 26,880 |
| $ | 170,657 |
Less: imputed interest | |
| (13,352) | |
| (4,697) |
| | (18,049) |
Total operating lease liabilities | | $ | 130,425 | | $ | 22,183 |
| $ | 152,608 |
| | | | | | | | | |
Current operating lease liabilities | | $ | 46,748 | | $ | 4,851 |
| $ | 51,599 |
Non-current operating lease liabilities | |
| 83,677 | |
| 17,332 |
| | 101,009 |
Total operating lease liabilities | | $ | 130,425 | | $ | 22,183 |
| $ | 152,608 |
The following table presents the weighted average remaining lease term and discount rate:
March 31, 2020 | December 31, 2019 | ||||
Weighted average remaining lease term | 3.7 years | 4.0 years | |||
Weighted average discount rate | 7.53 | % | 7.54 | % |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 | | 2020 | ||
Weighted average remaining lease term |
| 3.0 | years | | 3.1 | years |
Weighted average discount rate |
| 7.53 | % | | 7.53 | % |
The following table presents other information related to our operating leases (in thousands):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Cash paid for operating lease liabilities | $ | 16,472 | $ | 17,148 | |||
ROU assets obtained in exchange for new operating lease obligations | — | 89 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash paid for operating lease liabilities | | $ | 16,502 |
| $ | 16,472 |
ROU assets obtained in exchange for new operating lease obligations | |
| 113 |
| | — |
Well Intervention | |||
Balance at December 31, 2019 | $ | 7,157 | |
Impairment loss (1) | (6,689 | ) | |
Other adjustments (2) | (468 | ) | |
Balance at March 31, 2020 | $ | — |
Scheduled maturities of our long-term debt outstanding as of March 31, 20202021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Term | | 2022 | | 2023 | | 2026 | | MARAD | | |
| |||||
|
| Loan |
| Notes |
| Notes |
| Notes |
| Debt |
| Total | ||||||
Less than one year | | $ | 28,875 | | $ | — | | $ | — | | $ | — | | $ | 7,746 |
| $ | 36,621 |
One to two years | |
| — | |
| 35,000 | |
| — | |
| — | |
| 8,133 |
| | 43,133 |
Two to three years | |
| — | |
| — | |
| 30,000 | |
| — | |
| 8,539 |
| | 38,539 |
Three to four years | |
| — | |
| — | |
| — | |
| — | |
| 8,965 |
| | 8,965 |
Four to five years | |
| — | |
| — | |
| — | |
| 200,000 | |
| 9,412 |
| | 209,412 |
Over five years | |
| — | |
| — | |
| — | |
| — | |
| 9,881 |
| | 9,881 |
Gross debt | |
| 28,875 | |
| 35,000 | |
| 30,000 | |
| 200,000 | |
| 52,676 |
| | 346,551 |
Unamortized debt issuance costs (1) | |
| (143) | |
| (206) | |
| (445) | |
| (6,792) | |
| (2,927) |
| | (10,513) |
Total debt | |
| 28,732 | |
| 34,794 | |
| 29,555 | |
| 193,208 | |
| 49,749 |
| | 336,038 |
Less current maturities | |
| (28,732) | |
| — | |
| — | |
| — | |
| (7,746) |
| | (36,478) |
Long-term debt | | $ | — | | $ | 34,794 | | $ | 29,555 | | $ | 193,208 | | $ | 42,003 |
| $ | 299,560 |
Term Loan (1) | 2022 Notes | 2023 Notes | MARAD Debt | Nordea Q5000 Loan | Total | ||||||||||||||||||
Less than one year | $ | 3,500 | $ | — | $ | — | $ | 7,378 | $ | 80,357 | $ | 91,235 | |||||||||||
One to two years | 28,875 | — | — | 7,746 | — | 36,621 | |||||||||||||||||
Two to three years | — | 125,000 | — | 8,133 | — | 133,133 | |||||||||||||||||
Three to four years | — | — | 125,000 | 8,538 | — | 133,538 | |||||||||||||||||
Four to five years | — | — | — | 8,965 | — | 8,965 | |||||||||||||||||
Over five years | — | — | — | 19,294 | — | 19,294 | |||||||||||||||||
Gross debt | 32,375 | 125,000 | 125,000 | 60,054 | 80,357 | 422,786 | |||||||||||||||||
Unamortized debt discounts (2) | — | (7,207 | ) | (13,700 | ) | — | — | (20,907 | ) | ||||||||||||||
Unamortized debt issuance costs (3) | (334 | ) | (1,103 | ) | (2,208 | ) | (3,415 | ) | (398 | ) | (7,458 | ) | |||||||||||
Total debt | 32,041 | 116,690 | 109,092 | 56,639 | 79,959 | 394,421 | |||||||||||||||||
Less: current maturities | (3,500 | ) | — | — | (7,378 | ) | (79,959 | ) | (90,837 | ) | |||||||||||||
Long-term debt | $ | 28,541 | $ | 116,690 | $ | 109,092 | $ | 49,261 | $ | — | $ | 303,584 |
(1) |
Debt issuance costs are amortized to interest expense over the term of the applicable debt agreement. See Note 1 for accounting changes as a result of the adoption of ASU No. 2020-06. |
11
Credit Agreement
We have a credit agreement (and the amendments made thereafter, collectively the “Credit Agreement”) with a group of lenders led by Bank of America, N.A. (“Bank of America”). On June 28, 2019, we amended our existing term loan (the “Term Loan”) and revolving credit facility (the “Revolving Credit Facility”) under the Credit Agreement. The Credit Agreement is comprised of a $35Term Loan with a remaining balance of $28.9 million Term Loanas of March 31, 2021 and a Revolving Credit Facility with a maximum availability of $175 millionmillion. The Credit Agreement expires and the Term Loan matures on December 31, 2021. The Revolving Credit Facility permits us to obtain letters of credit up to a sublimit of $25 million. Pursuant to the Credit Agreement, subject to existing lender participation and/or the participation of new lenders, and subject to standard conditions precedent, we may request aggregate commitments of up to $100 million with respect to an increase in the Revolving Credit Facility. As of March 31, 2020,2021, we had no0 borrowings under the Revolving Credit Facility, and our available borrowing capacity under that facility, based on the leverage ratios, totaled $172.6$172.2 million, net of $2.4$2.8 million of letters of credit issued under that facility.
Borrowings under the Credit Agreement bear interest, at our election, at either Bank of America’s base rate, the LIBOR or a comparable successor rate, or a combination thereof. The Term Loan bearing interest at the base rate will bear interest at a per annum rate equal to Bank of America’s base rate plus a margin of 2.25%. The Term Loan bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin of 3.25%. The interest rate on the Term Loan was 4.24%3.36% as of March 31, 2020.2021. Borrowings under the Revolving Credit Facility bearing interest at the base rate will bear interest at a per annum rate equal to Bank of America’s base rate plus a margin ranging from 1.50% to 2.50%. Borrowings under the Revolving Credit Facility bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin ranging from 2.50% to 3.50%. A letter of credit fee is payable by us equal to the applicable margin for LIBOR rate loans multiplied by the daily amount available to be drawn under the applicable letter of credit. Margins on borrowings under the Revolving Credit Facility will vary in relation to the Consolidated Total Leverage Ratio (as defined below) as provided for in the Credit Agreement. We also pay a fixed commitment fee of 0.50% per annum on the unused portion of the Revolving Credit Facility.
The Term Loan principal is required to be repaid in
quarterly installments of 2.5% ofOur obligations under the Credit Agreement, and those of our subsidiary guarantors under their guarantee, are secured by (i) most of the assets of the parent company, (ii) the shares of our domestic subsidiaries (other than Cal Dive I -– Title XI, Inc.) and of Helix Robotics Solutions Limited and (iii) most of the assets of our domestic subsidiaries (other than Cal Dive I -– Title XI, Inc.) and of Helix Robotics Solutions Limited. In addition, these obligations are secured by pledges of up to 66% of the shares of certain foreign subsidiaries (restricted subsidiaries).
The Credit Agreement and the other documents entered into in connection with the Credit Agreement include terms and conditions, including covenants, whichthat we consider customary for this type of transaction. The covenants include certain restrictions on our and certain of our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and make capital expenditures. In addition, the Credit Agreement obligates us to meet minimum ratio requirements of EBITDA to interest charges (Consolidated Interest Coverage Ratio), funded debt to EBITDA (Consolidated Total Leverage Ratio) and secured funded debt to EBITDA (Consolidated Secured Leverage Ratio).
We may designate one or more of our new foreign subsidiaries as subsidiaries not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”). The Unrestricted Subsidiaries are not pledged as collateral under the Credit Agreement, and the debt and EBITDA of the Unrestricted Subsidiaries, with the exception of Helix Q5000 Holdings, S.à r.l. (“Q5000 Holdings”), a wholly owned Luxembourg subsidiary of Helix Vessel Finance S.à r.l., are not included in the calculations of our financial covenants except to the extent of any cash actually distributed by such subsidiary ofto Helix.
12
Convertible Senior Notes Due 2022 (“2022 Notes”)
The 2022 Notes bear interest at a coupon interest rate of 4.25% per annum and are payable
Prior to February 1, 2022, holders of the 2022 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2022 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2022 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the intentiontime remaining to settle thematurity, of up to 30.5887 shares of our common stock per $1,000 principal amount of any such future conversions in cash.
Prior to November 1, 2019, the 2022 Notes were not redeemable. BeginningOn or after November 1, 2019, if certain conditions are met, we may redeem all or any portion of the 2022 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2022 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2022 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2022 Notes).
The indenture governing the 2022 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a subsidiary, the principal amount of the 2022 Notes together with any accrued interest will become immediately due and payable.
The 2022 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the maturity date of the 2022 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2022 Notes totaled $1.5 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2022 Notes (Note 1). As of March 31, 2021, unamortized debt issuance costs related to the 2022 Notes were $0.2 million.
The effective interest rate for the 2022 Notes prior to the adoption of ASU No. 2020-06 was 7.3%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 4.8%. For the three-month period ended March 31, 2021, total interest expense related to the 2022 Notes was $0.4 million primarily from coupon interest expense. For the three-month period ended March 31, 2020, total interest expense related to the 2022 Notes was $2.3 million, with coupon interest expense of $1.4 million and the amortization of debt discount and issuance costs of $0.9 million.
13
Convertible Senior Notes Due 2023 (“2023 Notes”)
The 2023 Notes bear interest at a coupon interest rate of 4.125% per annum payable semi-annually in arrears on March 15 and September 15 of each year until maturity. The 2023 Notes mature on September 15, 2023 unless earlier converted, redeemed or repurchased by us. The 2023 Notes are convertible by their holders at any time beginning March 15, 2023 at an initial conversion rate of 105.6133 shares of our common stock per $1,000 principal amount, which currently represents 3,168,399 potentially convertible shares at an initial conversion price of approximately $9.47 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to March 15, 2023, holders of the 2023 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2023 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2023 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 47.5260 shares of our common stock per $1,000 principal amount.
Prior to March 15, 2021, the 2023 Notes were not redeemable. On or after March 15, 2021, we may redeem all or any portion of the 2023 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption pricenotice. Any redemption would be payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” (as defined incalculated as the indenture governing the 2022 Notes).present value of all remaining scheduled interest payments. Holders of the 20222023 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2023 Notes may also require us to repurchase the notes following a “fundamental change” (as defined in the indenture governing the 2022 Notes).
The indenture governing the 2023 Notes contains customary terms and covenants, including that upon certain events of default, occurring and continuing, either the trustee under the indenture or the holders of not less than 25% in aggregate principal amount then outstanding under the 2023 Notes may declare the entire principal amount of alland any accrued interest on the notes and the interest accrued on such notes, if any, tomay be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2023 Notes together with any accrued and unpaid interest thereon will become immediately due and payable.
The 2023 Notes were initially accounted for by separatingseparated between the net proceeds betweenequity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and shareholders’ equity. In connection withdebt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the issuancematurity date of the 2023 Notes, we recorded aNotes. As of December 31, 2020, unamortized debt discount of $20.1 million ($15.9 million net of tax) asand debt issuance costs related to the 2023 Notes totaled $3.1 million. As a result of separating the equity component. adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2023 Notes (Note 1). As of March 31, 2021, unamortized debt issuance costs related to the 2023 Notes were $0.4 million.
The effective interest rate for the 2023 Notes isprior to the adoption of ASU No. 2020-06 was 7.8% after considering. The effective interest rate subsequent to the effectadoption of ASU No. 2020-06 decreased to 4.8%. For the accretion of the related debt discount over the term of the 2023 Notes. Interestthree-month period ended March 31, 2021, total interest expense (including amortization of the debt discount) related to the 2023 Notes totaled $2.1was $0.4 million, for eachwith coupon interest expense of $0.3 million and the amortization of issuance costs of $0.1 million. For the three-month periodsperiod ended March 31, 2020, and 2019. The remaining unamortized debt discount oftotal interest expense related to the 2023 Notes was $13.7$2.3 million, with coupon interest expense of $1.3 million and the amortization of debt discount and issuance costs of $1.0 million.
14
Convertible Senior Notes Due 2026 (“2026 Notes”)
The 2026 Notes bear interest at a coupon interest rate of 6.75% per annum payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2021 until maturity. The 2026 Notes mature on February 15, 2026 unless earlier converted, redeemed or repurchased by us. The 2026 Notes are convertible by their holders at any time beginning November 17, 2025 at an initial conversion rate of 143.3795 shares of our common stock per $1,000 principal amount, which currently represents 28,675,900 potentially convertible shares at an initial conversion price of approximately $6.97 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to November 17, 2025, holders of the 2026 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2026 Notes was equal to or less than 97% of the conversion value of the notes during the 5 consecutive business days immediately after any 10 consecutive trading day period (trading price condition). Holders of the 2026 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 64.5207 shares of our common stock per $1,000 principal amount.
Prior to August 15, 2023, the 2026 Notes are not redeemable. On or after August 15, 2023, we may redeem all or any portion of the 2026 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2026 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2026 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2026 Notes).
The indenture governing the 2026 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2026 Notes together with any accrued interest will become immediately due and payable.
The 2026 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. Those unamortized debt discount and debt issuance costs were accreted to interest expense through the maturity date of the 2026 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2026 Notes totaled $47.3 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2026 Notes (Note 1). As of March 31, 20202021, unamortized debt issuance costs related to the 2026 Notes were $6.8 million.
The effective interest rate for the 2026 Notes prior to the adoption of ASU No. 2020-06 was 12.4%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 7.6%. For the three-month period ended March 31, 2021, total interest expense related to the 2026 Notes was $3.7 million, with coupon interest expense of $3.4 million and $14.5the amortization of debt issuance costs of $0.3 million.
In connection with the 2026 Notes offering, we entered into capped call transactions (the “2026 Capped Calls”) with three separate option counterparties. The 2026 Capped Calls are separate transactions from the 2026 Notes and do not change the holders' rights under the 2026 Notes. Holders of the 2026 Notes do not have any rights with respect to the 2026 Capped Calls.
15
The 2026 Capped Calls are for an aggregate of 28,675,900 shares of our common stock, which corresponds to the shares into which the 2026 Notes are initially convertible. The capped call shares are subject to certain anti-dilution adjustments. Each capped call option has an initial strike price of approximately $6.97 per share, which corresponds to the initial conversion price of the 2026 Notes, and an initial cap price of approximately $8.42 per share. The strike and cap prices are subject to certain adjustments. The 2026 Capped Calls are intended to offset some or all of the potential dilution to Helix common shares caused by any conversion of the 2026 Notes up to the cap price. The 2026 Capped Calls can be settled in either net shares or cash at our option in components commencing December 15, 2025 and ending February 12, 2026, which could be extended under certain circumstances.
The 2026 Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting Helix, including a merger, tender offer, nationalization, insolvency or delisting. In addition, certain events may result in a termination of the 2026 Capped Calls, including changes in law, insolvency filings and hedging disruptions. The 2026 Capped Calls are recorded at their aggregate cost of $10.6 million at December 31, 2019.
MARAD Debt
This U.S. government-guaranteed financing (the “MARAD Debt”), pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, was used to finance the construction of the
Q4000. The MARAD Debt is collateralized by the Q4000 and is guaranteed 50% by us. The MARAD Debt is payable in equal semi-annual installments, matures in February 2027 and bears interest at a rate of 4.93%.Other
We previously had a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) in anto finance the construction of the Q5000. The loan was secured by the Q5000 and its charter earnings. As of December 31, 2020, the remaining principal amount of up to $250 million. Thethe Nordea Q5000 Loan was funded in$53.6 million, reflecting the amount of $250 million in April 2015 at the time the
In accordance with the Credit Agreement, the 2022 Notes, the 2023 Notes, the 2026 Notes and the MARAD Debt agreements, and the Nordea Credit Agreement, we are required to comply with certain covenants, including with respect to the Credit Agreement, certain financial ratios such as a consolidated interest coverage ratio, a consolidated total leverage ratio and a consolidated secured leverage ratio, as well as the maintenance of minimum cash balance, net worth, working capital and debt-to-equity requirements. As of March 31, 2020,2021, we were in compliance with these covenants.
The following table details the components of our net interest expense (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Interest expense | | $ | 6,112 |
| $ | 7,394 | |
Capitalized interest | |
| — |
| | (1,182) | |
Interest income | |
| (59) |
| | (466) | |
Net interest expense | | $ | 6,053 |
| $ | 5,746 | |
16
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Interest expense | $ | 7,394 | $ | 7,896 | |||
Interest income | (466 | ) | (758 | ) | |||
Capitalized interest | (1,182 | ) | (5,040 | ) | |||
Net interest expense | $ | 5,746 | $ | 2,098 |
Note 86 — Income Taxes
We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.
For the three-month period ended March 31, 2021, our estimated annual effective tax rate, adjusted for discrete tax items, is applied to our pre-tax loss as we have determined that the use of the annual effective tax rate method is appropriate. We used the discrete effective tax rate method for recording income taxes for the three-month period ended March 31, 2020. The CARESdiscrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. For the three-month period ended March 31, 2020, we believed using the discrete method was more appropriate than the annual effective tax rate method because of the high degree of uncertainty in estimating annual pretax earnings created at the time by uncertainty in future market conditions caused by the ongoing COVID-19 pandemic as well as uncertainty in the oil and gas market.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicable in the relevant carryback year. As a result of these changes, in the three-month period ended March 31, 2020 we recognized an estimated $5.8 million net tax benefit, in the three-month period ended March 31, 2020, consisting of a $15.9 million current tax benefit and a $10.1 million deferred tax expense. This $5.8 million net tax benefit resulted from our deferred tax assets related to our net operating losses in the U.S. being utilized at the previous higher income tax rate applicable to the carryback periods.
During the three-month period ended March 31, 2020. The discrete method is applied when2020, we migrated 2 of our foreign subsidiaries into our U.S. consolidated tax group. Subsequent to the applicationmigration, these subsidiaries are disregarded and no longer subject to certain branch profits taxes. Consequently, we recognized net deferred tax benefits of $8.3 million due to the estimated annual effectivereduction in the overall tax rate is impractical because it is not possible to reliably estimateassociated with these subsidiaries.
Income taxes are provided at the annual effective tax rate. The discrete method treatsU.S. statutory rate and at the year-to-date period as if it were the annual periodlocal statutory rate for each foreign jurisdiction and determines theadjusted for items that are permanent differences for Federal and foreign income tax expense or benefit on that basis. We believe that the use of the discrete method is more appropriate than the annual effective tax rate method because of the current high degree of uncertainty in estimating annual pretax earnings created by uncertainty in future market conditions caused by the ongoing COVID-19 pandemic as well as uncertainty in the oil and gas market. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.
17
The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our effective rate are as follows:
Three Months Ended March 31, | |||||
2020 | 2019 | ||||
U.S. statutory rate | 21.0 | % | 21.0 | % | |
Foreign provision | (3.0 | ) | (2.7 | ) | |
CARES Act | 16.6 | — | |||
Subsidiary restructuring | 23.8 | — | |||
Other | 1.8 | 1.4 | |||
Effective rate | 60.2 | % | 19.7 | % |
| | | | | | | | | | | | |
| | Three Months Ended |
| | ||||||||
| | March 31, |
| | ||||||||
|
| 2021 |
| 2020 |
| | ||||||
Taxes at U.S. statutory rate | | $ | (616) |
| 21.0 | % | $ | (7,355) |
| 21.0 | % | |
Foreign tax provision | |
| (938) |
| 32.0 | |
| 1,051 |
| (3.0) | | |
CARES Act | |
| — |
| — | |
| (5,814) |
| 16.6 | | |
Subsidiary restructuring | |
| — |
| — | |
| (8,333) |
| 23.8 | | |
Other | |
| 1,670 |
| (57.0) | |
| (642) |
| 1.8 | | |
Income tax provision (benefit) (1) | | $ | 116 |
| (4.0) | % | $ | (21,093) |
| 60.2 | % | |
March 31, 2020 | December 31, 2019 | ||||||
Cumulative foreign currency translation adjustment | $ | (98,042 | ) | $ | (64,455 | ) | |
Net unrealized loss on hedges, net of tax (1) | (20 | ) | (285 | ) | |||
Accumulated OCI | $ | (98,062 | ) | $ | (64,740 | ) |
(1) |
Disaggregation of Revenue
Our revenues are primarily derived from short-term and long-term service contracts with customers. Our service contracts generally contain either provisions for specific time, material and equipment charges that are billed in accordance with the terms of such contracts (dayrate contracts) or lump sum payment provisions (lump sum contracts). We record revenues net of taxes collected from customers and remitted to governmental authorities. Contracts are classified as long-term if all or part of the contract is to be performed over a period extending beyond 12 months from the effective date of the contract. Long-term contracts may include multi-year agreements whereby the commitment for services in any one year may be short in duration. The following table provides information about disaggregated revenue by contract duration (in thousands):
| | | | | | | | | | | | | | | |
| | Well | | | | Production | | Intercompany | | Total | |||||
|
| Intervention |
| Robotics |
| Facilities |
| Eliminations (1) |
| Revenue | |||||
Three months ended March 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Short-term | | $ | 49,217 | | $ | 9,407 | | $ | 0 | | $ | 0 | | $ | 58,624 |
Long-term | |
| 84,551 | |
| 12,749 | |
| 16,447 | |
| (8,956) | |
| 104,791 |
Total | | $ | 133,768 | | $ | 22,156 | | $ | 16,447 | | $ | (8,956) | | $ | 163,415 |
| | | | | | | | | | | | | | | |
Three months ended March 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
Short-term | | $ | 82,324 | | $ | 22,441 | | $ | 0 | | $ | 0 | | $ | 104,765 |
Long-term | |
| 58,328 | |
| 12,817 | |
| 15,541 | |
| (10,430) | |
| 76,256 |
Total | | $ | 140,652 | | $ | 35,258 | | $ | 15,541 | | $ | (10,430) | | $ | 181,021 |
Well Intervention | Robotics | Production Facilities | Intercompany Eliminations (1) | Total Revenue | ||||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||
Short-term | $ | 82,324 | $ | 22,441 | $ | — | $ | — | $ | 104,765 | ||||||||||
Long-term (2) | 58,328 | 12,817 | 15,541 | (10,430 | ) | 76,256 | ||||||||||||||
Total | $ | 140,652 | $ | 35,258 | $ | 15,541 | $ | (10,430 | ) | $ | 181,021 | |||||||||
Three months ended March 31, 2019 | ||||||||||||||||||||
Short-term | $ | 29,805 | $ | 24,930 | $ | — | $ | — | $ | 54,735 | ||||||||||
Long-term (2) | 92,426 | 14,111 | 15,253 | (9,702 | ) | 112,088 | ||||||||||||||
Total | $ | 122,231 | $ | 39,041 | $ | 15,253 | $ | (9,702 | ) | $ | 166,823 |
(1) | Intercompany revenues among our business segments are under agreements that are considered long-term. |
Contract Balances
Accounts receivable are recognized when our right to consideration becomes unconditional. Accounts receivable that have been billed to customers are recorded as trade accounts receivable while accounts receivable that have not been billed to customers are recorded as unbilled accounts receivable.
18
Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3). Contract assets were $5.9$0.4 million at March 31, 20202021 and $0.7$2.4 million at December 31, 2019.2020. We had no impairment0 credit losses on our contract assets for the three-month periods ended March 31, 20202021 and 2019.
Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets (Note 3). Contract liabilities totaled $17.2$10.9 million at March 31, 20202021 and $19.9$10.0 million at December 31, 2019.2020. Revenue recognized for the three-month periods ended March 31, 2021 and 2020 and 2019 included $3.4$2.5 million and $2.5$3.4 million, respectively, that were included in the contract liability balance at the beginning of each period.
We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
Performance Obligations
As of March 31, 2020, $677.72021, $358.4 million related to unsatisfied performance obligations was expected to be recognized as revenue in the future, with $392.2$238.7 million in 2020, $219.52021, $84.4 million in 20212022 and $66.0$35.3 million in 20222023 and thereafter. These amounts include fixed consideration and estimated variable consideration for both wholly and partially unsatisfied performance obligations, including mobilization and demobilization fees. These amounts are derived from the specific terms of our contracts, and the expected timing for revenue recognition is based on the estimated start date and duration of each contract according to the information known at March 31, 2020.
For the three-month periods ended March 31, 20202021 and 2019,2020, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
Contract Fulfillment Costs
Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3). Our deferred contract costs totaled $37.1$19.6 million at March 31, 20202021 and $42.9$24.4 million at December 31, 2019.2020. For the three-month periods ended March 31, 20202021 and 2019,2020, we recorded $9.2$10.4 million and $7.7$9.2 million, respectively, related to amortization of these deferred contract costs existing at the beginning of each period.costs. There were no associated impairment losses for any period presented.
For additional information regarding revenue recognition, see Notes 2 and 12 to our 20192020 Form 10-K.
19
We have shares of restricted stock issued and outstanding that are currently unvested. Shares of restricted stock are considered participating securities becauseBecause holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock. Westock, we are required to compute basic and diluted earnings per share (“EPS”)EPS under the two-class method in periods in which we have earnings. Under the two-class method, the undistributed earningsnet income or loss attributable to common shareholders for each period areis allocated based on the participation rights of both common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. For periods in which we have a net loss we do not use the two-class method as holders of our restricted shares are not obligated to share in such losses.
Basic EPS on the face of the accompanying condensed consolidated statements of operations is computed by dividing net income or loss available to common shareholders by the weighted average shares of our common stock outstanding. The calculation of diluted EPS is similar to that for basic EPS, except that the denominator includes dilutive common stock equivalents and the numerator excludes the effects of dilutive common stock equivalents, if any. The computations of the numerator (income) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands):
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | ||||||||||||
Income | Shares | Income | Shares | ||||||||||
Basic: | |||||||||||||
Net income (loss) attributable to common shareholders | $ | (11,938 | ) | $ | 1,318 | ||||||||
Less: Undistributed earnings allocated to participating securities | — | (12 | ) | ||||||||||
Accretion of redeemable noncontrolling interests | (2,086 | ) | — | ||||||||||
Net income (loss) available to common shareholders, basic | $ | (14,024 | ) | 148,863 | $ | 1,306 | 147,421 | ||||||
Diluted: | |||||||||||||
Net income (loss) available to common shareholders, basic | $ | (14,024 | ) | 148,863 | $ | 1,306 | 147,421 | ||||||
Effect of dilutive securities: | |||||||||||||
Share-based awards other than participating securities | — | — | — | 330 | |||||||||
Net income (loss) available to common shareholders, diluted | $ | (14,024 | ) | 148,863 | $ | 1,306 | 147,751 |
| | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||
| | March 31, 2021 | | March 31, 2020 | ||||||
|
| Income |
| Shares |
| Income |
| Shares | ||
Basic and Diluted: |
| |
|
|
|
| |
|
|
|
Net loss attributable to common shareholders | | $ | (2,878) | | |
| $ | (11,938) |
|
|
Less: Accretion of redeemable noncontrolling interests | |
| (241) | | |
| | (2,086) |
|
|
Net loss available to common shareholders | | $ | (3,119) | | 149,935 | | $ | (14,024) |
| 148,863 |
We had a net losslosses for the three-month periodperiods ended March 31, 2021 and 2020. Accordingly, our diluted EPS calculation for this periodthese periods excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods. Shares that otherwise would have been included in the diluted per share calculations assuming we had earnings are as follows (in thousands):
| | | | | |
| | Three Months Ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 | |
Diluted shares (as reported) |
| 149,935 |
| 148,863 | |
Share-based awards |
| 1,093 |
| 722 | |
Total |
| 151,028 |
| 149,585 | |
The following potentially dilutive shares related to the 2022 Notes, the 2023 Notes and the 20232026 Notes were excluded from the diluted EPS calculation as they were anti-dilutive (in thousands):
| | | | | |
| | Three Months Ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 | |
2022 Notes |
| 2,519 |
| 8,997 | |
2023 Notes |
| 3,168 |
| 13,202 | |
2026 Notes |
| 28,676 |
| — | |
20
Three Months Ended March 31, | |||||
2020 | 2019 | ||||
2022 Notes | 8,997 | 8,997 | |||
2023 Notes | 13,202 | 13,202 |
Long-Term Incentive Plan
As of March 31, 2021, there were 6.0 million shares of our common stock available for issuance under our 2005 Long-Term Incentive Plan, as amended and restated (the “2005 Incentive Plan”). As of March 31, 2020, there were 7.0 million shares of our common stock available for issuance under the 2005 Incentive Plan. During the three-month period ended March 31, 2020,2021, the following grants of share-based awards were made under the 2005 Incentive Plan:
| | | | | | | |
| | | | Grant Date | | | |
| | | | Fair Value | | | |
Date of Grant |
| Shares/Units |
| Per Share/Unit |
| Vesting Period | |
January 1, 2021 (1) |
| 452,381 | | $ | 4.20 |
| 33% per year over three years |
January 4, 2021 (2) |
| 452,381 | | $ | 5.33 |
| 100% on January 4, 2024 |
January 4, 2021 (3) |
| 14,249 | | $ | 4.20 |
| 100% on January 1, 2023 |
Date of Grant | Shares/ Units | Grant Date Fair Value Per Share/Unit | Vesting Period | ||||||||||
January 2, 2020 (1) | 369,938 | $ | 9.63 | 33% per year over three years | |||||||||
January 2, 2020 (2) | 369,938 | 13.15 | 100% on January 2, 2023 | ||||||||||
January 2, 2020 (3) | 5,679 | 9.63 | 100% on January 1, 2022 |
(1) | Reflects grants of restricted stock units (“RSUs”) to our executive |
(2) | Reflects grants of performance share units (“PSUs”) to our executive |
(3) | Reflects grants of restricted stock to certain independent members of our Board of Directors (our “Board”) who have elected to take their quarterly fees in stock in lieu of cash. |
Compensation cost for restricted stock is the product of the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. Forfeitures are recognized as they occur. No restricted stock awards were granted in 2021. All outstanding unvested restricted stock awards were granted in 2020 and 2019. For the three-month periods ended March 31, 2021 and 2020, and 2019, $1.1$0.8 million and $1.3$1.1 million, respectively, were recognized as share-based compensation related to restricted stock.
Our existing PSUs is determined using a Monte Carlo simulation model. PSUsthat were granted prior to 2017 were settled in cash and accounted for as liability awards. PSUs granted beginning in 20172021 are to be settled solely in shares of our common stock and therefore are accounted for as equity awards. Those PSUs contain a service condition and a market condition. PSUs granted in 2021 may be settled in either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee of our Board and are initially accounted for as equity awards. The PSUs granted in 2021 consist of 2 components: (i) 50% based on the performance of our common stock against peer group companies, which contains a service condition and a market condition, and (ii) 50% based on cumulative total FCF, which contains a service condition and a performance condition. FCF is calculated as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. Our PSUs cliff vest at the end of a three-year period with the maximum amount of the award being 200% of the original PSU awards and the minimum amount being 0.
Compensation cost for PSUs that have a service condition and a market condition and are accounted for as equity awards is measured based on the estimated grant date estimated fair value and recognized over the vesting period on a straight-line basisbasis. The grant date estimated fair value is determined using a Monte Carlo simulation model. Compensation cost for PSUs that have a service condition and a performance condition and are accounted for as an increaseequity awards is initially measured based on the grant date fair value. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to equity.reflect the current estimation of achieving the performance condition. For the three-month periods ended March 31, 2021 and 2020, and 2019, $1.1$1.0 million and $1.3$1.1 million, respectively, were recognized as share-based compensation related to equity PSUs. In January 2020,2021, based on the performance of our common stock price as compared to our performance peer group over a three-year period, 589,335368,038 equity PSU awardsPSUs granted in 20172018 vested at 200% and resulted in the delivery of 1,178,670, representing 736,075 shares of our common stock with a total market value of $11.4$3.1 million.
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RSUs granted in 2021 have been accounted for as liability awards. Liability RSUs are measured at their estimated fair value at each balance sheet date, and subsequent changes in the fair value of the awards are recognized in earnings for the portion of the award for which the requisite service period has elapsed. Cumulative compensation cost for vested liability RSUs equals the actual payout value upon vesting. For the three-month period ended March 31, 2021, $0.2 million was recognized as compensation cost.
In 20202021 and 2019,2020, we granted fixed-value cash awards of $4.7$3.4 million and $4.6$4.7 million, respectively, to select management employees under the 2005 Incentive Plan. The value of these cash awards is recognized on a straight-line basis over a vesting period of three years. For the three-month periods ended March 31, 2021 and 2020, and 2019, $1.2$1.0 million and $0.8$1.2 million, respectively, were recognized as compensation cost.
Defined Contribution Plan
We sponsor a defined contribution 401(k) retirement plan. OurWe suspended our discretionary contributions which were reactivated in April 2019, are in the form of cash and currently consist of a 50% match of each participant’s contribution up to 5% of the participant’s salary.
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”). As of March 31, 2020, 1.92021, 1.7 million shares were available for issuance under the ESPP. The ESPP currently has a purchase limit of 260 shares per employee per purchase period.
For more information regarding our employee benefit plans, including the 2005 Incentive Plan and the ESPP, see Note 14 to our 20192020 Form 10-K.
Note 1310 — Business Segment Information
We have 3 reportable business segments: Well Intervention, Robotics and Production Facilities. Our U.S., U.K. and Brazil well intervention operating segments are aggregated into the Well Intervention business segment for financial reporting purposes. Our Well Intervention reportable segment includesprovides services enabling our vessels and/customers to safely access offshore wells for the purpose of performing well enhancement or equipment used to perform well intervention servicesdecommissioning operations primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the
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We evaluate our performance based on operating income of each reportable segment. Certain financial data by reportable segment are summarized as follows (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Net revenues — | | |
|
| |
| |
Well Intervention | | $ | 133,768 | | $ | 140,652 | |
Robotics | |
| 22,156 | |
| 35,258 | |
Production Facilities | |
| 16,447 | |
| 15,541 | |
Intercompany eliminations | |
| (8,956) | |
| (10,430) | |
Total | | $ | 163,415 | | $ | 181,021 | |
| | | | | | | |
Income (loss) from operations — | |
|
| |
|
| |
Well Intervention | | $ | 5,243 | | $ | (5,692) | |
Robotics | |
| (2,934) | |
| (2,824) | |
Production Facilities | |
| 6,514 | |
| 3,643 | |
Segment operating income (loss) | |
| 8,823 | |
| (4,873) | |
Goodwill impairment (1) | |
| — | |
| (6,689) | |
Corporate, eliminations and other | |
| (9,378) | |
| (9,465) | |
Total | | $ | (555) | | $ | (21,027) | |
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net revenues — | |||||||
Well Intervention | $ | 140,652 | $ | 122,231 | |||
Robotics | 35,258 | 39,041 | |||||
Production Facilities | 15,541 | 15,253 | |||||
Intercompany eliminations | (10,430 | ) | (9,702 | ) | |||
Total | $ | 181,021 | $ | 166,823 | |||
Income (loss) from operations — | |||||||
Well Intervention | $ | (5,692 | ) | $ | 9,641 | ||
Robotics | (2,824 | ) | (3,904 | ) | |||
Production Facilities | 3,643 | 4,405 | |||||
Segment operating income (loss) | (4,873 | ) | 10,142 | ||||
Goodwill impairment (1) | (6,689 | ) | — | ||||
Corporate, eliminations and other | (9,465 | ) | (9,873 | ) | |||
Total | $ | (21,027 | ) | $ | 269 |
(1) |
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Well Intervention | $ | 3,304 | $ | 3,225 | |||
Robotics | 7,126 | 6,477 | |||||
Total | $ | 10,430 | $ | 9,702 |
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 | | ||
Well Intervention | | $ | 2,587 | | $ | 3,304 | |
Robotics | |
| 6,369 | |
| 7,126 | |
Total | | $ | 8,956 | | $ | 10,430 | |
Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments, most notably the majority of our cash and cash equivalents. The following table reflects total assets by reportable segment (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Well Intervention | | $ | 2,081,641 | | $ | 2,134,081 |
Robotics | |
| 108,372 | |
| 132,550 |
Production Facilities | |
| 134,989 | |
| 129,773 |
Corporate and other | |
| 96,747 | |
| 101,874 |
Total | | $ | 2,421,749 | | $ | 2,498,278 |
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March 31, 2020 | December 31, 2019 | ||||||
Well Intervention | $ | 2,134,796 | $ | 2,180,180 | |||
Robotics | 136,845 | 151,478 | |||||
Production Facilities | 140,079 | 142,624 | |||||
Corporate and other | 102,431 | 122,449 | |||||
Total | $ | 2,514,151 | $ | 2,596,731 |
Asset retirement obligations (“AROs”) are recorded at fair value and consist of estimated costs for subsea infrastructure plug and abandonment (“P&A&A”) activities associated with our oil and gas properties, whichproperties. The estimated costs are discounted to present value using a credit-adjusted risk-free discount rate. After its initial recognition, an ARO liability is increased for the passage of time as accretion expense, which is a component of our depreciation and amortization expense. An ARO liability may also change based on revisions in estimated costs and/or timing to settle the obligations.
Our AROs relate to our Droshky oil and gas properties that we acquired from Marathon Oil Corporation (“Marathon Oil”) in January 2019. In connection with assuming the P&A obligations related to those assets, we are entitled to receive agreed-upon amounts from Marathon Oil as the P&A work is completed. The following table describes the changes in our AROs (both current and long-term) (in thousands):
AROs at January 1, 2020 | $ | 28,258 | |
Accretion expense | 676 | ||
AROs at March 31, 2020 | $ | 28,934 |
| | | | | | |
|
| 2021 |
| 2020 | ||
AROs at January 1, | | $ | 30,913 | | $ | 28,258 |
Accretion expense | |
| 48 | |
| 676 |
AROs at March 31, | | $ | 30,961 | | $ | 28,934 |
Note 1512 — Commitments and Contingencies and Other Matters
Commitments Related to Our Fleet
We have long-term charter agreements with Siem Offshore AS (“Siem”) for the
Siem Helix1 and Siem Helix2 vessels, which are currently used in connection with our contracts with Petróleo Brasileiro S.A. (“Petrobras”) to perform well intervention work offshore Brazil. The initial term of the charter agreements with Siem is for seven years, with options to extend. The Siem Helix 1 charter expires June 2023 and the Siem Helix 2 charter expires February 2024. We haveContingencies and Claims
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations andor cash flows.
Litigation
We are involved in various legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act. In addition, from time to time we receive other claims, such as contract and employment-related disputes, in the normal course of business.
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less. We classify cash as restricted when there are legal or contractual restrictions for its withdrawal. As of March 31, 2020, we had restricted cash of $52.4 million, which serves as collateral for one project-related letter of credit and is expected to be restricted for less than one year. The following table provides supplemental cash flow information (in thousands):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Interest paid, net of interest capitalized | $ | 4,785 | $ | 1,604 | |||
Income taxes paid | 2,584 | 2,704 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Interest paid, net of interest capitalized | | $ | 9,397 | | $ | 4,785 |
Income taxes paid | |
| 1,790 | |
| 2,584 |
Our non-cash investing activitiescapital additions include the acquisition of property and equipment for which payment has not been made. These non-cash capital additions totaled $5.2$0.6 million at March 31, 20202021 and $10.2$1.6 million at December 31, 2019.2020.
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We estimate current expected credit losses on our accounts receivable at each reporting date. We estimate current expected credit losses based on our credit loss history, adjusted for current factors including global economic and business conditions, oil and gasoffshore energy industry and market conditions, customer mix, contract payment terms and past due accounts receivable.
The following table sets forth the activity in our allowance for credit losses (in thousands):
| | | | | | |
|
| 2021 |
| 2020 | ||
Balance at January 1, | | $ | 3,469 | | $ | — |
Additions (1) | |
| 7 | |
| 586 |
Write-offs (2) | | | (1,811) | | | — |
Adjustments (3) | |
| — | |
| 785 |
Balance at March 31, | | $ | 1,665 | | $ | 1,371 |
Allowance for Credit Losses | |||
Balance at December 31, 2019 | $ | — | |
Initial adoption of ASU 2016-13 (Note 1) | 785 | ||
Provision for current expected credit losses | 586 | ||
Balance at March 31, 2020 | $ | 1,371 |
(1) | The additions in allowance for credit losses reflect credit loss reserves during the respective periods. |
(2) | The write-offs of allowance for credit losses reflect certain receivables related to our Robotics segment that were previously reserved and subsequently deemed to be uncollectible. |
(3) | The adjustment in allowance for credit losses reflects provision for current expected credit losses upon the adoption of ASU No. 2016-13 on January 1, 2020. |
Note 1815 — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
● | Level 1. Observable inputs such as quoted prices in active markets; |
● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
● | Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Assets and liabilities measured at fair value are based on one or more of three valuation approaches as follows:
(a) | Market |
(b) | Cost |
(c) | Income |
Our financial instruments include cash and cash equivalents, receivables, accounts payable and long-term debt and derivative instruments.debt. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments. The fair value of our derivative instruments (Note 19) reflects our best estimate and is based upon exchange or over-the-counter quotations whenever they are available. Quoted valuations may not be available due to location differences or terms that extend beyond the period for which quotations are available. Where quotes are not available, we utilize other valuation techniques or models to estimate market values. The fair value of our interest rate swaps is calculated as the discounted cash flows of the difference between the rate fixed by the hedging instrument and the LIBOR forward curve over the remaining term of the hedging instrument. The fair value of our foreign currency exchange contracts is calculated as the discounted cash flows of the difference between the fixed payment specified by the hedging instrument and the expected cash inflow of the forecasted transaction using a foreign currency forward curve. These modeling techniques require us to make estimations of future prices, price correlation, volatility and liquidity based on market data. The following tables provide additional information relating to those financial instruments measured at fair value on a recurring basis (in thousands):
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Fair Value at March 31, 2020 | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Valuation Approach | |||||||||||||
Liabilities: | |||||||||||||||||
Interest rate swaps | $ | — | $ | 26 | $ | — | $ | 26 | (c) | ||||||||
Total liability | $ | — | $ | 26 | $ | — | $ | 26 |
Fair Value at December 31, 2019 | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Valuation Approach | |||||||||||||
Assets: | |||||||||||||||||
Interest rate swaps | $ | — | $ | 44 | $ | — | $ | 44 | (c) | ||||||||
Liabilities: | |||||||||||||||||
Foreign exchange contracts — hedging instruments | — | 401 | — | 401 | (c) | ||||||||||||
Foreign exchange contracts — non-hedging instruments | — | 601 | — | 601 | (c) | ||||||||||||
Total net liability | $ | — | $ | 958 | $ | — | $ | 958 |
| | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||||||||
| | Principal | | Fair | | Principal | | Fair | ||||
|
| Amount (1) |
| Value (2) (3) |
| Amount (1) |
| Value (2) (3) | ||||
Term Loan (matures December 2021) | | $ | 28,875 | | $ | 28,622 | | $ | 29,750 | | $ | 28,969 |
Nordea Q5000 Loan (matured January 2021) (4) | |
| — | |
| — | |
| 53,572 | |
| 53,598 |
MARAD Debt (matures February 2027) | |
| 52,676 | |
| 58,502 | |
| 56,410 | |
| 62,318 |
2022 Notes (mature May 2022) | |
| 35,000 | |
| 34,917 | |
| 35,000 | |
| 33,513 |
2023 Notes (mature September 2023) | |
| 30,000 | |
| 28,942 | |
| 30,000 | |
| 28,650 |
2026 Notes (mature February 2026) | |
| 200,000 | |
| 232,674 | |
| 200,000 | |
| 211,383 |
Total debt | | $ | 346,551 | | $ | 383,657 | | $ | 404,732 | | $ | 418,431 |
March 31, 2020 | December 31, 2019 | ||||||||||||||
Principal Amount (1) | Fair Value (2) (3) | Principal Amount (1) | Fair Value (2) (3) | ||||||||||||
Term Loan (matures December 2021) | $ | 32,375 | $ | 30,797 | $ | 33,250 | $ | 32,959 | |||||||
Nordea Q5000 Loan (matures January 2021) (4) | 80,357 | 80,257 | 89,286 | 89,398 | |||||||||||
MARAD Debt (matures February 2027) | 60,054 | 62,293 | 63,610 | 68,643 | |||||||||||
2022 Notes (mature May 2022) | 125,000 | 78,594 | 125,000 | 134,225 | |||||||||||
2023 Notes (mature September 2023) | 125,000 | 78,125 | 125,000 | 162,188 | |||||||||||
Total debt | $ | 422,786 | $ | 330,066 | $ | 436,146 | $ | 487,413 |
(1) | Principal amount includes current maturities and excludes |
(2) | The estimated fair value of the 2022 Notes, the 2023 Notes and the |
(3) | The principal amount and estimated fair value of the 2022 Notes, the 2023 Notes and the |
(4) | The |
March 31, 2020 | December 31, 2019 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Asset Derivative Instruments: | |||||||||||
Interest rate swaps | Other current assets | $ | — | Other current assets | $ | 44 | |||||
$ | — | $ | 44 | ||||||||
Liability Derivative Instruments: | |||||||||||
Interest rate swaps | Accrued liabilities | $ | 26 | Accrued liabilities | $ | — | |||||
Foreign exchange contracts | Accrued liabilities | — | Accrued liabilities | 401 | |||||||
$ | 26 | $ | 401 |
March 31, 2020 | December 31, 2019 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Liability Derivative Instruments: | |||||||||||
Foreign exchange contracts | Accrued liabilities | $ | — | Accrued liabilities | $ | 601 | |||||
$ | — | $ | 601 |
Unrealized Loss Recognized in OCI | ||||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Foreign exchange contracts | $ | (54 | ) | $ | (34 | ) | ||
Interest rate swaps | (42 | ) | (115 | ) | ||||
$ | (96 | ) | $ | (149 | ) |
Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings | Gain (Loss) Reclassified from Accumulated OCI into Earnings | ||||||||
Three Months Ended March 31, | |||||||||
2020 | 2019 | ||||||||
Foreign exchange contracts | Cost of sales | $ | (455 | ) | $ | (2,078 | ) | ||
Interest rate swaps | Net interest expense | 28 | 232 | ||||||
$ | (427 | ) | $ | (1,846 | ) |
Location of Loss Recognized in Earnings | Loss Recognized in Earnings | ||||||||
Three Months Ended March 31, | |||||||||
2020 | 2019 | ||||||||
Foreign exchange contracts | Other expense, net | $ | (81 | ) | $ | (40 | ) | ||
$ | (81 | ) | $ | (40 | ) |
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of OperationsFORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
● | statements regarding our business strategy and any other business plans, forecasts or objectives, any or all of which are subject to change; |
● | statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items; |
● | statements regarding our backlog and commercial contracts and rates thereunder; |
● | statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts; |
● | statements regarding the spot market, the continuation of our current backlog, our spending and cost reduction plans and our ability to manage changes, and the ongoing COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans; |
● | statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto; |
● | statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements; |
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● | statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions; |
● | statements regarding our trade receivables and their collectability; |
● | statements regarding potential developments, industry trends, performance or industry ranking; |
● | statements regarding global, market or investor sentiment with respect to fossil fuels; |
● | statements regarding our existing activities in, and future expansion into, the offshore renewable energy market; |
● | statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business; |
● | statements regarding our ability to retain our senior management and other key employees; |
● | statements regarding the underlying assumptions related to any projection or forward-looking statement; and |
● | any other statements that relate to non-historical or future information. |
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:
● | the results and effects of the ongoing COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto; |
● | the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services; |
● | the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market; |
● | the impact of any potential cancellation, deferral or modification of our work or contracts by our customers; |
● | the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure; |
● | the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets; |
● | unexpected future capital expenditures, including the amount and nature thereof; |
● | the effectiveness and timing of completion of our vessel and/or system upgrades and major maintenance items; |
● | unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets; |
● | the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments; |
● | the results of our continuing efforts to control costs and improve performance; |
● | the success of our risk management activities; |
● | the effects of competition; |
● | 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 effect of adverse weather conditions and/or other risks associated with marine operations; |
● | the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations; |
● | the effectiveness of our future hedging activities; |
● | the potential impact of a loss of one or more key employees; and |
● | the impact of general, market, industry or business conditions. |
27
Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described under Item 1A. “Risk Factors” in this Quarterly Report, and Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20192020 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
We caution you not to place undue reliance on the forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, expressedexpress or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 20192020 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.
EXECUTIVE SUMMARY
Our Business
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. WithThe services we offer to the delivery in November 2019oil and gas market cover the lifecycle of an offshore oil or gas field, and the commencement of operations in January 2020 ofservices we offer to the
Economic Outlook and Industry Influences
Demand for our services is primarily influenced by the condition of the oil and gas industry, and the renewable energy markets, in particular, the willingness of oil and gasoffshore energy companies to spend on operational activities and capital projects. The performance of our business is also largely dependent onaffected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:
● | worldwide economic activity and general economic and business conditions, including access to global capital and capital markets; |
● | the global supply and demand for oil and natural gas; |
● | political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions; |
● | actions taken by OPEC and/or OPEC+; |
● | the availability and discovery rate of new oil and natural gas reserves in offshore areas; |
● | the exploration and production of onshore shale oil and natural gas; |
● | the cost of offshore exploration for and production and transportation of oil and natural gas; |
● | the level of excess production capacity; |
● | the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations; |
● | the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community; |
● | the sale and expiration dates of offshore leases globally; |
● | governmental restrictions on oil and gas leases; |
● | technological advances affecting energy exploration, production, transportation and consumption; |
● | potential acceleration of the development of alternative fuels; |
28
● | shifts in end-customer preferences toward fuel efficiency and the use of natural gas or renewable energy alternatives; |
● | weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic; |
● | laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement; |
● | environmental and other governmental regulations; and |
● | domestic and international tax laws, regulations and policies. |
Crude oil prices declined significantly in 2014 andhistorically have been volatile, since then. Brent crude oil prices fluctuated between $53 and $75 per barrel during 2019 before declining precipitously in the first quarter 2020 to lows below $20 per barrelwhich volatility has been exacerbated recently due to the ongoing COVID-19 pandemic as well as the price war amongactions taken by OPEC+ nations during the first quarter 2020. Lownations. Prices have since recovered to pre-COVID-19 levels, but their stability and recovery remain uncertain. The decline in oil prices in 2020 and the volatility and uncertainty in prices have caused oil and gas operators recently to drastically reduce spending (both(on both operational activities and capital spending)projects), which has decreased the demand and rates for services provided by all 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. This rigRig day rates are also a pricing indicator for our services. Rig overhang, combined with lower volumes of work forand 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 as well as the OPEC+ price war during the first quarter 2020.has resulted in a new period of market weakness. While the full impact of these recent events,the COVID-19 pandemic, including the duration of the decrease in economic activity due to COVID-19 and the resulting impact on the demand and price of oil, isremains unknown, we expect that the impact of COVID-19 on the industry may be depressed through 2021. We are seeing and expect towill continue to seebe felt through 2021 and possibly longer. We believe the uncertainty and other conditions of the current environment will make it more difficult for us to secure long-term contracts for our vessels and systems, as operators reducing spending and deferring work, asserting claims of force majeure and/or cancelling contracts and rig contractors lowering prices, stacking rigs, furloughing employees, and recognizing losses.have been less willing to commit to future spending. These developments have also have impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce.
Despite this current market conditions, or the ultimate impact they will have on our financial position, results of operations and cash flows.
29
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.
Backlog
We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. In addition to serving the oil and gas market, our robotics assets are contracted for the development of offshore renewable energy projects (wind farms). We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. In addition to serving the oil and gas market, our Robotics assets are contracted for the development of renewable energy projects (wind farms). As of March 31, 2020,2021, our consolidated backlog that is supported by written agreements or contracts totaled $678$358 million, of which $392$239 million is expected to be performed over the remainder of 2020.2021. The substantial majority of our backlog is associated with our Well Intervention business segment. As of March 31, 2020,2021, our well intervention backlog was $471$162 million, including $306 millionall of which is expected to be performed over the remainder of 2020.2021. Our contract with BP to provide well intervention services with our
RESULTS OF OPERATIONS
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations.
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. 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. 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. EBITDA, Adjusted EBITDA and free cash flow should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.
30
We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, and other than temporary loss on note receivable, which are excluded from EBITDA as a component of net other income or expense. We define free cash flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in our accompanyingthe condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net incomeloss to EBITDA and Adjusted EBITDA is as follows (in thousands):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net income (loss) | $ | (13,928 | ) | $ | 1,318 | ||
Adjustments: | |||||||
Income tax provision (benefit) | (21,093 | ) | 324 | ||||
Net interest expense | 5,746 | 2,098 | |||||
Other (income) expense, net | 10,427 | (1,166 | ) | ||||
Depreciation and amortization | 31,598 | 28,509 | |||||
Goodwill impairment | 6,689 | — | |||||
EBITDA | 19,439 | 31,083 | |||||
Adjustments: | |||||||
Provision for current expected credit losses | 586 | — | |||||
Realized losses from foreign exchange contracts not designated as hedging instruments | (682 | ) | (869 | ) | |||
Adjusted EBITDA | $ | 19,343 | $ | 30,214 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Net loss | | $ | (3,050) | | $ | (13,928) |
Adjustments: | |
|
| |
|
|
Income tax provision (benefit) | |
| 116 | |
| (21,093) |
Net interest expense | |
| 6,053 | |
| 5,746 |
Other (income) expense, net | |
| (1,617) | |
| 10,427 |
Depreciation and amortization | |
| 34,566 | |
| 31,598 |
Goodwill impairment | |
| — | |
| 6,689 |
EBITDA | |
| 36,068 | |
| 19,439 |
Adjustments: | |
|
| |
|
|
General provision for current expected credit losses | |
| 100 | |
| 586 |
Realized losses from foreign exchange contracts not designated as hedging instruments | |
| — | |
| (682) |
Adjusted EBITDA | | $ | 36,168 | | $ | 19,343 |
The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities | | $ | 39,869 | | $ | (17,222) |
Less: Capital expenditures, net of proceeds from sale of assets | |
| (1,329) | |
| (12,389) |
Free cash flow | | $ | 38,540 | | $ | (29,611) |
31
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Cash flows from operating activities | $ | (17,222 | ) | $ | (34,246 | ) | |
Less: Capital expenditures, net of proceeds from sale of assets | (12,389 | ) | (11,630 | ) | |||
Free cash flow | $ | (29,611 | ) | $ | (45,876 | ) |
Comparison of Three Months Ended March 31, 20202021 and 2019
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Increase/ |
| |||||||
| | March 31, | | (Decrease) |
| |||||||
|
| 2021 |
| 2020 |
| Amount |
| Percent |
| |||
Net revenues — |
| |
|
| |
|
| |
|
|
| |
Well Intervention | | $ | 133,768 | | $ | 140,652 | | $ | (6,884) |
| (5) | % |
Robotics | |
| 22,156 | |
| 35,258 | |
| (13,102) |
| (37) | % |
Production Facilities | |
| 16,447 | |
| 15,541 | |
| 906 |
| 6 | % |
Intercompany eliminations | |
| (8,956) | |
| (10,430) | |
| 1,474 |
|
| |
| | $ | 163,415 | | $ | 181,021 | | $ | (17,606) |
| (10) | % |
| | | | | | | | | | | | |
Gross profit (loss) — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | | $ | 8,726 | | $ | (1,256) | | $ | 9,982 |
| 795 | % |
Robotics | |
| (933) | |
| (467) | |
| (466) |
| 100 | % |
Production Facilities | |
| 7,213 | |
| 4,207 | |
| 3,006 |
| 71 | % |
Corporate, eliminations and other | |
| (382) | |
| (474) | |
| 92 |
|
| |
| | $ | 14,624 | | $ | 2,010 | | $ | 12,614 |
| 628 | % |
| | | | | | | | | | | | |
Gross margin — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | |
| 7 | % |
| (1) | % |
|
|
| | |
Robotics | |
| (4) | % |
| (1) | % |
|
|
|
| |
Production Facilities | |
| 44 | % |
| 27 | % |
|
|
|
| |
Total company | |
| 9 | % |
| 1 | % |
|
|
|
| |
| | | | | | | | | | | | �� |
Number of vessels or robotics assets (1) / Utilization (2) | |
|
| |
|
| |
|
|
|
| |
Well Intervention vessels | |
| 7 / 70 | % |
| 7 / 72 | % |
|
|
|
| |
Robotics assets (3) | |
| 47 / 24 | % |
| 49 / 34 | % |
|
|
|
| |
Chartered robotics vessels | |
| 3 / 90 | % |
| 6 / 89 | % |
|
|
|
| |
Three Months Ended March 31, | Increase/ (Decrease) | |||||||||||||
2020 | 2019 | Amount | Percent | |||||||||||
Net revenues — | ||||||||||||||
Well Intervention | $ | 140,652 | $ | 122,231 | $ | 18,421 | 15 | % | ||||||
Robotics | 35,258 | 39,041 | (3,783 | ) | (10 | )% | ||||||||
Production Facilities | 15,541 | 15,253 | 288 | 2 | % | |||||||||
Intercompany eliminations | (10,430 | ) | (9,702 | ) | (728 | ) | ||||||||
$ | 181,021 | $ | 166,823 | $ | 14,198 | 9 | % | |||||||
Gross profit (loss) — | ||||||||||||||
Well Intervention | $ | (1,256 | ) | $ | 13,510 | $ | (14,766 | ) | (109 | )% | ||||
Robotics | (467 | ) | (1,589 | ) | 1,122 | 71 | % | |||||||
Production Facilities | 4,207 | 4,771 | (564 | ) | (12 | )% | ||||||||
Corporate, eliminations and other | (474 | ) | (438 | ) | (36 | ) | ||||||||
$ | 2,010 | $ | 16,254 | $ | (14,244 | ) | (88 | )% | ||||||
Gross margin — | ||||||||||||||
Well Intervention | (1)% | 11% | ||||||||||||
Robotics | (1)% | (4)% | ||||||||||||
Production Facilities | 27% | 31% | ||||||||||||
Total company | 1% | 10% | ||||||||||||
Number of vessels or robotics assets (1) / Utilization (2) | ||||||||||||||
Well Intervention vessels | 7/72% | 6/74% | ||||||||||||
Robotics assets (3) | 49/34% | 52/39% | ||||||||||||
Chartered robotics vessels | 6/89% | 4/88% |
(1) | Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under |
(2) | Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period. The average utilization rates of chartered robotics vessels during the three-month periods ended March 31, 2021 and 2020 included three and |
(3) | Consists of ROVs, trenchers and ROVDrill. |
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended March 31, | Increase/ (Decrease) | ||||||||||
2020 | 2019 | ||||||||||
Well Intervention | $ | 3,304 | $ | 3,225 | $ | 79 | |||||
Robotics | 7,126 | 6,477 | 649 | ||||||||
$ | 10,430 | $ | 9,702 | $ | 728 |
| | | | | | | | | |
| | Three Months Ended | | | | ||||
| | March 31, | | Increase/ | |||||
|
| 2021 |
| 2020 |
| (Decrease) | |||
Well Intervention | | $ | 2,587 | | $ | 3,304 | | $ | (717) |
Robotics | |
| 6,369 | |
| 7,126 | |
| (757) |
| | $ | 8,956 | | $ | 10,430 | | $ | (1,474) |
Net Revenues.Our totalconsolidated net revenues increased by 9% for the three-month period ended March 31, 20202021 decreased by 10% as compared to the same period in 2019, primarily2020, reflecting higherlower revenues from our Well Intervention business segment with the addition of the Q7000,and Robotics segments, offset in part by lowerhigher revenues from our Robotics businessProduction Facilities segment.
32
Our Well Intervention revenues increaseddecreased by 15%5% for the three-month period ended March 31, 20202021 as compared to the same period in 2019,2020, primarily reflecting higher revenues withlower vessel utilization in the commencement of operations of the Q7000 in Nigeria in January 2020 and higher utilization on our North Sea vessels. This revenue increase was partiallyand West Africa during the quarter, offset in part by a reduction in vesselhigher utilization in the Gulf of Mexico. Utilization in the Gulf of Mexico with bothduring the Q4000 and the Q5000 completingfirst quarter 2020 was lower due to our scheduled regulatory certification inspections duringfor the period.
Robotics revenues decreased by 10%37% for the three-month period ended March 31, 20202021 as compared to the same period in 2019,2020, primarily reflecting the decrease in trenching activity and a reduction in ROV, trenchervessel days as well as decreased utilization of ROVs and ROVDrill, utilizationoffset in part by an increase in trenching activities. Our results included 165 vessel days and 72 trenching days during the three-month period ended March 31, 2021 as compared to 405 vessel days and 42 trenching days during the same period in 2020.
Our Production Facilities revenues increased by 6% for the three-month period ended March 31, 2021 as compared to the same period in 2019. 2020, primarily reflecting higher oil and gas production revenues.
Gross Profit (Loss). Our results included 42 vessel trenching days during the three months ended March 31, 2020 compared to 133 days during the same period in 2019. These reductions were partially offset by higher spot vessel utilization, which increased to 272 days from 84 days in the prior year period.
The gross profit related to our Well Intervention business segment decreasedincreased by 109%$10.0 million for the three-month period ended March 31, 20202021 as compared to the same period in 2019,2020, primarily reflecting ahigher revenues on the Q5000 and cost reduction in vesselefforts associated with lower utilization in the Gulf of Mexico, with both the
The gross loss related to our Robotics segment decreasedincreased by 71%$0.5 million for the three-month period ended March 31, 20202021 as compared to the same period in 2019,2020, primarily reflecting a reduction in costs related to the termination of the
The gross profit related to our Production Facilities segment decreasedincreased by 12%$3.0 million for the three-month period ended March 31, 20202021 as compared to the same period in 20192020, primarily reflecting significantly lowerhigher oil and gas production revenues and a reduction in direct costs as the
Goodwill Impairment.The $6.7 million impairment charge forin the three-month period ended March 31, 2020 reflects the write-offimpairment of the entire goodwill balance, associated withwhich related to our acquisition of a controlling interest in STL (Note 6)10).
Selling, General and Administrative Expenses.Our selling, general and administrative expenses increased by $0.4were $15.2 million for the three-month period ended March 31, 20202021 as compared to $16.3 million for the same period in 2019. The increase was2020, primarily attributable to the $0.6 million provision for current expectedreflecting lower credit losses as a result of the adoption of ASU No. 2016-13 in 2020 (Note 17).
Net Interest Expense.Our net interest expense increased by $3.6totaled $6.1 million for the three-month period ended March 31, 20202021 as compared to $5.7 million for the same period in 2019,2020, primarily reflecting lowerthe cessation of interest capitalization with the completion of the Q7000 in the first quarter 2020. Net interest expense for the three-month period ended March 31, 2020 excluded $1.2 million in capitalized interest. Capitalized interest totaled $1.2associated with the Q7000 (Note 5).
Other Income (Expense), Net. Net other income was $1.6 million for the three-month period ended March 31, 20202021 as compared to $5.0 million for the same period in 2019 as a result of the completion of the Q7000.
Income Tax Provision (Benefit).Income tax benefitprovision was $21.1$0.1 million for the three-month period ended March 31, 20202021 as compared to an income tax provisionbenefit of $0.3$21.1 million for the same period in 2019.2020. The effective tax rates for the three-month periods ended March 31, 2021 and 2020 were (4.0)% and 2019 were 60.2% benefit and 19.7% expense,, respectively. The variancedecrease in the effective tax rate was primarily attributable to ourthe absence of tax benefits derived from the CARES Act recorded in the same period last year, which included the carrying back of certain net operating losses to prior periods with higher income tax rates, as well as the result of the consolidation of certain U.S. branch operations with the Helix U.S. consolidated tax group and the earnings mix between our higher and lower tax rate jurisdictions (Note 8)6).
LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Net working capital (1) | | $ | 270,504 | | $ | 246,338 |
Long-term debt (1) | |
| 299,560 | |
| 258,912 |
Liquidity (2) | |
| 376,992 | |
| 451,532 |
March 31, 2020 | December 31, 2019 | ||||||
Net working capital | $ | 151,048 | $ | 153,508 | |||
Long-term debt (1) | 303,584 | 306,122 | |||||
Liquidity (2) | 331,959 | 379,533 |
(1) |
(2) | Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under the Revolving Credit |
The carrying amountamounts of our long-term debt including current maturities, net of unamortized debt discounts and debt issuance costs, isare as follows (in thousands):
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Term Loan (matures December 2021) | | $ | 28,732 | | $ | 29,559 |
Nordea Q5000 Loan (matured January 2021) (1) | |
| — | |
| 53,532 |
MARAD Debt (matures February 2027) | |
| 49,749 | |
| 53,361 |
2022 Notes (mature May 2022) (2) | |
| 34,794 | |
| 33,477 |
2023 Notes (mature September 2023) (2) | |
| 29,555 | |
| 26,922 |
2026 Notes (mature February 2026) (2) | |
| 193,208 | |
| 152,712 |
Total debt (3) | | | 336,038 | | | 349,563 |
Less current maturities | | | (36,478) | | | (90,651) |
Long-term debt | | $ | 299,560 | | $ | 258,912 |
March 31, 2020 | December 31, 2019 | ||||||
Term Loan (matures December 2021) | $ | 32,041 | $ | 32,869 | |||
Nordea Q5000 Loan (matures January 2021) | 79,959 | 89,031 | |||||
MARAD Debt (matures February 2027) | 56,639 | 60,073 | |||||
2022 Notes (mature May 2022) (1) | 116,690 | 115,765 | |||||
2023 Notes (mature September 2023) (1) | 109,092 | 108,115 | |||||
Total debt | $ | 394,421 | $ | 405,853 |
(1) | The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5). |
(2) | As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount associated with the 2022 Notes, the 2023 Notes and the |
(3) | Amounts include current maturities and are net of |
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash provided by (used in): |
| |
|
| | |
Operating activities | | $ | 39,869 | | $ | (17,222) |
Investing activities | |
| (1,329) | |
| (12,389) |
Financing activities | |
| (59,885) | |
| (18,391) |
34
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Cash provided by (used in): | |||||||
Operating activities | $ | (17,222 | ) | $ | (34,246 | ) | |
Investing activities | (12,389 | ) | (11,956 | ) | |||
Financing activities | (18,391 | ) | (14,055 | ) |
Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt.
The ongoing COVID-19 pandemic, challenging market conditions and recent market events resulting in industry-wide spending cuts have impacted our revenues and we expect these events to continue to impact our results into the near future. Our operating cash flows are impacted to the extent we cannot replace those revenues or reduce costs. Despite these challenges, we remain focused on maintaining a strong balance sheet and adequate liquidity. Over the near term, we plan to reduce, deferWe have reduced, deferred or cancelcancelled certain planned capital expenditures and reducereduced our overall cost structuresstructure commensurate with our expected level of activities. In 2020, we extended our debt maturity profile with refinancing a portion of our 2022 Notes and 2023 Notes in favor of the 2026 Notes. Notwithstanding, we have at the same time continued to de-lever our balance sheet with the repayment of our Nordea Q5000 Loan in January 2021. We have reduced operating costs through various measures including warm stacking our vessels when idle. These costs should return with increases in activity. We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.
The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital. The yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes. The COVID-19 pandemic has also contributed to limited access to certain capital markets.
An ongoing period of weak, or a significant decreasecontinued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt.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. Furthermore, during any perioddifficulty and are expected to negatively impact the terms on which we secure a replacement of, sustained weak economic activityor our lenders’ willingness to continue to participate in, our credit facility, which expires December 2021. Decreases in our revenues and reduced 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 may be impacted.Facility. At March 31, 2020,2021, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.6$172.2 million, net of $2.4$2.8 million of letters of credit issued under that facility. We currently do not anticipate borrowing under the Revolving Credit Facility other than for the issuance of letters of credit. Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control. Our failure to comply with these covenants and other restrictions could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.
Operating Cash Flows
Net cash flows used inprovided by operating activities decreased by $17.0were $39.9 million for the three-month period ended March 31, 20202021 as compared to net cash flows used by operating activities of $17.2 million for the same period in 20192020. The $57.1 million increase in operating cash flows primarily reflecting changesreflects lower operating loss and decreases in our working capital.
Investing Activities
Capital expenditures represent cash paid principally for the acquisition, construction, completion, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. 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):
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Capital expenditures: | |||||||
Well Intervention | $ | (12,263 | ) | $ | (11,485 | ) | |
Robotics | (44 | ) | — | ||||
Production Facilities | — | (2 | ) | ||||
Other | (82 | ) | (168 | ) | |||
Proceeds from sale of assets | — | 25 | |||||
Other | — | (326 | ) | ||||
Net cash used in investing activities | $ | (12,389 | ) | $ | (11,956 | ) |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Capital expenditures: |
| |
|
| | |
Well Intervention | | $ | (1,259) | | $ | (12,263) |
Robotics | |
| — | |
| (44) |
Production Facilities | |
| (70) | |
| — |
Other | |
| — | |
| (82) |
Net cash used in investing activities | | $ | (1,329) | | $ | (12,389) |
Our capital expenditures during the three-month period ended March 31, 2020 primarily included payments associated with the construction and completion of the Q7000 (see below).
35
Financing Activities
Cash flows from financing activities consist primarily of proceeds from debt and equity transactions and repayments ofrelated to our long-term debt. Net cash outflows from financing activities of $59.9 million for the three-month period ended March 31, 2021 primarily reflect the repayment of $58.2 million of scheduled maturities related to our indebtedness, including the final maturity of $53.6 million of our Nordea Q5000 Loan (Note 5). Net cash outflows from financing activities of $18.4 million for the three-month period ended March 31, 2020 primarily reflect the repayment of $13.4 million of our indebtedness (Note 7)5). Net
Free Cash Flow
Free cash outflows from financing activities of $14.1flow increased by $68.2 million for the three-month period ended March 31, 2019 primarily reflect the repayment of $13.3 million of our indebtedness.
Free cash flow is a non-GAAP financial measure. See “RESULTS OF OPERATIONS” above for the definition and calculation of free cash flow.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of March 31, 20202021 and the scheduled years in which the obligations are contractually due (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Less Than | | | | | | | | More Than | ||
|
| Total (1) |
| 1 Year |
| 1-3 Years |
| 3-5 Years |
| 5 Years | |||||
Term Loan | | $ | 28,875 | | $ | 28,875 | | $ | — | | $ | — | | $ | — |
MARAD debt | |
| 52,676 | |
| 7,746 | |
| 16,672 | |
| 18,377 | |
| 9,881 |
2022 Notes (2) | |
| 35,000 | |
| — | |
| 35,000 | |
| — | |
| — |
2023 Notes (3) | |
| 30,000 | |
| — | |
| 30,000 | |
| — | |
| — |
2026 Notes (4) | |
| 200,000 | |
| — | |
| — | |
| 200,000 | |
| — |
Interest related to debt (5) | |
| 80,319 | |
| 20,126 | |
| 32,621 | |
| 27,285 | |
| 287 |
Property and equipment | |
| 6,184 | |
| 6,078 | |
| 106 | |
| — | |
| — |
Operating leases (6) | |
| 242,043 | |
| 97,752 | |
| 134,611 | |
| 5,796 | |
| 3,884 |
Total cash obligations | | $ | 675,097 | | $ | 160,577 | | $ | 249,010 | | $ | 251,458 | | $ | 14,052 |
Total (1) | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |||||||||||||||
Term Loan | $ | 32,375 | $ | 3,500 | $ | 28,875 | $ | — | $ | — | |||||||||
Nordea Q5000 Loan | 80,357 | 80,357 | — | — | — | ||||||||||||||
MARAD Debt | 60,054 | 7,378 | 15,879 | 17,503 | 19,294 | ||||||||||||||
2022 Notes (2) | 125,000 | — | 125,000 | — | — | ||||||||||||||
2023 Notes (3) | 125,000 | — | — | 125,000 | — | ||||||||||||||
Interest related to debt (4) | 46,683 | 18,058 | 22,371 | 5,206 | 1,048 | ||||||||||||||
Property and equipment | 5,319 | 5,319 | — | — | — | ||||||||||||||
Operating leases (5) | 338,310 | 103,400 | 181,871 | 48,029 | 5,010 | ||||||||||||||
Total cash obligations | $ | 813,098 | $ | 218,012 | $ | 373,996 | $ | 195,738 | $ | 25,352 |
(1) | Excludes unsecured letters of credit outstanding at March 31, |
(2) | Notes mature in May 2022. |
(3) | Notes mature in September 2023. |
(4) | Notes mature in February 2026. 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 March 31, |
(6) | |
Operating leases include vessel charters and facility and equipment leases. At March 31, |
36
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion and analysis of our financial condition and results of operations, as reflected in the accompanying condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
For information regarding our critical accounting estimates and policies, please read our “Critical Accounting Estimates and Policies” as disclosed in our 20192020 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2020,2021, we were exposed to market risks associated with interest rates and foreign currency exchange rates.
Interest Rate Risk.
As of March 31,Foreign Currency Exchange Rate Risk.
Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar. As such, our earnings are impacted by movements in foreign currency exchange rates when (i) transactions are denominated in currencies other than the functional currency of the relevant Helix entity or (ii) the functional currency of our subsidiaries is not the U.S. dollar. In order to mitigate the effects of exchange rate risk in areas outside theAssets and liabilities of our subsidiaries that do not have the U.S. dollar as their functional currency are translated using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected in “Accumulated other comprehensive loss” in the shareholders’ equity section of our condensed consolidated balance sheets. For the three-month period ended March 31, 2020,2021, we recorded foreign currency translation lossesgains of $33.6$4.6 million to accumulated other comprehensive loss. Deferred taxes have not been provided on foreign currency translation adjustments since we consider our undistributed earnings (when applicable) of our non-U.S. subsidiaries without operations in the U.S. to be permanently reinvested.
When currencies other than the functional currency are to be paid or received, the resulting transaction gain or loss associated with changes in the applicable foreign currency exchange rate is recognized in the condensed consolidated statements of operations as a component of “Other income (expense), net.” For the three-month period ended March 31, 2020,2021, we recognizedrecorded foreign currency transaction lossesgains of $10.4$1.6 million, primarily related to our subsidiaries in the U.K.
37
Item 4.
Controls and Procedures(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2020.2021. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 20202021 to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31,
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 1512 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
| | | | | | | | | |
| | | | | | | (c) | | |
| | | | | | | Total number | | (d) |
| | | | | | | of shares | | Maximum |
| | (a) | | (b) | | purchased as | | number of shares | |
| | Total number | | Average | | part of publicly | | that may yet be | |
| | of shares | | price paid | | announced | | purchased under | |
Period |
| purchased (1) |
| per share |
| program |
| the program (2) | |
January 1 to January 31, 2021 |
| 447,139 | | $ | 4.43 |
| — |
| 7,734,655 |
February 1 to February 28, 2021 |
| — | |
| — |
| — |
| 7,734,655 |
March 1 to March 31, 2021 |
| — | |
| — |
| — |
| 7,734,655 |
|
| 447,139 | | $ | 4.43 |
| — | | |
Period | (a) Total number of shares purchased (1) | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced program | (d) Maximum number of shares that may yet be purchased under the program (2) | |||||||||
January 1 to January 31, 2020 | 534,698 | $ | 9.58 | — | 6,475,615 | ||||||||
February 1 to February 29, 2020 | — | — | — | 6,475,615 | |||||||||
March 1 to March 31, 2020 | — | — | — | 6,475,615 | |||||||||
534,698 | $ | 9.58 | — |
(1) | Includes shares forfeited in satisfaction of tax obligations upon vesting of restricted shares. |
(2) | Under the terms of our stock repurchase program, we may repurchase shares of our common stock in an amount equal to any equity granted to our employees, officers and directors under our share-based compensation plans, including share-based awards under our existing long-term incentive plans and shares issued to our employees under our ESPP (Note |
38
Item 6. Exhibits
| | | | |
Exhibit Number | Description | Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number) | ||
3.1 | | | ||
3.2 | | | ||
31.1 | | |||
| ||||
31.2 | | | ||
32.1 | | | ||
101.INS | | XBRL Instance Document. | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith |
104 | | Cover Page Interactive Data File (formatted as inline XBRL | | Filed herewith |
39
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | |
| | |||
HELIX ENERGY SOLUTIONS GROUP, INC. | ||||
| | | (Registrant) | |
| | | ||
Date: April | | By: | /s/ Owen Kratz | |
| | | Owen Kratz | |
| | | President and Chief Executive Officer | |
| | | (Principal Executive Officer) | |
| | | | |
Date: April 28, 2021 | | By: | /s/ Erik Staffeldt | |
| | | Erik Staffeldt | |
| | | Executive Vice President and | |
| | | Chief Financial Officer | |
| | | (Principal Financial Officer) |
40