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FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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: 001-36246

(Exact name of registrant as specified in its charter)

British Columbia, Canada			98-1253716
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)
Three Allen Center, 333 Clay Street, Suite 4980,			77002
Houston, Texas			(Zip Code)
(Address of principal executive offices)

(713) 510-2400

(Registrant’s telephone number, including area code)

Title of Each Class			Trading Symbol			Name of Each Exchange on Which Registered
Common Shares, no par value			CVEO			New York Stock Exchange

Yes			☒			No			☐

Yes			☒			No			☐

Large Accelerated Filer

☐

Accelerated Filer

☒

Emerging Growth Company

☐

Non-Accelerated Filer

☐

Smaller Reporting 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. ☐

Yes			☐			No			☒

INDEX

			Page No.
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Financial Statements
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021			4
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021			5
Consolidated Balance Sheets – as of March 31, 2022 (unaudited) and December 31, 2021			6
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021			7
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021			8
Notes to Unaudited Consolidated Financial Statements			9
Cautionary Statement Regarding Forward-Looking Statements			17
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3.   Quantitative and Qualitative Disclosures About Market Risk			29
Item 4.   Controls and Procedures			29
Part II -- OTHER INFORMATION
Item 1.     Legal Proceedings			30
Item 1A.  Risk Factors			30
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 6.     Exhibits			31
(a) Index of Exhibits			31
Signature Page			32

ITEM 1. Financial Statements

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended March 31,
			2022						2021
Revenues:
Service and other			$	159,570					$	121,996
Rental			5,260						3,064
Product			848						370
			165,678						125,430
Costs and expenses:
Service and other costs			120,850						96,462
Rental costs			4,392						2,970
Product costs			601						378
Selling, general and administrative expenses			15,213						14,181
Depreciation and amortization expense			20,127						21,269
Other operating expense			258						71
			161,441						135,331
Operating income (loss)			4,237						(9,901)
Interest expense			(2,468)						(3,362)
Other income			1,696						4,914
Income (loss) before income taxes			3,465						(8,349)
Income tax expense			(1,557)						(1,076)
Net income (loss)			1,908						(9,425)
Less: Net income attributable to noncontrolling interest			498						59
Net income (loss) attributable to Civeo Corporation			1,410						(9,484)
Less: Dividends attributable to Class A preferred shares			487						478
Net income (loss) attributable to Civeo common shareholders			$	923					$	(9,962)
Per Share Data (see Note 6)
Basic net income (loss) per share attributable to Civeo Corporation common shareholders			$	0.06					$	(0.70)
Diluted net income (loss) per share attributable to Civeo Corporation common shareholders			$	0.06					$	(0.70)
Weighted average number of common shares outstanding:
Basic			14,096						14,211
Diluted			14,219						14,211

The accompanying notes are an integral part of these financial statements.

			Three Months Ended March 31,
			2022						2021
Net income (loss)			$	1,908					$	(9,425)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment, net of zero taxes			8,012						(1,627)
Total other comprehensive income (loss), net of taxes			8,012						(1,627)
Comprehensive income (loss)			9,920						(11,052)
Less: Comprehensive income attributable to noncontrolling interest			538						49
Comprehensive income (loss) attributable to Civeo Corporation			$	9,382					$	(11,101)

The accompanying notes are an integral part of these financial statements.

			March 31, 2022						December 31, 2021
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	6,423					$	6,282
Accounts receivable, net			124,484						114,859
Inventories			7,271						6,468
Prepaid expenses			4,900						6,876
Other current assets			7,969						10,946
Assets held for sale			10,800						11,762
Total current assets			161,847						157,193
Property, plant and equipment, net			386,022						389,996
Goodwill			8,468						8,204
Other intangible assets, net			93,542						93,642
Operating lease right-of-use assets			17,879						18,327
Other noncurrent assets			5,336						5,372
Total assets			$	673,094					$	672,734
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	47,204					$	49,321
Accrued liabilities			22,797						33,564
Income taxes			232						171
Current portion of long-term debt			30,868						30,576
Deferred revenue			13,608						18,479
Other current liabilities			4,441						4,807
Total current liabilities			119,150						136,918
Long-term debt, less current maturities			145,037						142,602
Deferred income taxes			2,494						896
Operating lease liabilities			14,911						15,429
Other noncurrent liabilities			18,531						13,778
Total liabilities			300,123						309,623
Commitments and contingencies (Note 9)
Shareholders’ Equity:
Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,042 shares issued and outstanding, respectively; aggregate liquidation preference of $97,925,880 and $97,438,687 as of March 31, 2022 and December 31, 2021)			62,428						61,941
Common shares (no par value; 46,000,000 shares authorized, 14,552,341 shares and 14,431,819 shares issued, respectively, and 14,185,666 shares and 14,111,221 shares outstanding, respectively)			—						—
Additional paid-in capital			1,583,474						1,582,442
Accumulated deficit			(912,037)						(912,951)
Common shares held in treasury at cost, 366,675 and 320,598 shares, respectively			(9,063)						(8,050)
Accumulated other comprehensive loss			(353,911)						(361,883)
Total Civeo Corporation shareholders’ equity			370,891						361,499
Noncontrolling interest			2,080						1,612
Total shareholders’ equity			372,971						363,111
Total liabilities and shareholders’ equity			$	673,094					$	672,734

The accompanying notes are an integral part of these financial statements.

			Attributable to Civeo
			Preferred Shares						Common Shares
			Amount						Par Value						Additional Paid-in Capital						Accumulated Deficit						Treasury Shares						Accumulated Other Comprehensive Income (Loss)						Noncontrolling Interest						Total Shareholders’ Equity
Balance, December 31, 2020			$	60,016					$	—					$	1,578,315					$	(907,727)					$	(6,930)					$	(348,989)					$	672					$	375,357
Net income (loss)			—						—						—						(9,484)						—						—						59						(9,425)
Currency translation adjustment			—						—						—						—						—						(1,617)						(10)						(1,627)
Dividends paid			—						—						—						—						—						—						(73)						(73)
Dividends attributable to Class A preferred shares			478						—						—						(478)						—						—						—						—
Share-based compensation			—						—						1,027						—						(1,120)						—						—						(93)
Balance, March 31, 2021			$	60,494					$	—					$	1,579,342					$	(917,689)					$	(8,050)					$	(350,606)					$	648					$	364,139
Balance, December 31, 2021			$	61,941					$	—					$	1,582,442					$	(912,951)					$	(8,050)					$	(361,883)					$	1,612					$	363,111
Net income			—						—						—						1,410						—						—						498						1,908
Currency translation adjustment			—						—						—						—						—						7,972						40						8,012
Dividends paid			—						—						—						—						—						—						(70)						(70)
Dividends attributable to Class A preferred shares			487						—						—						(487)						—						—						—						—
Common shares repurchased			—						—						—						(9)						—						—						—						(9)
Share-based compensation			—						—						1,032						—						(1,013)						—												19
Balance, March 31, 2022			$	62,428					$	—					$	1,583,474					$	(912,037)					$	(9,063)					$	(353,911)					$	2,080					$	372,971

			Preferred Shares						Common Shares (in thousands)
Balance, December 31, 2021			9,042						14,111
Share-based compensation			—						76
Common shares repurchased			—						(1)
Balance, March 31, 2022			9,042						14,186

The accompanying notes are an integral part of these financial statements.

			Three Months Ended March 31,
			2022						2021
Cash flows from operating activities:
Net income (loss)			$	1,908					$	(9,425)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			20,127						21,269
Deferred income tax expense			1,491						1,041
Non-cash compensation charge			1,032						1,027
Gains on disposals of assets			(1,489)						(1,902)
Provision (benefit) for credit losses, net of recoveries			(20)						193
Other, net			686						716
Changes in operating assets and liabilities:
Accounts receivable			(7,142)						1,806
Inventories			(623)						(526)
Accounts payable and accrued liabilities			(13,697)						(5,287)
Taxes payable			59						51
Other current and noncurrent assets and liabilities, net			(379)						3,854
Net cash flows provided by operating activities			1,953						12,817
Cash flows from investing activities:
Capital expenditures			(3,592)						(3,372)
Proceeds from disposition of property, plant and equipment			2,364						6,651
Other, net			190						—
Net cash flows provided by (used in) investing activities			(1,038)						3,279
Cash flows from financing activities:
Revolving credit borrowings			94,266						78,628
Revolving credit repayments			(86,586)						(85,319)
Term loan repayments			(8,003)						(8,872)
Repurchases of common shares			(9)						—
Taxes paid on vested shares			(1,013)						(1,120)
Net cash flows used in financing activities			(1,345)						(16,683)
Effect of exchange rate changes on cash			571						(113)
Net change in cash and cash equivalents			141						(700)
Cash and cash equivalents, beginning of period			6,282						6,155
Cash and cash equivalents, end of period			$	6,423					$	5,455
Non-cash financing activities:
Preferred dividends paid-in-kind			$	487					$	478

The accompanying notes are an integral part of these financial statements.

1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

			Three Months Ended March 31,
			2022						2021
Canada
Accommodation revenues			$	67,194					$	46,530
Mobile facility rental revenues			24,018						10,499
Food service and other services revenues			4,740						4,856
Total Canada revenues			95,952						61,885
Australia
Accommodation revenues			$	37,599					$	33,675
Food service and other services revenues			25,930						25,962
Total Australia revenues			63,529						59,637
U.S.
Accommodation revenues			$	463					$	772
Mobile facility rental revenues			5,266						3,067
Manufacturing revenues			445						63
Food service and other services revenues			23						6
Total U.S. revenues			6,197						3,908
Total revenues			$	165,678					$	125,430

			For the years ending December 31,
			2022						2023						2024						Thereafter						Total
Revenue expected to be recognized as of March 31, 2022			$	116,850					$	44,930					$	13,240					$	10,943					$	185,963

3.FAIR VALUE MEASUREMENTS

4.DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

			March 31, 2022						December 31, 2021
Accounts receivable, net:
Trade			$	76,766					$	75,740
Unbilled revenue			46,685						38,508
Other			1,380						972
Total accounts receivable			124,831						115,220
Allowance for credit losses			(347)						(361)
Total accounts receivable, net			$	124,484					$	114,859

			March 31, 2022						December 31, 2021
Inventories:
Finished goods and purchased products			$	5,894					$	5,346
Work in process			169						25
Raw materials			1,208						1,097
Total inventories			$	7,271					$	6,468

			Estimated Useful Life (in years)																		March 31, 2022						December 31, 2021
Property, plant and equipment, net:
Land																					$	31,295					$	30,556
Accommodations assets			3						—						15						1,681,299						1,657,577
Buildings and leasehold improvements			7						—						20						24,704						24,335
Machinery and equipment			4						—						15						15,338						14,983
Office furniture and equipment			3						—						7						64,414						63,228
Vehicles			3						—						5						15,207						14,578
Construction in progress																					3,273						2,063
Total property, plant and equipment																					1,835,530						1,807,320
Accumulated depreciation																					(1,449,508)						(1,417,324)
Total property, plant and equipment, net																					$	386,022					$	389,996

			March 31, 2022						December 31, 2021
Accrued liabilities:
Accrued compensation			$	18,446					$	28,877
Accrued taxes, other than income taxes			3,329						2,944
Other			1,022						1,743
Total accrued liabilities			$	22,797					$	33,564

			March 31, 2022						December 31, 2021
Assets held for sale:
Property, plant and equipment, net			$	10,800					$	11,762
Total assets held for sale			$	10,800					$	11,762

			Three Months Ended March 31,
			2022						2021
Numerator:
Net income (loss) attributable to Civeo common shareholders			$	923					$	(9,962)
Less: income allocated to participating securities			(138)						—
Basic net income (loss) attributable to Civeo Corporation common shareholders			$	785					$	(9,962)
Add: undistributed income attributable to participating securities			138						—
Less: undistributed income reallocated to participating securities			(137)						—
Diluted net income (loss) attributable to Civeo Corporation common shareholders			$	786					$	(9,962)
Denominator:
Weighted average shares outstanding - basic			14,096						14,211
Dilutive shares - share-based awards			123						—
Weighted average shares outstanding - diluted			14,219						14,211
Basic net income (loss) per share attributable to Civeo Corporation common shareholders (1)			$	0.06					$	(0.70)
Diluted net income (loss) per share attributable to Civeo Corporation common shareholders (1)			$	0.06					$	(0.70)

			March 31, 2022						December 31, 2021
Canadian term loan; weighted average interest rate of 3.9% for the three month period ended March 31, 2022			$	56,021					$	63,104
U.S. revolving credit facility; weighted average interest rate of 5.5% for the three month period ended March 31, 2022			—						—
Canadian revolving credit facility; weighted average interest rate of 4.1% for the three month period ended March 31, 2022			113,643						111,300
Australian revolving credit facility; weighted average interest rate of 3.2% for the three month period ended March 31, 2022			8,243						726
			177,907						175,130
Less: Unamortized debt issuance costs			2,002						1,952
Total debt			175,905						173,178
Less: Current portion of long-term debt, including unamortized debt issuance costs, net			30,868						30,576
Long-term debt, less current maturities			$	145,037					$	142,602

Credit Agreement

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 3.00% to 4.00%, or a base rate plus 2.00% to 3.00%, in each case based on a ratio of our total net debt to Consolidated EBITDA (as defined in the Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a Bankers’ Acceptance Discount Rate (as defined in the Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.00% to 4.00%, or a Canadian Prime rate plus a margin of 2.00% 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 3.00% to 4.00%, based on a ratio of our total net debt to Consolidated EBITDA. The future transitions from LIBOR and CDOR as interest rate benchmarks are addressed in the Credit Agreement and at such time the transition from (i) LIBOR takes place, an alternate benchmark will be established based on the first alternative of the following, plus a benchmark replacement adjustment, Term SOFR, Daily Simple SOFR and an alternative benchmark selected by the administrative agent and the applicable borrowers giving due consideration to any selection or recommendation by a government body or any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time or (ii) CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to CDOR that gives due consideration to 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 a minimum interest coverage ratio, defined as the ratio of Consolidated EBITDA to consolidated interest expense, of at least 3.00 to 1.00 and our maximum net leverage ratio, defined as the ratio of total net debt to Consolidated EBITDA, of no greater than 3.25 to 1.00 for the quarter ended March 31, 2022 and

3.00 to 1.00 for each quarter thereafter. Following a qualified offering of indebtedness, we will be required to maintain a maximum leverage ratio of no greater than 3.50 to 1.00 and a maximum senior secured ratio less than 2.00 to 1.00. 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 March 31, 2022.

Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries subject to customary exceptions. The obligations under the Credit Agreement are guaranteed by our significant subsidiaries. As of March 31, 2022, we had seven lenders that were parties to the Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $22.5 million to $52.0 million. As of March 31, 2022, we had outstanding letters of credit of $0.3 million under the U.S. facility, zero under the Australian facility and $1.2 million under the Canadian facility. We also had outstanding bank guarantees of A$0.8 million under the Australian facility.

8.INCOME TAXES

Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.

We operate in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 15% to 30%. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions. 

Restricted Share Awards / Restricted Share Units / Deferred Share Awards. Compensation expense associated with restricted share awards, restricted share units and deferred share awards recognized in the three months ended March 31, 2022 and 2021 totaled $0.4 million and $0.5 million, respectively. The total fair value of restricted share awards, restricted share units and deferred share awards that vested during the three months ended March 31, 2022 and 2021 was $0.6 million and $1.5 million, respectively.

Phantom Share Awards. On February 25, 2022, we granted 255,034 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2023. We also granted 77,574 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 25, 2023. Phantom share awards are settled in cash upon vesting.

Performance Awards. On February 25, 2022, we granted 122,555 performance awards under the Civeo Plan, which cliff vest in three years on February 25, 2025 subject to attainment of applicable performance criteria. These awards will be earned in amounts between 0% and 200% of the participant’s target performance share award, based on (1) the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies and (2) the payout percentage associated with Civeo's cumulative operating cash flow over the performance period relative to a preset target. The portion of the performance awards tied to cumulative operating cash flow includes a performance-based vesting requirement. The fair value of these awards is based on the closing market price of our common shares on the date of grant. We evaluate the probability of achieving the performance criteria throughout the performance period and will adjust share-based compensation expense based on the number of shares expected to vest based on our estimate of the most probable performance outcome. The ultimate payout of the cumulative operating cash flow component of the award can vary from 0% to 100% based on actual results.

13.SEGMENT AND RELATED INFORMATION

			Total revenues						Depreciation and amortization						Operating income (loss)						Capital expenditures						Total assets
Three months ended March 31, 2022
Canada			$	95,952					$	11,597					$	4,038					$	2,006					$	773,257
Australia			63,529						7,957						6,135						1,216						226,680
U.S.			6,197						382						(1,609)						348						24,156
Corporate and eliminations			—						191						(4,327)						22						(350,999)
Total			$	165,678					$	20,127					$	4,237					$	3,592					$	673,094
Three months ended March 31, 2021
Canada			$	61,885					$	12,087					$	(7,659)					$	1,180					$	721,841
Australia			59,637						8,459						3,307						1,554						265,111
U.S.			3,908						566						(2,598)						369						27,869
Corporate and eliminations			—						157						(2,951)						269						(304,643)
Total			$	125,430					$	21,269					$	(9,901)					$	3,372					$	710,178

This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including the impact of COVID-19 and the response thereto and the volatility in the price of and demand for commodities, as well as our expectations about capital expenditures in 2022 and beliefs with respect to liquidity needs. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.

Overview and Macroeconomic Environment 

We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by natural resource production, maintenance and operation of those facilities as well as expansion of those sites. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand, estimates of resource production and shareholder expectations. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in Canada, Australia, the U.S. and other markets, including governmental measures introduced to fight climate change or to help slow the spread or mitigate the impact of COVID-19.

Our business is predominantly located in northern Alberta, Canada; British Columbia, Canada; Queensland, Australia; and Western Australia. We derive most of our business from natural resource companies who are developing and producing oil sands, met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources. In the first quarter of 2022, approximately 63% of our revenue is generated by our lodges in Canada and our villages in Australia. Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-person-per- day basis that covers lodging and meals and is based on the duration of customer needs,

which can range from several weeks to several years. The remainder of our revenue is generated by our hospitality services at customer-owned locations in Canada and Australia, mobile assets in Canada and the U.S and our lodges in the U.S.

Generally, our core Canadian oil sands and Australian mining customers make significant, upfront capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are primarily dependent on those customers’ long-term views of commodity demand and prices.

The spread of COVID-19 and the response thereto have negatively impacted the global economy. The actions taken by governments and the private-sector to mitigate the spread of COVID-19 and the risk of infection, including government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies, evolved with the introduction of vaccination efforts in 2021, and may continue to evolve as the surfacing of virus variants has added a degree of uncertainty to the continuing global impact. Since the COVID-19 pandemic began, we have been impacted by increased staff costs as a result of hospitality labor shortages in Australia. This labor shortage has been exacerbated by significantly reduced migration in and around Australia affecting labor availability, which has subsequently led to an increased reliance on more expensive temporary labor resources. We continue to closely monitor the COVID-19 situation and have taken measures to help ensure the health and well-being of our employees, guests and contractors, including screening of individuals that enter our facilities, social distancing practices, enhanced cleaning and deep sanitization, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable.

In part due to the impact of COVID-19 on the global economy, increasing inflationary pressures are being experienced worldwide. These price increases could negatively impact our labor and food costs, as well as consumable costs such as fuel. The Company is managing inflation risk with service scope changes and contractual protections.

Global oil prices dropped to historically low levels in March and April 2020 due to severely reduced global oil demand, high global crude inventory levels, uncertainty around timing and slope of worldwide economic recovery after COVID-19 related economic shut-downs and effectiveness of production cuts by major oil producing countries, such as Saudi Arabia, Russia and the U.S. Since this trough in early 2020, global oil prices increased later in 2020 and throughout 2021 primarily due to improved global oil demand and lagging global oil supply due to oil production discipline from publicly traded oil producers and OPEC+ countries. These supply/demand dynamics have continued into early 2022 and have been exacerbated by the recent conflict between Russia and Ukraine and related sanctions on Russia, which decreased global fossil fuel supply even further. This has led to a significant increase in global oil prices to above $100 per barrel. Several governments, including the U.S. government under the Biden administration, have begun to release oil from the government controlled strategic reserves in the hopes of stemming high oil prices and the related impacts on higher heating fuels and gasoline.

Alberta, Canada. In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar) and governmental regulation. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability.

Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term. The Enbridge Line 3 replacement project was completed at the end of 2021 and the Trans Mountain Pipeline (TMX) is currently under construction and approximately 50% complete. The Canadian federal government acquired the TMX pipeline in 2018, approved the expansion of the project and is currently working through a revised construction timeline to adjust for recent delays related to legal challenges, the COVID-19 pandemic, flooding along certain sections of the pipeline corridor and seasonal wildfires. As a result, the TMX pipeline construction has been delayed, and there is a risk that there are more delays to come. Recent legal issues between the Canadian government and First Nation groups have been resolved for the time being and construction has resumed.

WCS prices in the first quarter of 2022 averaged $82.04 per barrel compared to an average of $46.28 in the first quarter of 2021. The WCS Differential decreased from $14.12 per barrel at the end of the fourth quarter of 2021 to $10.78 at the end of the first quarter of 2022. As of April 25, 2022, the WTI price was $99.54 and the WCS price was $86.62, resulting in a WCS Differential of $12.92.  

Together with the initial spread of COVID-19, depressed price levels of both WTI and WCS materially impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. Customers began increasing production activity in the fourth quarter of 2020, throughout 2021 and into the first three months of 2022. While oil prices have recently increased to multi-year highs, there is continued uncertainty around commodity price

levels, including the impact of COVID-19 and regulatory complications on such prices, which could cause our Canadian oil sands and pipeline customers to reduce production, delay expansionary and maintenance spending and defer additional investments in their oil sands assets.

British Columbia, Canada. Our Sitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below). From a macroeconomic standpoint, LNG demand continued to grow despite the spread of COVID-19, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. The conflict between Russia and Ukraine has further highlighted the need for secure natural gas supply globally, particularly in Europe. Accordingly, additional investment in LNG supply will be needed to meet the resulting expected long-term LNG demand growth.

Currently, Western Canada does not have any operational LNG export facilities. LNG Canada (LNGC), a joint venture among Shell Canada Energy, an affiliate of Royal Dutch Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility). British Columbia LNG activity and related pipeline projects are a material driver of activity for our Sitka Lodge, as well as for our mobile assets, which are contracted to serve several portions of the related pipeline construction activity. The actual timing of when revenue is realized from the Coastal GasLink (CGL) pipeline and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, such as protest blockades or COVID-19. Our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in the second half of 2022 or early 2023.

In late March 2020, LNGC announced steps being taken to reduce the spread of COVID-19, including reduction of the workforce at the project site to essential personnel only. In late December 2020, British Columbia’s public health officer issued a health order limiting workforce size at all large industrial projects across the province, including LNGC. These actions resulted in reduced occupancy at our Sitka Lodge beginning in the second quarter of 2020. British Columbia's public health order was phased out in the second quarter of 2021. It was replaced with less restrictive requirements focused on monitoring, allowing workforces to return to their optimal sizes, which increased occupancy at our Sitka Lodge in the second half of 2021 and into 2022.

Australia. In Australia, 82% of our rooms are located in the Bowen Basin of Queensland, Australia and primarily serve met coal mines in that region. Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which decreased by 6.8% during the first three months of 2022 compared to the same period of 2021 but remained at high levels. As of April 25, 2022, met coal spot prices were $480 per metric tonne. Long-term demand for steel is expected to be driven by global infrastructure spending and increased steel consumption per capita in developing economies, such as China and India, whose current consumption per capita is a fraction of developed countries.

U.S. Our U.S. business supports oil shale drilling and completion activity and is primarily tied to WTI oil prices in the U.S. shale formations in the Permian Basin, the Mid-Continent, the Bakken and the Rockies. In 2020, the U.S. oil rig count and associated completion activity decreased due to COVID-19 and the global oil price decline discussed above. Only 267 oil rigs were active at the end of 2020. With the recovery of oil prices, oil rig count and drilling activity have recovered substantially, with 531 oil rigs active at the end of the first quarter 2022. The Permian Basin remains the most active U.S. unconventional play, representing 60% of the oil rigs active in the U.S. at the end of the first quarter of 2022. The increase in the U.S. rig count and oil prices has only resulted in slight increases to U.S. oil production from an average of 11.3 million barrels per day in 2021 to an average of 11.4 million barrels per day at the end of January 2022. As of April 22, 2022, there were 549 active oil rigs in the U.S. (as measured by Bakerhughes.com). U.S. oil shale drilling and completion activity will continue to be impacted by higher WTI oil prices, pipeline capacity, federal energy policies and availability of capital to support exploration and production (E&P) drilling and completion plans. In addition, consolidation among our E&P customer base in the U.S. has historically created short-term spending and activity dislocations. Should the current trend of industry consolidation continue, we may see activity, utilization and occupancy declines in the near term.

Recent Commodity Prices. Recent WTI crude, WCS crude, met coal and iron ore pricing trends are as follows:

						Average Price (1)
Quarter ended						WTI Crude (per bbl)						WCS Crude (per bbl)						Hard Coking Coal (Met Coal) (per tonne)						Iron Ore (per tonne)
Second Quarter through April 25, 2022						$	101.36					$	88.55					$	475.20					$	140.72
3/31/2022						95.17						82.04						474.83						129.46
12/31/2021						77.31						60.84						371.95						104.88
9/30/2021						70.54						57.58						258.41						164.90
6/30/2021						66.19						53.27						136.44						195.97
3/31/2021						58.13						46.28						127.95						159.83

(1)Source: WTI crude prices are from U.S. Energy Information Administration (EIA), WCS crude prices and iron ore prices are from Bloomberg and hard coking coal prices are from IHS Markit.

Foreign Currency Exchange Rates. Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income (loss) in Canada and Australia. These revenues and profits/losses are translated into U.S. dollars for U.S. GAAP financial reporting purposes. The following tables summarize the fluctuations in the exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar:

			Three Months Ended March 31,
			2022						2021						Change						Percentage
Average Canadian dollar to U.S. dollar			$0.790						$0.790						$—						—%
Average Australian dollar to U.S. dollar			$0.724						$0.773						($0.05)						(6.3)%

			As of
			March 31, 2022						December 31, 2021						Change						Percentage
Canadian dollar to U.S. dollar			$0.800						$0.789						$0.011						1.4%
Australian dollar to U.S. dollar			$0.749						$0.726						$0.023						3.2%

Capital Expenditures. We continue to monitor the global economy, the price of and demand for crude oil, met coal, LNG and iron ore and the resultant impact on the capital spending plans of our customers, and the COVID-19 global pandemic and the responses thereto in order to plan our business activities. We currently expect that our 2022 capital expenditures will be in the range of approximately $20 million to $25 million, compared to 2021 capital expenditures of $15.6 million. We may adjust our capital expenditure plans in the future as we continue to monitor customer activity. See “Liquidity and Capital Resources” below for further discussion of 2022 capital expenditures.

Unless otherwise indicated, discussion of results for the three months ended March 31, 2022, is based on a comparison to the corresponding period of 2021. 

Results of Operations – Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

			Three Months Ended March 31,
			2022						2021						Change
			($ in thousands)
Revenues
Canada			$	95,952					$	61,885					$	34,067
Australia			63,529						59,637						3,892
U.S. and other			6,197						3,908						2,289
Total revenues			165,678						125,430						40,248
Costs and expenses
Cost of sales and services
Canada			75,206						51,885						23,321
Australia			44,514						42,903						1,611
U.S. and other			6,123						5,022						1,101
Total cost of sales and services			125,843						99,810						26,033
Selling, general and administrative expenses			15,213						14,181						1,032
Depreciation and amortization expense			20,127						21,269						(1,142)
Other operating expense			258						71						187
Total costs and expenses			161,441						135,331						26,110
Operating income (loss)			4,237						(9,901)						14,138
Interest expense, net			(2,468)						(3,362)						894
Other income			1,696						4,914						(3,218)
Income (loss) before income taxes			3,465						(8,349)						11,814
Income tax (expense)			(1,557)						(1,076)						(481)
Net income (loss)			1,908						(9,425)						11,333
Less: Net income attributable to noncontrolling interest			498						59						439
Net income (loss) attributable to Civeo Corporation			1,410						(9,484)						10,894
Less: Dividends attributable to preferred shares			487						478						9
Net income (loss) attributable to Civeo common shareholders			$	923					$	(9,962)					$	10,885

We reported net income attributable to Civeo for the quarter ended March 31, 2022 of $0.9 million, or $0.06 per diluted share compared to net loss attributable to Civeo for the quarter ended March 31, 2021 of $10.0 million, or $0.70 per diluted share.

Revenues. Consolidated revenues increased $40.2 million, or 32%, in the first quarter of 2022 compared to the first quarter of 2021. This increase was primarily due to (i) higher billed rooms at our Canadian lodges as occupancy in the first quarter of 2021 was negatively impacted by the COVID-19 pandemic, particularly at our Sitka Lodge, (ii) higher average daily rate at our Canadian lodges due to mix, (iii) increased mobile asset activity from pipeline projects in Canada, (iv) increased occupancy at our Australian Civeo owned villages and (v) increased activity in our U.S. offshore and wellsite business. These items were partially offset by a weaker Australian dollar relative to the U.S. dollar in the first quarter of 2022 compared to the first quarter of 2021. 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 $26.0 million, or 26%, in the first quarter of 2022 compared to the first quarter of 2021. This increase was primarily due to (i) higher billed rooms at our Canadian lodges, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased occupancy at our Australian Civeo owned villages and the increased cost of temporary labor due to ongoing labor shortages in Australia and (vi) increased activity in our U.S. offshore business and wellsite business. These items were partially offset by a weaker Australian dollar relative to the U.S. dollar in the first quarter of 2022 compared to the first quarter of 2021. See the discussion of segment results of operations below for further information. 

Selling, General and Administrative Expenses. SG&A expense increased $1.0 million, or 7%, in the first quarter of 2022 compared to the first quarter of 2021. This increase was primarily due to higher share-based compensation expense and information technology expense related to our newly implemented human capital management system. The increase in share-based compensation expense was due to an increase in our stock price during the first quarter of 2022 compared to the first quarter of 2021.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $1.1 million, or 5%, in the first quarter of 2022 compared to the first quarter of 2021. The decrease was primarily due to certain assets in Canada becoming fully depreciated during 2021 and the disposal of our West Permian Lodge during 2021 in the U.S.

Operating Income (Loss). Consolidated operating income increased $14.1 million, or 143%, in the first quarter of 2022 compared to the first quarter of 2021, primarily due to higher activity levels in Canada and Australia in the first quarter of 2022 compared to the first quarter of 2021.

Interest Expense, net. Net interest expense decreased by $0.9 million, or 27%, in the first quarter of 2022 compared to the first quarter of 2021, primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021 and lower interest rates on credit facility borrowings.

Other Income. Consolidated other income decreased $3.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to $2.8 million of other income in 2021 related to proceeds from the Canada Emergency Wage Subsidy (CEWS) and higher gains on sale of assets in 2021 compared to 2022.

Income Tax (Expense) Benefit. Our income tax expense for the three months ended March 31, 2022 totaled $1.6 million, or 44.9% of pretax income, compared to an income tax expense of $1.1 million, or (12.9)% of pretax loss, for the three months ended March 31, 2021. Our effective tax rate for both the three months ended March 31, 2022 and 2021 was impacted by considering Canada and the U.S. loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision.

Other Comprehensive (Loss) Income. Other comprehensive income increased $9.6 million in the first quarter of 2022 compared to the first quarter of 2021, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar increased 1% in the first quarter of 2022 compared to a 1% increase in the first quarter of 2021. The Australian dollar exchange rate compared to the U.S. dollar increased 3% in the first quarter of 2022 compared to a 2% decrease in the first quarter of 2021.

Segment Results of Operations – Canadian Segment

			Three Months Ended March 31,
			2022						2021						Change
Revenues ($ in thousands)
Accommodation revenue (1)			$	67,194					$	46,530					$	20,664
Mobile facility rental revenue (2)			24,018						10,499						13,519
Food service and other services revenue (3)			4,740						4,856						(116)
Total revenues			$	95,952					$	61,885					$	34,067
Cost of sales and services ($ in thousands)
Accommodation cost			$	53,127					$	38,336					$	14,791
Mobile facility rental cost			14,884						6,774						8,110
Food service and other services cost			4,359						4,121						238
Indirect other costs			2,836						2,654						182
Total cost of sales and services			$	75,206					$	51,885					$	23,321
Gross margin as a % of revenues			21.6		%				16.2		%				5.5		%
Average daily rate for lodges (4)			$	106					$	97					$	9
Total billed rooms for lodges (5)			635,555						480,066						155,489
Average Canadian dollar to U.S. dollar			$	0.790					$	0.790					$	—

Segment Results of Operations – Australian Segment

			Three Months Ended March 31,
			2022						2021						Change
Revenues ($ in thousands)
Accommodation revenue (1)			$	37,599					$	33,675					$	3,924
Food service and other services revenue (2)			25,930						$	25,962					$	(32)
Total revenues			$	63,529					$	59,637					$	3,892
Cost of sales and services ($ in thousands)
Accommodation cost			$	18,407					$	17,105					$	1,302
Food service and other services cost			24,363						24,297						66
Indirect other cost			1,744						1,501						243
Total cost of sales and services			$	44,514					$	42,903					$	1,611
Gross margin as a % of revenues			29.9		%				28.1		%				1.9		%
Average daily rate for villages (3)			$	79					$	79					$	—
Total billed rooms for villages (4)			474,474						424,666						49,808
Australian dollar to U.S. dollar			$	0.724					$	0.773					$	(0.049)

			Three Months Ended March 31,
			2022						2021						Change
Revenues ($ in thousands)			$	6,197					$	3,908					$	2,289
Cost of sales and services ($ in thousands)			$	6,123					$	5,022					$	1,101
Gross margin as a % of revenues			1.2		%				(28.5)		%				29.7		%

Liquidity and Capital Resources

			March 31, 2022						December 31, 2021
Lender commitments			$	200,000					$	200,000
Borrowings against revolving credit capacity			(121,886)						(112,026)
Outstanding letters of credit			(1,456)						(1,439)
Unused availability			76,658						86,535
Cash and cash equivalents			6,423						6,282
Total available liquidity			$	83,081					$	92,817