|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
Percentage
|
|
2020
|
|
2019
|
|
Change
|
|
Percentage
|
Average Canadian dollar to U.S. dollar
|
$0.72
|
|
$0.75
|
|
(0.03)
|
|
(3.5)%
|
|
$0.73
|
|
$0.75
|
|
($0.02)
|
|
(2.2)%
|
Average Australian dollar to U.S. dollar
|
$0.66
|
|
$0.70
|
|
(0.04)
|
|
(6.1)%
|
|
$0.66
|
|
$0.71
|
|
($0.05)
|
|
(6.8)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Change
|
|
Percentage
|
Canadian dollar to U.S. dollar
|
$0.73
|
|
$0.77
|
|
(0.04)
|
|
(4.7)%
|
Australian dollar to U.S. dollar
|
$0.69
|
|
$0.70
|
|
(0.01)
|
|
(1.7)%
|
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
Capital Expenditures. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities. In April 2020, we revised downward our 2020 capital expenditure plans
and we currently expect that our 2020 capital expenditures, exclusive of any expansionary spending, which is contingent on obtaining customer contracts, will total approximately $15 million, compared to 2019 capital expenditures of $29.8 million. We may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19. See “Liquidity and Capital Resources” below for further discussion of 2020 capital expenditures.
Results of Operations
Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2020, is based on a comparison to the corresponding period of 2019.
Results of Operations – Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
Revenues
|
|
|
|
|
|
Canada
|
$
|
52,986
|
|
|
$
|
78,102
|
|
|
$
|
(25,116)
|
|
Australia
|
57,071
|
|
|
30,996
|
|
|
26,075
|
|
U.S. and other
|
4,645
|
|
|
13,055
|
|
|
(8,410)
|
|
Total revenues
|
114,702
|
|
|
122,153
|
|
|
(7,451)
|
|
Costs and expenses
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
Canada
|
42,465
|
|
|
59,276
|
|
|
(16,811)
|
|
Australia
|
34,913
|
|
|
16,055
|
|
|
18,858
|
|
U.S. and other
|
5,755
|
|
|
9,909
|
|
|
(4,154)
|
|
Total cost of sales and services
|
83,133
|
|
|
85,240
|
|
|
(2,107)
|
|
Selling, general and administrative expenses
|
11,490
|
|
|
12,530
|
|
|
(1,040)
|
|
Depreciation and amortization expense
|
22,205
|
|
|
30,996
|
|
|
(8,791)
|
|
Impairment expense
|
—
|
|
|
5,546
|
|
|
(5,546)
|
|
Other operating income
|
(285)
|
|
|
(103)
|
|
|
(182)
|
|
Total costs and expenses
|
116,543
|
|
|
134,209
|
|
|
(17,666)
|
|
Operating loss
|
(1,841)
|
|
|
(12,056)
|
|
|
10,215
|
|
|
|
|
|
|
|
Interest expense and income, net
|
(3,850)
|
|
|
(6,698)
|
|
|
2,848
|
|
Other income
|
12,642
|
|
|
1,055
|
|
|
11,587
|
|
Income (loss) before income taxes
|
6,951
|
|
|
(17,699)
|
|
|
24,650
|
|
Income tax (expense) benefit
|
(122)
|
|
|
2,850
|
|
|
(2,972)
|
|
Net income (loss)
|
6,829
|
|
|
(14,849)
|
|
|
21,678
|
|
Less: Net income attributable to noncontrolling interest
|
222
|
|
|
—
|
|
|
222
|
|
Net income (loss) attributable to Civeo Corporation
|
6,607
|
|
|
(14,849)
|
|
|
21,456
|
|
Dividends attributable to preferred shares
|
471
|
|
|
461
|
|
|
10
|
|
Net income (loss) attributable to Civeo common shareholders
|
$
|
6,136
|
|
|
$
|
(15,310)
|
|
|
$
|
21,446
|
|
We reported net income attributable to Civeo for the quarter ended June 30, 2020 of $6.1 million, or $0.03 per diluted share. As further discussed below, net income included $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.
We reported net loss attributable to Civeo for the quarter ended June 30, 2019 of $15.3 million, or $0.09 per diluted share. As further discussed below, net loss included a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense.
Revenues. Consolidated revenues decreased $7.5 million, or 6%, in the second quarter of 2020 compared to the second quarter of 2019. This decrease was primarily due to lower revenue in Canada resulting from lower occupancy at oil sands lodges and reduced food services activity, both related to the COVID-19 pandemic and lower oil prices. Additionally, lower
activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the second quarter of 2020 compared to the second quarter of 2019 contributed to decreased revenues. These items were partially offset by higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and increased mobile camp activity from a pipeline project in Canada. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services decreased $2.1 million, or 2%, in the second quarter of 2020 compared to the second quarter of 2019. This decrease was primarily due to lower cost of sales in Canada resulting from lower occupancy at oil sands lodges and reduced food services activity, both related to the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the second quarter of 2020 compared to the second quarter of 2019 contributed to decreased cost of sales and services. This was partially offset by the Action acquisition, increased occupancy at our Bowen Basin villages in Australia and higher cost of sales and services due to increased mobile camp activity from a pipeline project in Canada. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $1.0 million, or 8%, in the second quarter of 2020 compared to the second quarter of 2019. This decrease was primarily due to lower share-based compensation expense, lower professional fees and lower travel and entertainment expenses, partially offset by higher incentive compensation costs. The decrease in share-based compensation was due to a reduction in the amount of restricted share and performance share awards outstanding and the reduction in our stock price associated with phantom share awards during the second quarter of 2020 compared to the second quarter of 2019.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $8.8 million, or 28%, in the second quarter of 2020 compared to the second quarter of 2019. The decrease was primarily due to (1) certain assets and intangibles becoming fully depreciated during 2019, (2) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (3) the impairment of certain long-lived assets in Canada and the U.S. during the first quarter of 2020 and (4) weaker Canadian and Australian dollars relative to the U.S. dollar in the second quarter of 2020 compared to the second quarter of 2019. These items were partially offset by additional depreciation and intangible amortization expense related to our Action acquisition in 2019.
Impairment Expense. We recorded pre-tax impairment expense of $5.5 million in second quarter of 2019 associated with long-lived assets in our Australian reporting unit. Please see Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating Income (Loss). Consolidated operating loss decreased $10.2 million, or 85%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower depreciation and amortization expense, lower impairment expense and increased activity levels in Australia, partially offset by decreased activity levels in Canada and U.S. markets.
Interest Expense and Income, net. Net interest expense decreased by $2.8 million, or 43%, in the second quarter of 2020 compared to the second quarter of 2019, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.
Other Income. Consolidated other income increased $11.6 million, or 1098%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition, $6.2 million of other income related to proceeds from the Canada Emergency Wage Subsidy (CEWS) and a higher gain on sale of assets compared to the second quarter of 2019. The second quarter of 2019 included $1.1 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues.
Income Tax Benefit. Our income tax benefit for the three months ended June 30, 2020 totaled $0.1 million, or 1.8% of pretax loss, compared to a benefit of $2.9 million, or 16.1% of pretax loss, for the three months ended June 30, 2019. Under ASC 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year-to-date provision.
Other Comprehensive Income (Loss). Other comprehensive income increased $28.3 million in the second quarter of 2020 compared to the second quarter of 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 4% in the second quarter of 2020 compared to a 2% increase in the second quarter of 2019. The
Australian dollar exchange rate compared to the U.S. dollar decreased 2% in the second quarter of 2020 compared to a 1% decrease in the second quarter of 2019.
Segment Results of Operations – Canadian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
40,204
|
|
|
$
|
66,183
|
|
|
$
|
(25,979)
|
|
Mobile facility rental revenue (2)
|
6,072
|
|
|
1,819
|
|
|
4,253
|
|
Food service and other services revenue (3)
|
6,710
|
|
|
9,086
|
|
|
(2,376)
|
|
Manufacturing revenue (4)
|
—
|
|
|
1,014
|
|
|
(1,014)
|
|
Total revenues
|
$
|
52,986
|
|
|
$
|
78,102
|
|
|
$
|
(25,116)
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
28,598
|
|
|
$
|
45,145
|
|
|
$
|
(16,547)
|
|
Mobile facility rental cost
|
5,285
|
|
|
2,027
|
|
|
3,258
|
|
Food service and other services cost
|
6,163
|
|
|
8,466
|
|
|
(2,303)
|
|
Manufacturing cost
|
141
|
|
|
668
|
|
|
(527)
|
|
Indirect other costs
|
2,278
|
|
|
2,970
|
|
|
(692)
|
|
Total cost of sales and services
|
$
|
42,465
|
|
|
$
|
59,276
|
|
|
$
|
(16,811)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
19.9
|
%
|
|
24.1
|
%
|
|
(4.2)
|
%
|
|
|
|
|
|
|
Average daily rate for lodges (5)
|
$
|
96
|
|
|
$
|
89
|
|
|
$
|
7
|
|
|
|
|
|
|
|
Total billed rooms for lodges (6)
|
409,897
|
|
|
739,627
|
|
|
(329,730)
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
$
|
0.72
|
|
|
$
|
0.75
|
|
|
$
|
(0.03)
|
|
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile camps for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)Billed rooms represent total billed days for the periods presented.
Our Canadian segment reported revenues in the second quarter of 2020 that were $25.1 million, or 32%, lower than the second quarter of 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 4% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $1.9 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 30% decrease in revenues. This decrease was driven by lower occupancy at oil sands lodges, where billed rooms were down 45% year-over-year, and reduced food services activity. These decreases were both related to the COVID-19 pandemic and lower oil prices. Additionally, revenue was negatively impacted by reduced manufacturing activity as 2019 included two projects that did not recur in 2020. Partially offsetting these items was increased mobile camp activity from a pipeline project.
Our Canadian segment cost of sales and services decreased $16.8 million, or 28%, in the second quarter of 2020 compared to the second quarter of 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 4% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $1.5 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by lower occupancy at our oil sands lodges and reduced food services activity. These decreases were both related to the COVID-19 pandemic and lower oil prices. Additionally, lower costs resulted from reduced indirect other costs due to a continued focus on cost containment and operational efficiencies, partially offset by increased costs related to enhanced measures during the COVID-19 pandemic and increased mobile camp activity.
Our Canadian segment gross margin as a percentage of revenues decreased from 24.1% in the second quarter of 2019 to 19.9% in the second quarter of 2020. This was primarily driven by increased costs related to enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.
Segment Results of Operations – Australian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
34,933
|
|
|
$
|
30,996
|
|
|
$
|
3,937
|
|
Food service and other services revenue (2)
|
22,138
|
|
|
$
|
—
|
|
|
$
|
22,138
|
|
Total revenues
|
$
|
57,071
|
|
|
$
|
30,996
|
|
|
$
|
26,075
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
15,269
|
|
|
$
|
15,465
|
|
|
$
|
(196)
|
|
Food service and other services cost
|
18,759
|
|
|
—
|
|
|
18,759
|
|
Indirect other cost
|
885
|
|
|
590
|
|
|
295
|
|
Total cost of sales and services
|
$
|
34,913
|
|
|
$
|
16,055
|
|
|
$
|
18,858
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
38.8
|
%
|
|
48.2
|
%
|
|
(9.4)
|
%
|
|
|
|
|
|
|
Average daily rate for villages (3)
|
$
|
70
|
|
|
$
|
74
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
Total billed rooms for villages (4)
|
502,392
|
|
|
416,416
|
|
|
85,976
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
$
|
0.66
|
|
|
$
|
0.70
|
|
|
$
|
(0.04)
|
|
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for the periods presented.
Our Australian segment reported revenues in the second quarter of 2020 that were $26.1 million, or 84%, higher than the second quarter of 2019. Action contributed $22.1 million in revenues in the second quarter of 2020. The weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 6% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $2.2 million period-over-period decrease in revenues and a $5 reduction in the average daily rate. Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced an 96% increase in revenues largely due to the Action acquisition and increased occupancy of our Bowen Basin villages, partially offset by decreased activity at our Western Australia villages.
Our Australian segment cost of sales increased $18.9 million, or 117%, in the second quarter of 2020 compared to the second quarter of 2019. The increase was largely driven by the Action acquisition. Increases also related to increased occupancy at our Bowen Basin villages which were entirely offset by decreased activity at our Western Australia villages, additional accretion expense in 2019 related to an asset retirement obligation at one of our Australia villages and the weakening of the Australian dollar.
Our Australian segment gross margin as a percentage of revenues decreased to 38.8% in the second quarter of 2020 from 48.2% in the second quarter of 2019. This was primarily driven by Action, which has a service-only business model and therefore results in lower overall gross margins than the accommodation business, partially offset by improved margins at our Bowen Basin villages as a result of increased occupancy.
Segment Results of Operations – U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
$
|
4,645
|
|
|
$
|
13,055
|
|
|
$
|
(8,410)
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
$
|
5,755
|
|
|
$
|
9,909
|
|
|
$
|
(4,154)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
(23.9)
|
%
|
|
24.1
|
%
|
|
(48.0)
|
%
|
Our U.S. segment reported revenues in the second quarter of 2020 that were $8.4 million, or 64%, lower than the second quarter of 2019. This was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S. drilling activity affecting our wellsite business and reduced activity in our offshore rental business, all resulting from the COVID-19 pandemic and lower oil prices.
Our U.S. segment cost of sales decreased $4.2 million, or 42%, in the second quarter of 2020 compared to the second quarter of 2019. The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges, reduced U.S. drilling activity affecting our wellsite business and reduced activity in our offshore rental business.
Our U.S. segment gross margin as a percentage of revenues decreased from 24.1% in the second quarter of 2019 to (23.9)% in the second quarter of 2020 primarily due to reduced activity in all areas of the business and reduced operating efficiencies at lower activity levels.
Results of Operations – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
Revenues
|
|
|
|
|
|
Canada
|
$
|
132,334
|
|
|
$
|
144,872
|
|
|
$
|
(12,538)
|
|
Australia
|
106,184
|
|
|
59,417
|
|
|
46,767
|
|
U.S. and other
|
14,976
|
|
|
26,414
|
|
|
(11,438)
|
|
Total revenues
|
253,494
|
|
|
230,703
|
|
|
22,791
|
|
Costs and expenses
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
Canada
|
106,737
|
|
|
113,923
|
|
|
(7,186)
|
|
Australia
|
64,466
|
|
|
31,054
|
|
|
33,412
|
|
U.S. and other
|
15,243
|
|
|
19,893
|
|
|
(4,650)
|
|
Total cost of sales and services
|
186,446
|
|
|
164,870
|
|
|
21,576
|
|
Selling, general and administrative expenses
|
25,427
|
|
|
28,626
|
|
|
(3,199)
|
|
Depreciation and amortization expense
|
47,707
|
|
|
61,778
|
|
|
(14,071)
|
|
Impairment expense
|
144,120
|
|
|
5,546
|
|
|
138,574
|
|
Other operating expense (income)
|
704
|
|
|
(168)
|
|
|
872
|
|
Total costs and expenses
|
404,404
|
|
|
260,652
|
|
|
143,752
|
|
Operating loss
|
(150,910)
|
|
|
(29,949)
|
|
|
(120,961)
|
|
|
|
|
|
|
|
Interest expense and income, net
|
(9,429)
|
|
|
(13,306)
|
|
|
3,877
|
|
Other income
|
12,667
|
|
|
4,033
|
|
|
8,634
|
|
Loss before income taxes
|
(147,672)
|
|
|
(39,222)
|
|
|
(108,450)
|
|
Income tax benefit
|
8,689
|
|
|
7,334
|
|
|
1,355
|
|
Net loss
|
(138,983)
|
|
|
(31,888)
|
|
|
(107,095)
|
|
Less: Net income attributable to noncontrolling interest
|
480
|
|
|
—
|
|
|
480
|
|
Net loss attributable to Civeo Corporation
|
(139,463)
|
|
|
(31,888)
|
|
|
(107,575)
|
|
Dividends attributable to preferred shares
|
939
|
|
|
920
|
|
|
19
|
|
Net loss attributable to Civeo common shareholders
|
$
|
(140,402)
|
|
|
$
|
(32,808)
|
|
|
$
|
(107,594)
|
|
We reported net loss attributable to Civeo for the six months ended June 30, 2020 of $140.4 million, or $0.83 per diluted share. As further discussed below, net loss included (i) a $93.6 million pre-tax loss ($93.6 million after-tax, or $0.55 per diluted share) resulting from the impairment of goodwill in our Canadian reporting unit included in Impairment expense, (ii) a $38.1 million pre-tax loss ($38.1 million after-tax, or $0.23 per diluted share) resulting from the impairment of long-lived assets in our Canadian reporting unit included in Impairment expense and (iii) a $12.4 million pre-tax loss ($12.4 million after-tax, or $0.07 per diluted share) resulting from the impairment of long-lived assets in our U.S. reporting unit included in Impairment expense. Net loss was partially offset by $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.
We reported net loss attributable to Civeo for the six months ended June 30, 2019 of $32.8 million, or $(0.20) per diluted share. As further discussed below, net loss included a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense.
Revenues. Consolidated revenues increased $22.8 million, or 10%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was primarily due to higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and at our Sitka Lodge, as well as higher mobile camp revenues in Canada related to a pipeline project. These items were partially offset by lower revenue from reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 also offset the increased revenues. See the discussion of segment results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services increased $21.6 million, or 13%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the Action acquisition and increased occupancy at our Bowen Basin villages in Australia and at our Sitka Lodge as well as higher cost of sales and services in Canada due to increased mobile camp activity from a pipeline project. These items were partially offset by decreased cost of sales and services due to reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices. Additionally, lower activity levels in certain markets in the U.S. and weaker Canadian and Australian dollars relative to the U.S. dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 offset the increased cost of sales and services. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense decreased $3.2 million, or 11%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This decrease was primarily due to lower share-based compensation expense, partially offset by higher incentive compensation costs and professional fees. The decrease in share-based compensation was due to a reduction in the amount of phantom share awards outstanding and the reduction in our stock price during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $14.1 million, or 23%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease was primarily due to (1) certain assets and intangibles becoming fully depreciated during 2019, (2) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (3) the impairment of certain long-lived assets in Canada and the U.S. during the first quarter of 2020 and (4) weaker Canadian and Australian dollars relative to the U.S. dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. These items were partially offset by additional depreciation and intangible amortization expense related to our acquisition in 2019.
Impairment Expense. Impairment expense of $144.1 million in the six months ended June 30, 2020 included the following items:
•Pre-tax impairment expense of $93.6 million related to the impairment of goodwill in our Canadian reporting unit.
•Pre-tax impairment expense of $38.1 million associated with long-lived assets in our Canadian reporting unit.
•Pre-tax impairment expense of $12.4 million associated with long-lived assets in our U.S. reporting unit.
Impairment expense of $5.5 million in the six months ended June 30, 2019 was associated with long-lived assets in our Australian segment.
See Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating Income (Loss). Consolidated operating loss increased $121.0 million, or 404%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to impairments of goodwill and long-lived assets, partially offset by increased activity levels in Australia, as well as lower depreciation and amortization expense.
Interest Expense and Income, net. Net interest expense decreased by $3.9 million, or 29%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.
Other Income. Consolidated other income increased $8.6 million, or 214%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition, $6.2 million of other income related to proceeds from the CEWS and a higher gain on sale of assets compared to the first half of 2019. The first half of 2019 included $2.6 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues.
Income Tax Benefit. Our income tax benefit for the six months ended June 30, 2020 totaled $8.7 million, or 5.9% of pretax loss, compared to a benefit of $7.3 million, or 18.7% of pretax loss, for the six months ended June 30, 2019. Our effective tax rate for the six months ended June 30, 2020 was impacted by a deferred tax benefit of $9.6 million offset by an increase of $0.7 million in the valuation allowance in Canada. For the six months ended June 30, 2020, Canada and the U.S. were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation
for purposes of computing the interim tax provision. Although Australia is not considered a loss jurisdiction for the six months ended June 30, 2020, our effective tax rate is impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction. For the six months ended June 30, 2019, Australia and the U.S. were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation for purposes of computing the interim tax provision.
Other Comprehensive Income (Loss). Other comprehensive income decreased $25.6 million in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 5% in the six months ended June 30, 2020 compared to a 4% increase in the six months ended June 30, 2019. The Australian dollar exchange rate compared to the U.S. dollar decreased 2% in the six months ended June 30, 2020 compared to a 1% decrease in the six months ended June 30, 2019.
Segment Results of Operations – Canadian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
Revenues ($ in thousands)
|
|
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
106,270
|
|
|
$
|
123,835
|
|
|
$
|
(17,565)
|
|
|
|
Mobile facility rental revenue (2)
|
8,580
|
|
|
2,600
|
|
|
5,980
|
|
|
|
Food service and other services revenue (3)
|
17,484
|
|
|
17,423
|
|
|
61
|
|
|
|
Manufacturing revenue (4)
|
—
|
|
|
1,014
|
|
|
(1,014)
|
|
|
|
Total revenues
|
$
|
132,334
|
|
|
$
|
144,872
|
|
|
$
|
(12,538)
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
|
|
Accommodation cost
|
$
|
76,653
|
|
|
$
|
87,763
|
|
|
$
|
(11,110)
|
|
|
|
Mobile facility rental cost
|
8,542
|
|
|
2,676
|
|
|
5,866
|
|
|
|
Food service and other services cost
|
16,178
|
|
|
16,301
|
|
|
(123)
|
|
|
|
Manufacturing cost
|
297
|
|
|
857
|
|
|
(560)
|
|
|
|
Indirect other cost
|
5,067
|
|
|
6,326
|
|
|
(1,259)
|
|
|
|
Total cost of sales and services
|
$
|
106,737
|
|
|
$
|
113,923
|
|
|
$
|
(7,186)
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
19.3
|
%
|
|
21.4
|
%
|
|
(2.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for lodges (5)
|
$
|
94
|
|
|
$
|
91
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Total billed rooms for lodges (6)
|
1,118,220
|
|
|
1,365,619
|
|
|
(247,399)
|
|
|
|
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
$
|
0.73
|
|
|
$
|
0.75
|
|
|
$
|
(0.02)
|
|
|
|
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to mobile camps for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)Average daily rate is based on billed rooms and accommodation revenue.
(6)Billed rooms represent total billed days for the periods presented.
Our Canadian segment reported revenues in the six months ended June 30, 2020 that were $12.5 million, or 9%, lower than the six months ended June 30, 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 2% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $2.6 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 7% decrease in revenues. This decrease was driven by reduced occupancy at our lodges in the north oil sands region related to lower oil prices and the COVID-19 pandemic. Additionally, revenue was negatively impacted by reduced manufacturing revenue as 2019 included two projects that did not recur in 2020. Partially offsetting these items, revenue was favorably impacted by higher occupancy at our Sitka Lodge related to an LNG project and increased mobile camp activity from a pipeline project.
Our Canadian segment cost of sales and services decreased $7.2 million, or 6%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 2% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $2.2 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by reduced occupancy at our lodges in the north oil sands region and reduced indirect other costs from a continued focus on cost containment and operational efficiencies. These decreases were partially offset by higher occupancy at our Sitka Lodge, as well as increased mobile camp activity from a pipeline project and increased costs related to enhanced measures during the COVID-19 pandemic.
Our Canadian segment gross margin as a percentage of revenues decreased from 21.4% in the six months ended June 30, 2019 to 19.3% in the six months ended June 30, 2020. This was primarily driven by increased costs related to enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.
Segment Results of Operations – Australian Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
|
|
|
|
|
Accommodation revenue (1)
|
$
|
67,518
|
|
|
$
|
59,417
|
|
|
$
|
8,101
|
|
Food service and other services revenue (2)
|
38,666
|
|
|
—
|
|
|
38,666
|
|
Total revenues
|
$
|
106,184
|
|
|
$
|
59,417
|
|
|
$
|
46,767
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
|
|
|
|
Accommodation cost
|
$
|
30,264
|
|
|
$
|
29,862
|
|
|
$
|
402
|
|
Food service and other services cost
|
32,466
|
|
|
—
|
|
|
32,466
|
|
Indirect other cost
|
1,736
|
|
|
1,192
|
|
|
544
|
|
Total cost of sales and services
|
$
|
64,466
|
|
|
$
|
31,054
|
|
|
$
|
33,412
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
39.3
|
%
|
|
47.7
|
%
|
|
(8.4)
|
%
|
|
|
|
|
|
|
Average daily rate for villages (3)
|
$
|
69
|
|
|
$
|
74
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
Total billed rooms for villages (4)
|
974,232
|
|
|
798,997
|
|
|
175,235
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
$
|
0.66
|
|
|
$
|
0.71
|
|
|
$
|
(0.05)
|
|
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for the periods presented.
Our Australian segment reported revenues in the six months ended June 30, 2020 that were $46.8 million, or 79%, higher than the six months ended June 30, 2019. Action contributed $38.7 million in revenues in the six months ended June 30, 2020. The weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 7% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $5.0 million period-over-period decrease in revenues and a $5 reduction in the average daily rate. Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced an 92% increase in revenues primarily due to the Action acquisition. In addition, increased activity at our Bowen Basin villages was partially offset by decreased activity at our Western Australia villages.
Our Australian segment cost of sales increased $33.4 million, or 108%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase was primarily driven by the Action acquisition. Increases related to increased activity at our Bowen Basin villages were almost entirely offset by decreased activity at our Western Australia villages and the weakening of the Australian dollar.
Our Australian segment gross margin as a percentage of revenues decreased to 39.3% in the six months ended June 30, 2020 from 47.7% in the six months ended June 30, 2019. This was primarily driven by Action, which has a service-only business model and therefore results in lower overall gross margins than the accommodation business, partially offset by improved margins at our Bowen Basin villages as a result of increased occupancy.
Segment Results of Operations – U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Revenues ($ in thousands)
|
$
|
14,976
|
|
|
$
|
26,414
|
|
|
$
|
(11,438)
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
$
|
15,243
|
|
|
$
|
19,893
|
|
|
$
|
(4,650)
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
(1.8)
|
%
|
|
24.7
|
%
|
|
(26.5)
|
%
|
Our U.S. segment reported revenues in the six months ended June 30, 2020 that were $11.4 million, or 43%, lower than the six months ended June 30, 2019. This was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S. drilling activity in the Bakken, Rockies and the Mid-Continent market affecting our wellsite business, partially offset by increased activity in the West Permian market positively affecting our wellsite business.
Our U.S. segment cost of sales decreased $4.7 million, or 23%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges, reduced U.S. drilling activity in the Bakken, Rockies and the Mid-Continent markets affecting our wellsite business, partially offset by increased activity in West Permian market positively affecting our wellsite business.
Our U.S. segment gross margin as a percentage of revenues decreased from 24.7% in the six months ended June 30, 2019 to (1.8)% in the six months ended June 30, 2020 primarily due to reduced activity at our lodges and certain wellsite markets and reduced operating efficiencies at lower activity levels.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions and pay dividends. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Lender commitments (1)
|
$
|
263,500
|
|
|
$
|
263,500
|
|
Reductions in availability (2)
|
—
|
|
|
(6,591)
|
|
Borrowings against revolving credit capacity
|
(101,998)
|
|
|
(134,117)
|
|
Outstanding letters of credit
|
(2,623)
|
|
|
(2,031)
|
|
Unused availability
|
158,879
|
|
|
120,761
|
|
Cash and cash equivalents
|
7,311
|
|
|
3,331
|
|
Total available liquidity
|
$
|
166,190
|
|
|
$
|
124,092
|
|
(1)We also have a A$2.0 million bank guarantee facility. We had bank guarantees of A$0.7 million under this facility outstanding as of both June 30, 2020 and December 31, 2019, respectively.
(2)As of June 30, 2020, there were no reductions in our availability under the Credit Agreement. As of December 31, 2019, $6.6 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.
Cash totaling $45.3 million was provided by operations during the six months ended June 30, 2020, compared to $10.0 million provided by operations during the six months ended June 30, 2019. During the six months ended June 30, 2020 and 2019, $2.9 million was provided by working capital and $22.7 million was used in working capital, respectively. The increase in cash provided by working capital in 2020 compared to 2019 is largely due to decreased accounts receivable balances in Canada.
Cash was provided by investing activities during the six months ended June 30, 2020 in the amount of $2.7 million, compared to cash used in investing activities during the six months ended June 30, 2019 in the amount of $15.0 million. The decrease in cash used in investing activities was primarily due to lower capital expenditures and $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition in the six months ended June 30, 2020, partially offset by higher proceeds from the disposition of property, plant and equipment in the six months ended June 30, 2019. Capital expenditures totaled $3.8 million and $21.2 million during the six months ended June 30, 2020 and 2019, respectively. The decrease in capital expenditures from 2019 to 2020 was related primarily to the completion of the Sitka Lodge expansion, which occurred during 2019.
We expect our capital expenditures for 2020, exclusive of any expansionary spending, to be approximately $15 million, which excludes any expansionary projects, the spending for which is contingent on obtaining customer contracts. Whether planned expenditures will actually be spent in 2020 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the economic environment in our industry improve and the transaction economics are deemed to be attractive to us. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the prices of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19.
Net cash of $43.6 million was used in financing activities during the six months ended June 30, 2020 primarily due to net repayments under our revolving credit facilities of $25.6 million, repayments of term loan borrowings of $16.5 million and $1.5 million used to settle tax obligations on vested shares under our share-based compensation plans. Net cash of $6.1 million was provided by financing activities during the six months ended June 30, 2019 primarily due to net borrowings under our revolving credit facilities of $27.8 million, partially offset by repayments of term loan borrowings of $17.4 million and $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans.
The following table summarizes the changes in debt outstanding during the six months ended June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
|
|
$
|
359,080
|
|
Borrowings under revolving credit facilities
|
|
|
|
|
|
|
122,320
|
|
Repayments of borrowings under revolving credit facilities
|
|
|
|
|
|
|
(147,950)
|
|
Repayments of term loans
|
|
|
|
|
|
|
(16,551)
|
|
Translation
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|
|
|
|
|
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(17,369)
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Balance at June 30, 2020
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|
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$
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299,530
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We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months. If our plans or assumptions change, including as a result of the impact of COVID-19 or the historic decline in the price of and demand for oil, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant
burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.
Credit Agreement
As of June 30, 2020, our Credit Agreement (as then amended to date, the Credit Agreement), provided for: (i) a $263.5 million revolving credit facility scheduled to mature on November 30, 2021 for certain lenders, allocated as follows: (A) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $183.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $285.4 million term loan facility scheduled to mature on November 30, 2021 for certain lenders in favor of Civeo.
As of June 30, 2020, one lender had an outstanding Canadian term loan of $5.9 million and an outstanding Canadian revolver loan of $8.7 million that matures on November 30, 2020. One other lender had an outstanding Canadian revolver loan of $12.5 million that matures on November 30, 2020. Maturities in 2020 are not classified as current as of June 30, 2020 and December 31, 2019, since we are able, and have the intent, to repay the outstanding 2020 maturities by borrowing amounts equal to such maturities under our existing revolving credit facility, which matures on November 30, 2021.
We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:
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Period Ended
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Maximum Leverage Ratio
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June 30, 2020 & September 30, 2020
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3.75 :
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1.00
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December 31, 2020 & thereafter
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3.50 :
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1.00
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U.S. dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 2.25% to 4.00%, or a Canadian Prime rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our total debt to consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.
The Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.75 to 1.0 (as of June 30, 2020). As noted above, the permitted maximum leverage ratio changes over time. Following a qualified offering of indebtedness with gross proceeds in excess of $150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges. We were in compliance with our covenants as of June 30, 2020.
Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Credit Agreement are guaranteed by our significant subsidiaries. As of June 30, 2020,
we had ten lenders that were parties to the Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $24.9 million to $85.4 million. As of June 30, 2020, we had outstanding letters of credit of $0.3 million under the U.S. facility, $0.5 million under the Australian facility and $1.8 million under the Canadian facility.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board of Directors deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future.
The preferred shares we issued in the Noralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially $10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares’ liquidation preference, or any combination thereof. Quarterly dividends were paid in-kind on June 30, 2020, thereby increasing the liquidation preference to $10,459 per share as of June 30, 2020. We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash.
Off-Balance Sheet Arrangements
As of June 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
For additional information about our contractual obligations, refer to “Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2019. As of June 30, 2020, except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.