Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission File Number: 001-32936
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
Minnesota
95-3409686
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3505 West Sam Houston Parkway North
Suite 400
Houston Texas
77043
(Address of principal executive offices)
(Zip Code)
(281) 618–0400
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
HLX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☑
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
As of October 18, 2021, 150,888,686 shares of common stock were outstanding.
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements:
3
Condensed Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020
Condensed Consolidated Statements of Operations (Unaudited) – Three and nine months ended September 30, 2021 and 2020
4
Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and nine months ended September 30, 2021 and 2020
5
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three months ended September 30, 2021 and 2020
6
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Nine months ended September 30, 2021 and 2020
7
Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, 2021 and 2020
8
Notes to Condensed Consolidated Financial Statements (Unaudited)
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
40
Item 4.
Controls and Procedures
41
PART II.
OTHER INFORMATION
Legal Proceedings
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
42
Signatures
43
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
237,549
291,320
Restricted cash
71,282
—
Accounts receivable, net of allowance for credit losses of $1,410 and $3,469, respectively
136,704
132,233
Other current assets
62,442
102,092
Total current assets
507,977
525,645
Property and equipment
2,942,699
2,948,907
Less accumulated depreciation
(1,256,025)
(1,165,943)
Property and equipment, net
1,686,674
1,782,964
Operating lease right-of-use assets
117,397
149,656
Other assets, net
35,251
40,013
Total assets
2,347,299
2,498,278
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
75,162
50,022
Accrued liabilities
85,240
87,035
Current maturities of long-term debt
42,825
90,651
Current operating lease liabilities
55,051
51,599
Total current liabilities
258,278
279,307
Long-term debt
261,668
258,912
Operating lease liabilities
64,423
101,009
Deferred tax liabilities
91,785
110,821
Other non-current liabilities
1,481
3,878
Total liabilities
677,635
753,927
Commitments and contingencies
Redeemable noncontrolling interests
3,855
Shareholders’ equity:
Common stock, no par, 240,000 shares authorized, 150,876 and 150,341 shares issued, respectively
1,290,697
1,327,592
Retained earnings
437,065
464,524
Accumulated other comprehensive loss
(58,098)
(51,620)
Total shareholders’ equity
1,669,664
1,740,496
Total liabilities, redeemable noncontrolling interests and shareholders’ equity
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
Net revenues
180,716
193,490
506,072
573,658
Cost of sales
177,716
158,862
485,318
507,444
Gross profit
3,000
34,628
20,754
66,214
Gain (loss) on disposition of assets, net
15
440
(631)
913
Goodwill impairment
(6,689)
Selling, general and administrative expenses
(13,346)
(16,053)
(41,950)
(48,256)
Income (loss) from operations
(10,331)
19,015
(21,827)
12,182
Net interest expense
(5,928)
(7,598)
(17,900)
(20,407)
Gain (loss) on extinguishment of long-term debt
(124)
9,239
Other income (expense), net
(4,015)
8,824
(1,438)
(3,672)
Royalty income and other
297
197
2,603
2,493
Income (loss) before income taxes
(20,101)
29,677
(38,686)
(165)
Income tax provision (benefit)
(1,058)
5,232
(2,910)
(16,132)
Net income (loss)
(19,043)
24,445
(35,776)
15,967
Net loss attributable to redeemable noncontrolling interests
(54)
(146)
(2,044)
Net income (loss) attributable to common shareholders
24,499
(35,630)
18,011
Earnings (loss) per share of common stock:
Basic
(0.13)
0.16
(0.24)
0.10
Diluted
Weighted average common shares outstanding:
150,088
149,032
150,018
148,956
149,951
149,824
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax:
Net unrealized loss on hedges arising during the period
(95)
Reclassifications into earnings
452
Income taxes on hedges
(72)
Net change in hedges, net of tax
285
Foreign currency translation gain (loss)
(13,447)
19,426
(6,478)
(16,057)
Other comprehensive income (loss), net of tax
(15,772)
Comprehensive income (loss)
(32,490)
43,871
(42,254)
195
Less comprehensive income (loss) attributable to redeemable noncontrolling interests:
Net loss
133
48
(115)
Comprehensive income (loss) attributable to redeemable noncontrolling interests
79
(98)
(2,159)
Comprehensive income (loss) attributable to common shareholders
43,792
(42,156)
2,354
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
Other
Total
Redeemable
Retained
Comprehensive
Shareholders’
Noncontrolling
Shares
Amount
Earnings
Loss
Equity
Interests
Balance, June 30, 2021
150,787
1,288,603
456,108
(44,651)
1,700,060
Foreign currency translation adjustments
Activity in company stock plans, net and other
89
262
Share-based compensation
1,832
Balance, September 30, 2021
150,876
Balance, June 30, 2020
150,040
1,318,531
436,107
(99,938)
1,654,700
3,372
Accretion of redeemable noncontrolling interests
(128)
128
Equity component of convertible senior notes
33,336
Re-acquisition of equity component of convertible senior notes
(18,006)
Capped call transactions
(10,625)
96
193
2,091
Balance, September 30, 2020
150,136
1,325,520
460,478
(80,512)
1,705,486
3,579
Balance, December 31, 2020
150,341
Cumulative-effect adjustments upon adoption of ASU No. 2020-06
(41,456)
6,682
(34,774)
1,489
(1,489)
Acquisition of redeemable noncontrolling interests
(2,268)
535
(1,052)
5,613
Balance, December 31, 2019
148,888
1,318,961
445,370
(64,740)
1,699,591
3,455
Credit losses recognized in retained earnings upon adoption of ASU No. 2016-13
(620)
Unrealized gain on hedges, net of tax
(2,283)
2,283
1,248
(4,320)
6,174
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
106,226
99,552
6,689
Amortization of debt discounts
5,094
Amortization of debt issuance costs
2,596
2,401
5,783
6,394
Deferred income taxes
(10,375)
3,901
(Gain) loss on disposition of assets, net
631
(913)
(Gain) loss on extinguishment of long-term debt
124
(9,239)
Unrealized gain on derivative contracts, net
(601)
Unrealized foreign currency loss
2,041
2,891
Changes in operating assets and liabilities:
Accounts receivable, net
(6,631)
(35,276)
16,604
(28,036)
Income tax payable, net of income tax receivable
20,912
(26,342)
Accounts payable and accrued liabilities
28,577
32,075
Other, net
(9,460)
(15,929)
Net cash provided by operating activities
121,252
58,628
Cash flows from investing activities:
Capital expenditures
(7,386)
(19,193)
Proceeds from sale of assets
51
938
Net cash used in investing activities
(7,335)
(18,255)
Cash flows from financing activities:
Proceeds from convertible senior notes
200,000
Repayment of convertible senior notes
(183,150)
Repayment of Term Loan
(29,826)
(2,625)
Repayment of Nordea Q5000 Loan
(53,572)
(26,786)
Repayment of MARAD Debt
(7,560)
(7,200)
Debt issuance costs
(1,209)
(7,075)
Payments related to tax withholding for share-based compensation
(1,878)
(5,161)
Proceeds from issuance of ESPP shares
654
622
Net cash used in financing activities
(95,659)
(42,000)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(747)
(1,600)
Net increase (decrease) in cash and cash equivalents and restricted cash
17,511
(3,227)
Cash and cash equivalents and restricted cash:
Balance, beginning of year
262,561
Balance, end of period
308,831
259,334
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Basis of Presentation and New Accounting Standards
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. dollars and are consistent in all material respects with those applied in our 2020 Annual Report on Form 10-K (our “2020 Form 10-K”) with the exception of the impact of early adopting Accounting Standards Update (“ASU”) No. 2020-06 on a modified retrospective basis beginning January 1, 2021 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders’ equity and statements of cash flows, as applicable. The operating results for the three- and nine-month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Our balance sheet as of December 31, 2020 included herein has been derived from the audited balance sheet as of December 31, 2020 included in our 2020 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in our 2020 Form 10-K.
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
New accounting standards
In August 2020, the Financial Accounting Standards Board issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, this ASU removes from GAAP the requirement to separate certain convertible instruments, such as our Convertible Senior Notes Due 2022, Convertible Senior Notes Due 2023 and Convertible Senior Notes Due 2026 (Note 5), into liability and equity components. Consequently, those convertible instruments will be accounted for in their entirety as liabilities measured at their amortized cost. We elected to early adopt ASU No. 2020-06 on a modified retrospective basis beginning January 1, 2021. The adoption of this ASU increased our long-term debt and decreased the reported value of our common stock by $44.1 million and $41.5 million, respectively, as we reclassified the conversion features associated with our various outstanding convertible senior notes from equity to long-term debt. The adoption of this ASU also increased our retained earnings and decreased deferred tax liabilities by $6.7 million and $9.3 million, respectively. Subsequent to its adoption, interest expense associated with our outstanding convertible senior notes will decrease as there will no longer be debt discounts to amortize. Additionally, the ASU no longer permits the treasury stock method for convertible instruments and instead requires the application of the if-converted method to calculate the impact of our convertible senior notes on diluted earnings per share (“EPS”).
We do not expect any other recently issued accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.
Note 2 — Company Overview
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. Traditionally, our services have covered the lifecycle of an offshore oil or gas field. In recent years, we have seen an increasing demand for our services from the offshore renewable energy market. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our North Sea operations are subject to seasonal changes in demand, which generally peaks in the summer months and declines in the winter months. Our services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities (Note 10).
Our Well Intervention segment provides services enabling our customers to safely access offshore wells for the purpose of performing production enhancement or decommissioning operations. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and two chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. Our well intervention equipment includes intervention riser systems (“IRSs”), subsea intervention lubricators (“SILs”) and the Riserless Open-water Abandonment Module (“ROAM”), some of which we provide on a stand-alone basis. Our well intervention segment also includes our ownership interest in Subsea Technologies Group Limited (“STL”). Beginning in May 2019 we held a 70% controlling interest in STL, and in June 2021 we acquired the remaining 30% interest.
Our Robotics segment provides offshore construction, trenching, seabed clearance, inspection, repair and maintenance services to both the oil and gas and the renewable energy markets globally. Our Robotics services also complement well intervention services. Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers, a ROVDrill and two robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III, as well as spot vessels as needed.
Our Production Facilities segment includes the Helix Producer I (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”) and our ownership of oil and gas properties. All of our current Production Facilities activities are located in the Gulf of Mexico.
Note 3 — Details of Certain Accounts
Other current assets consist of the following (in thousands):
Contract assets (Note 7)
367
2,446
Prepaids
18,301
15,904
Deferred costs (Note 7)
8,792
23,522
Income tax receivable
20,787
Other receivable (Note 11)
28,184
29,782
6,798
9,651
Total other current assets
Other assets, net consist of the following (in thousands):
Deferred recertification and dry dock costs, net
16,401
21,464
543
861
Charter deposit (1)
12,544
Intangible assets with finite lives, net
3,809
2,184
1,335
Total other assets, net
10
Accrued liabilities consist of the following (in thousands):
Accrued payroll and related benefits
26,443
24,768
Accrued interest
2,760
7,098
Income tax payable
581
Deferred revenue (Note 7)
9,425
8,140
Asset retirement obligations (Note 11)
29,018
30,913
17,013
16,116
Total accrued liabilities
Other non-current liabilities consist of the following (in thousands):
762
1,869
719
2,009
Total other non-current liabilities
Note 4 — Leases
We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. We also sublease some of our facilities under non-cancelable sublease agreements.
The following table details the components of our lease cost (in thousands):
Operating lease cost
14,336
16,132
45,391
48,561
Variable lease cost
4,298
4,204
11,417
11,256
Short-term lease cost
6,258
12,923
13,233
30,089
Sublease income
(289)
(344)
(967)
(951)
Net lease cost
24,603
32,915
69,074
88,955
Maturities of our operating lease liabilities as of September 30, 2021 are as follows (in thousands):
Facilities and
Vessels
Equipment
Less than one year
55,817
5,731
61,548
One to two years
43,045
4,946
47,991
Two to three years
8,013
4,689
12,702
Three to four years
3,212
Four to five years
1,048
Over five years
4,443
Total lease payments
106,875
24,069
130,944
Less: imputed interest
(7,388)
(4,082)
(11,470)
Total operating lease liabilities
99,487
19,987
119,474
50,295
4,756
Non-current operating lease liabilities
49,192
15,231
11
Maturities of our operating lease liabilities as of December 31, 2020 are as follows (in thousands):
54,621
6,028
60,649
52,106
5,435
57,541
34,580
4,649
39,229
2,470
4,374
6,844
2,340
4,054
143,777
26,880
170,657
(13,352)
(4,697)
(18,049)
130,425
22,183
152,608
46,748
4,851
83,677
17,332
The following table presents the weighted average remaining lease term and discount rate:
Weighted average remaining lease term
2.6
years
3.1
Weighted average discount rate
7.59
%
7.53
The following table presents other information related to our operating leases (in thousands):
Cash paid for operating lease liabilities
46,141
49,350
Right-of-use assets obtained in exchange for new operating lease obligations
5,975
36
Note 5 — Long-Term Debt
Scheduled maturities of our long-term debt outstanding as of September 30, 2021 are as follows (in thousands):
2022
2023
2026
MARAD
Notes
Debt
35,000
7,937
42,937
30,000
8,333
38,333
8,749
9,186
9,644
209,644
5,001
Gross debt
48,850
313,850
Unamortized debt issuance costs (1)
(112)
(359)
(6,203)
(2,683)
(9,357)
Total debt
34,888
29,641
193,797
46,167
304,493
Less current maturities
(34,888)
(7,937)
(42,825)
38,230
12
Below is a summary of certain components of our indebtedness:
Credit Agreement
On September 30, 2021, we entered into an asset-based credit agreement (the “ABL Facility”) with Bank of America, N.A. (“Bank of America”), Wells Fargo Bank, N.A. and Zions Bancorporation. The ABL Facility provides for an $80 million asset-based revolving credit facility, which matures on September 30, 2026, with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $50 million. The ABL Facility also permits us to request an increase of the facility by up to $70 million, subject to certain conditions.
Commitments under the ABL Facility are comprised of separate U.S. and U.K. revolving credit facility commitments of $45 million and $35 million, respectively. The ABL Facility provides funding based on a borrowing base calculation that includes eligible U.S. and U.K. customer accounts receivable and cash, and provides for a $10 million sub-limit for the issuance of letters of credit. As of September 30, 2021, we had no borrowings under the ABL Facility, and our available borrowing capacity under that facility, based on the borrowing base, totaled $69.6 million, net of $2.2 million of letters of credit issued under that facility.
We and certain of our U.S. and U.K. subsidiaries are the initial borrowers under the ABL Facility, whose obligations under the ABL Facility are guaranteed by those borrowers and certain other U.S. and U.K. subsidiaries, excluding Cal Dive I – Title XI, Inc. (“CDI Title XI”), Helix Offshore Services Limited and certain other enumerated subsidiaries. Other subsidiaries may be added as guarantors of the facility in the future. The ABL Facility is secured by all accounts receivable and designated deposit accounts of the U.S. borrowers and guarantors, and by substantially all of the assets of the U.K. borrowers and guarantors.
U.S. borrowings under the ABL Facility initially bear interest at the LIBOR rate plus a margin of 1.50% to 2.00% or at a base rate plus a margin of 0.50% to 1.00%. U.K. borrowings under the ABL Facility denominated in U.S. dollars initially bear interest at the LIBOR rate and U.K. borrowings denominated in the British pound initially bear interest at the SONIA daily rate, each plus a margin of 1.50% to 2.00%. We also pay a commitment fee of 0.375% to 0.50% per annum on the unused portion of the facility. Beginning on the earlier of June 30, 2023, cessation of LIBOR or an earlier opt-in election, LIBOR will be replaced by either SOFR or term SOFR plus a margin of 0.114% to 0.428% or an alternate benchmark rate.
The ABL Facility includes certain limitations on our ability to incur additional indebtedness, grant liens on assets, pay dividends and make distributions on equity interests, dispose of assets, make investments, repay certain indebtedness, engage in mergers, and other matters, in each case subject to certain exceptions. The ABL Facility contains customary default provisions which, if triggered, could result in acceleration of all amounts then outstanding. The ABL Facility requires us to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 if availability is less than the greater of 10% of the borrowing base or $8 million. The ABL Facility also requires us to maintain a pro forma minimum excess availability of $16 million for the 91 days prior to the maturity of each of our outstanding convertible senior notes.
Convertible Senior Notes Due 2022 (“2022 Notes”)
The 2022 Notes bear interest at a coupon interest rate of 4.25% per annum payable semi-annually in arrears on November 1 and May 1 of each year until maturity. The 2022 Notes mature on May 1, 2022 unless earlier converted, redeemed or repurchased by us. The 2022 Notes are convertible by their holders at any time beginning February 1, 2022 at an initial conversion rate of 71.9748 shares of our common stock per $1,000 principal amount, which currently represents 2,519,118 potentially convertible shares at an initial conversion price of approximately $13.89 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
13
Prior to February 1, 2022, holders of the 2022 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2022 Notes was equal to or less than 97% of the conversion value of the notes during the five consecutive business days immediately after any ten consecutive trading day period (trading price condition). Holders of the 2022 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 30.5887 shares of our common stock per $1,000 principal amount.
Prior to November 1, 2019, the 2022 Notes were not redeemable. On or after November 1, 2019, we may redeem all or any portion of the 2022 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2022 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2022 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2022 Notes).
The indenture governing the 2022 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a subsidiary, the principal amount of the 2022 Notes together with any accrued interest will become immediately due and payable.
The 2022 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through the maturity date of the 2022 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2022 Notes totaled $1.5 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2022 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2022 Notes were $0.1 million.
The effective interest rate for the 2022 Notes prior to the adoption of ASU No. 2020-06 was 7.3%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 4.8%. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2022 Notes was $0.4 million and $1.3 million, respectively, with coupon interest expense of $0.4 million and $1.1 million, respectively, and the amortization of issuance costs of $0.2 million for the nine-month period ended September 30, 2021. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2022 Notes was $1.4 million and $6.0 million, respectively, with coupon interest expense of $0.8 million and $3.5 million, respectively, and the amortization of debt discount and issuance costs of $0.6 million and $2.5 million, respectively.
Convertible Senior Notes Due 2023 (“2023 Notes”)
The 2023 Notes bear interest at a coupon interest rate of 4.125% per annum payable semi-annually in arrears on March 15 and September 15 of each year until maturity. The 2023 Notes mature on September 15, 2023 unless earlier converted, redeemed or repurchased by us. The 2023 Notes are convertible by their holders at any time beginning March 15, 2023 at an initial conversion rate of 105.6133 shares of our common stock per $1,000 principal amount, which currently represents 3,168,399 potentially convertible shares at an initial conversion price of approximately $9.47 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
14
Prior to March 15, 2023, holders of the 2023 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2023 Notes was equal to or less than 97% of the conversion value of the notes during the five consecutive business days immediately after any ten consecutive trading day period (trading price condition). Holders of the 2023 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 47.5260 shares of our common stock per $1,000 principal amount.
Prior to March 15, 2021, the 2023 Notes were not redeemable. On or after March 15, 2021, we may redeem all or any portion of the 2023 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2023 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2023 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2023 Notes).
The indenture governing the 2023 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2023 Notes together with any accrued interest will become immediately due and payable.
The 2023 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through the maturity date of the 2023 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2023 Notes totaled $3.1 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2023 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2023 Notes were $0.4 million.
The effective interest rate for the 2023 Notes prior to the adoption of ASU No. 2020-06 was 7.8%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 4.8%. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2023 Notes was $0.3 million and $1.0 million, respectively, with coupon interest expense of $0.3 million and $0.9 million, respectively, and the amortization of issuance costs of $0.1 million for the nine-month period ended September 30, 2021. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2023 Notes was $1.4 million and $6.0 million, respectively, with coupon interest expense of $0.8 million and $3.4 million, respectively, and the amortization of debt discount and issuance costs of $0.6 million and $2.6 million, respectively.
Convertible Senior Notes Due 2026 (“2026 Notes”)
The 2026 Notes bear interest at a coupon interest rate of 6.75% per annum payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2021 until maturity. The 2026 Notes mature on February 15, 2026 unless earlier converted, redeemed or repurchased by us. The 2026 Notes are convertible by their holders at any time beginning November 17, 2025 at an initial conversion rate of 143.3795 shares of our common stock per $1,000 principal amount, which currently represents 28,675,900 potentially convertible shares at an initial conversion price of approximately $6.97 per share of common stock. Upon conversion, we have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof.
Prior to November 17, 2025, holders of the 2026 Notes may convert their notes if the closing price of our common stock exceeds 130% of the conversion price for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter (share price condition) or if the trading price of the 2026 Notes was equal to or less than 97% of the conversion value of the notes during the five consecutive business days immediately after any ten consecutive trading day period (trading price condition). Holders of the 2026 Notes may also convert their notes if we make certain distributions on shares of our common stock or engage in certain corporate transactions, in which case the holders may be entitled to an increase in the conversion rate, depending on the price of our common shares and the time remaining to maturity, of up to 64.5207 shares of our common stock per $1,000 principal amount.
Prior to August 15, 2023, the 2026 Notes are not redeemable. On or after August 15, 2023, we may redeem all or any portion of the 2026 Notes if the price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period preceding our redemption notice. Any redemption would be payable in cash equal to 100% of the principal amount plus accrued and unpaid interest and a “make-whole premium” calculated as the present value of all remaining scheduled interest payments. Holders of the 2026 Notes may convert any of their notes if we call the notes for redemption. Holders of the 2026 Notes may also require us to repurchase the notes following a “fundamental change,” which includes a change of control or a termination of trading of our common stock (as defined in the indenture governing the 2026 Notes).
The indenture governing the 2026 Notes contains customary terms and covenants, including that upon certain events of default, the entire principal amount of and any accrued interest on the notes may be declared immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2026 Notes together with any accrued interest will become immediately due and payable.
The 2026 Notes were initially separated between the equity component recognized in shareholders’ equity and the debt component, which was presented as long-term debt, net of the unamortized debt discount and debt issuance costs. The unamortized debt discount and debt issuance costs were being accreted to interest expense through the maturity date of the 2026 Notes. As of December 31, 2020, unamortized debt discount and debt issuance costs related to the 2026 Notes totaled $47.3 million. As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount (or related accretion) associated with the 2026 Notes (Note 1). As of September 30, 2021, unamortized debt issuance costs related to the 2026 Notes were $6.2 million.
The effective interest rate for the 2026 Notes prior to the adoption of ASU No. 2020-06 was 12.4%. The effective interest rate subsequent to the adoption of ASU No. 2020-06 decreased to 7.6%. For the three- and nine-month periods ended September 30, 2021, total interest expense related to the 2026 Notes was $3.7 million and $11.0 million, respectively, with coupon interest expense of $3.4 million and $10.1 million, respectively, and the amortization of debt issuance costs of $0.3 million and $0.9 million, respectively. For the three- and nine-month periods ended September 30, 2020, total interest expense related to the 2026 Notes was $2.5 million with coupon interest expense of $1.7 million and the amortization of debt discount and issuance costs of $0.8 million.
2026 Capped Calls
In connection with the 2026 Notes offering, we entered into capped call transactions (the “2026 Capped Calls”) with three separate option counterparties. The 2026 Capped Calls are separate transactions from the 2026 Notes and do not change the holders' rights under the 2026 Notes. Holders of the 2026 Notes do not have any rights with respect to the 2026 Capped Calls.
The 2026 Capped Calls are for an aggregate of 28,675,900 shares of our common stock, which corresponds to the shares into which the 2026 Notes are initially convertible. The capped call shares are subject to certain anti-dilution adjustments. Each capped call option has an initial strike price of approximately $6.97 per share, which corresponds to the initial conversion price of the 2026 Notes, and an initial cap price of approximately $8.42 per share. The strike and cap prices are subject to certain adjustments. The 2026 Capped Calls are intended to offset some or all of the potential dilution to Helix common shares caused by any conversion of the 2026 Notes up to the cap price. The 2026 Capped Calls can be settled in either net shares or cash at our option in components commencing December 15, 2025 and ending February 12, 2026, which could be extended under certain circumstances.
16
The 2026 Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting Helix, including a merger, tender offer, nationalization, insolvency or delisting. In addition, certain events may result in a termination of the 2026 Capped Calls, including changes in law, insolvency filings and hedging disruptions. The 2026 Capped Calls are recorded at their aggregate cost of $10.6 million as a reduction to common stock in the shareholders’ equity section of our consolidated balance sheet.
MARAD Debt
In 2005, Helix’s subsidiary CDI – Title XI issued its U.S. Government Guaranteed Ship Financing Bonds, Q4000 Series, to refinance the construction financing originally granted in 2002 of the Q4000 vessel (the “MARAD Debt”). The MARAD Debt is guaranteed by the U.S. government pursuant to Title XI of the Merchant Marine Act of 1936, administered by the Maritime Administration (“MARAD”). The obligation of CDI Title XI to reimburse MARAD in the event CDI Title XI fails to repay the MARAD Debt is collateralized by the Q4000 and is guaranteed 50% by us. In addition, we have agreed to bareboat charter the Q4000 from CDI Title XI for so long as the MARAD Debt remains outstanding. The MARAD Debt is payable in equal semi-annual installments, matures in February 2027 and bears interest at a rate of 4.93%. The agreements relating to the bonds and the terms and conditions of our obligations to MARAD in respect of the MARAD Debt are typical for U.S. government-guaranteed ship financing transactions, including customary restrictions on incurring additional liens on the Q4000 and trading restrictions with respect to the vessel as well as working capital requirements.
We previously had a credit agreement with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) to finance the construction of the Q5000. The loan was secured by the Q5000 and its charter earnings. As of December 31, 2020, the remaining principal amount of the Nordea Q5000 Loan was $53.6 million, which we repaid in January 2021.
We previously had another credit agreement (and the amendments made thereafter, collectively the “Credit Agreement”) with a group of lenders led by Bank of America. The Credit Agreement was comprised of a term loan (the “Term Loan”) and a revolving credit facility (the “Revolving Credit Facility”) with a maximum availability of $175 million and had a maturity date of December 31, 2021. Concurrent with our entering into the ABL Facility, the Credit Agreement was terminated. The $28 million remaining balance of the Term Loan was repaid in full and the letters of credit issued under the Revolving Credit Facility were transferred to the ABL Facility. We had no borrowings under the Revolving Credit Facility.
In accordance with the ABL Facility, the 2022 Notes, the 2023 Notes, the 2026 Notes and the MARAD Debt, we are required to comply with certain covenants, including a springing fixed charge coverage ratio and minimum liquidity with respect to the ABL Facility and the maintenance of net worth, working capital and debt-to-equity requirements with respect to the MARAD Debt. As of September 30, 2021, we were in compliance with these covenants.
The following table details the components of our net interest expense (in thousands):
Interest expense
6,097
8,007
18,152
22,580
Capitalized interest
(1,182)
Interest income
(169)
(409)
(252)
(991)
5,928
7,598
17,900
20,407
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Note 6 — Income Taxes
We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicable in the relevant carryback year. As a result of these changes, in the nine-month period ended September 30, 2020 we recognized an estimated $7.6 million net tax benefit ($18.9 million current tax benefit and $11.3 million deferred tax expense). This net tax benefit was generated as our deferred tax assets related to U.S. net operating losses were realized at higher prior year income tax rates.
During the nine-month period ended September 30, 2020, we migrated two of our foreign subsidiaries into our U.S. consolidated tax group. As a result, these subsidiaries are not subject to future U.S. branch profits tax and a net deferred tax benefit of $8.3 million was recognized.
The effective tax rates for the three-month periods ended September 30, 2021 and 2020 were 5.3% and 17.6%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as the impact of the CARES Act in 2020. The effective tax rates for the nine-month periods ended September 30, 2021 and 2020 were 7.5% and 9,777.0%, respectively. The effective tax rate for the nine-month period ended September 30, 2021 was lower than the U.S. statutory rate primarily driven by losses in jurisdictions with low tax rates as well as non-U.S. withholding and deemed profits taxes paid. The effective tax rate for the nine-month period ended September 30, 2020 was significantly higher than the U.S. statutory rate primarily due to the recognition of benefits from our foreign subsidiary restructuring and the CARES Act, as discussed above, in relation to nominal pre-tax losses.
The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our actual income tax provision (benefit) are as follows (dollars in thousands):
Taxes at U.S. statutory rate
(4,221)
21.0
6,232
(8,124)
(35)
Foreign tax provision
5,134
(25.5)
1,088
3.7
3,669
(9.5)
(28)
17.0
CARES Act
(2,362)
(8.0)
(7,596)
4,603.6
Subsidiary restructuring
(8,333)
5,050.3
Other (1)
(1,971)
9.8
274
0.9
1,545
(4.0)
(140)
85.1
5.3
17.6
7.5
9,777.0
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Note 7 — Revenue from Contracts with Customers
Disaggregation of Revenue
Our revenues are primarily derived from short-term and long-term service contracts with customers. Our service contracts generally contain either provisions for specific time, material and equipment charges that are billed in accordance with the terms of such contracts (dayrate contracts) or lump sum payment provisions (lump sum contracts). We record revenues net of taxes collected from customers and remitted to governmental authorities. Contracts are classified as long-term if all or part of the contract is to be performed over a period extending beyond 12 months from the effective date of the contract. Long-term contracts may include multi-year agreements whereby the commitment for services in any one year may be short in duration. The following table provides information about disaggregated revenue by contract duration (in thousands):
Well
Production
Intercompany
Intervention
Robotics
Facilities
Eliminations (1)
Revenue
Three months ended September 30, 2021
Short-term
92,954
30,186
123,140
Long-term
38,360
12,437
18,552
(11,773)
57,576
131,314
42,623
Three months ended September 30, 2020
46,907
28,782
75,689
93,896
21,020
14,167
(11,282)
117,801
140,803
49,802
Nine months ended September 30, 2021
218,840
60,605
279,445
178,547
35,825
49,217
(36,962)
226,627
397,387
96,430
Nine months ended September 30, 2020
184,599
87,307
271,906
242,697
48,589
43,301
(32,835)
301,752
427,296
135,896
Contract Balances
Accounts receivable are recognized when our right to consideration becomes unconditional.
Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3). Contract assets were $0.4 million at September 30, 2021 and $2.4 million at December 31, 2020. We had no credit losses on our contract assets for the three- and nine-month periods ended September 30, 2021 and 2020.
19
Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets (Note 3). Contract liabilities totaled $10.2 million at September 30, 2021 and $10.0 million at December 31, 2020. Revenue recognized for the three- and nine-month periods ended September 30, 2021 included $4.0 million and $6.7 million, respectively, that were included in the contract liability balance at the beginning of each period. Revenue recognized for the three- and nine-month periods ended September 30, 2020 included $3.4 million and $8.8 million, respectively, that were included in the contract liability balance at the beginning of each period.
We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
Performance Obligations
As of September 30, 2021, $230.5 million related to unsatisfied performance obligations was expected to be recognized as revenue in the future, with $68.6 million in 2021, $102.6 million in 2022 and $59.3 million in 2023 and thereafter. These amounts include fixed consideration and estimated variable consideration for both wholly and partially unsatisfied performance obligations, including mobilization and demobilization fees. These amounts are derived from the specific terms of our contracts, and the expected timing for revenue recognition is based on the estimated start date and duration of each contract according to the information known at September 30, 2021.
For the three- and nine-month periods ended September 30, 2021 and 2020, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
Contract Fulfillment Costs
Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3). Our deferred contract costs totaled $9.3 million at September 30, 2021 and $24.4 million at December 31, 2020. For the three- and nine-month periods ended September 30, 2021, we recorded $11.7 million and $31.6 million, respectively, related to amortization of these deferred contract costs. For the three- and nine-month periods ended September 30, 2020, we recorded $9.2 million and $27.2 million, respectively, related to amortization of these deferred contract costs. There were no associated impairment losses for any period presented.
For additional information regarding revenue recognition, see Notes 2 and 12 to our 2020 Form 10-K.
Note 8 — Earnings Per Share
We have shares of restricted stock issued and outstanding that are currently unvested. Because holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock, we are required to compute basic and diluted EPS under the two-class method in periods in which we have earnings. Under the two-class method, net income or loss attributable to common shareholders for each period is allocated based on the participation rights of both common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. For periods in which we have a net loss we do not use the two-class method as holders of our restricted shares are not obligated to share in such losses.
20
Basic EPS is computed by dividing net income or loss available to common shareholders by the weighted average shares of our common stock outstanding. The calculation of diluted EPS is similar to that for basic EPS, except that the denominator includes dilutive common stock equivalents and the numerator excludes the effects of dilutive common stock equivalents, if any. The computations of the numerator (income) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands):
September 30, 2021
September 30, 2020
Income
Basic:
Less: Undistributed earnings allocated to participating securities
(180)
Net income (loss) available to common shareholders, basic
24,191
Diluted:
Effect of dilutive securities:
Share-based awards other than participating securities
919
Undistributed earnings reallocated to participating securities
Net income (loss) available to common shareholders, diluted
24,193
(117)
Less: Accretion of redeemable noncontrolling interests
(241)
(35,871)
15,611
868
1
15,612
We had net losses for the three- and nine-month periods ended September 30, 2021. Accordingly, our diluted EPS calculation for these periods excluded any assumed exercise or conversion of common stock equivalents. These common stock equivalents were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods. Shares that otherwise would have been included in the diluted per share calculations assuming we had earnings are as follows (in thousands):
Diluted shares (as reported)
Share-based awards
1,384
1,306
151,472
151,324
21
The following potentially dilutive shares related to the 2022 Notes, the 2023 Notes and the 2026 Notes were excluded from the diluted EPS calculation as they were anti-dilutive (in thousands):
2022 Notes
2,519
5,688
7,886
2023 Notes
3,168
8,076
11,481
2026 Notes
28,676
14,650
4,919
Note 9 — Employee Benefit Plans
Long-Term Incentive Plan
As of September 30, 2021, there were 5.9 million shares of our common stock available for issuance under our 2005 Long-Term Incentive Plan, as amended and restated (the “2005 Incentive Plan”). During the nine-month period ended September 30, 2021, the following grants of share-based awards were made under the 2005 Incentive Plan:
Grant Date
Fair Value
Date of Grant
Shares/Units
Per Share/Unit
Vesting Period
January 1, 2021 (1)
452,381
4.20
33% per year over three years
January 4, 2021 (2)
5.33
100% on January 4, 2024
January 4, 2021 (3)
14,249
100% on January 1, 2023
April 1, 2021 (3)
9,282
5.05
July 1, 2021 (3)
8,403
5.71
July 23, 2021 (4)
14,664
4.54
100% on July 23, 2022
Compensation cost for restricted stock is the product of the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. Forfeitures are recognized as they occur. No restricted stock awards have been granted to our executive officers or other employees in 2021. For the three- and nine-month periods ended September 30, 2021, $0.8 million and $2.5 million, respectively, were recognized as share-based compensation related to restricted stock. For the three- and nine-month periods ended September 30, 2020, $1.1 million and $3.2 million, respectively, were recognized as share-based compensation related to restricted stock.
Our existing PSUs that were granted prior to 2021 are to be settled solely in shares of our common stock and are accounted for as equity awards. Those PSUs contain a service condition and a market condition. PSUs granted in 2021 may be settled in either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee of our Board and are initially accounted for as equity awards. The PSUs granted in 2021 consist of two components: (i) 50% based on the performance of our common stock against peer group companies, which contains a service condition and a market condition, and (ii) 50% based on cumulative total Free Cash Flow, which contains a service condition and a performance condition. Free Cash Flow is calculated as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. Our PSUs cliff vest at the end of a three-year period with the maximum amount of the award being 200% of the original PSU awards and the minimum amount being zero.
22
Compensation cost for PSUs that have a service condition and a market condition and are accounted for as equity awards is measured based on the grant date estimated fair value and recognized over the vesting period on a straight-line basis. The grant date estimated fair value is determined using a Monte Carlo simulation model. Compensation cost for PSUs that have a service condition and a performance condition and are accounted for as equity awards is initially measured based on the grant date fair value. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. For the three- and nine-month periods ended September 30, 2021, $1.0 million and $3.1 million, respectively, were recognized as share-based compensation related to equity PSUs. For the three- and nine-month periods ended September 30, 2020, $1.0 million and $3.0 million, respectively, were recognized as share-based compensation related to equity PSUs. In January 2021, based on the performance of our common stock price as compared to our performance peer group over a three-year period, 368,038 equity PSUs granted in 2018 vested at 200%, representing 736,075 shares of our common stock with a total market value of $3.1 million.
RSUs granted in 2021 have been accounted for as liability awards. Liability RSUs are measured at their estimated fair value at each balance sheet date, and subsequent changes in the fair value of the awards are recognized in earnings for the portion of the award for which the requisite service period has elapsed. Cumulative compensation cost for vested liability RSUs equals the actual payout value upon vesting. Compensation cost recognized for the three-month period ended September 30, 2021 was minimal. For the nine-month period ended September 30, 2021, $0.4 million was recognized as compensation cost.
In 2021 and 2020, we granted fixed-value cash awards of $3.5 million and $4.7 million, respectively, to select management employees under the 2005 Incentive Plan. The value of these cash awards is recognized on a straight-line basis over a vesting period of three years. For the three- and nine-month periods ended September 30, 2021, $1.0 million and $3.0 million, respectively, were recognized as compensation cost. For the three- and nine-month periods ended September 30, 2020, $1.1 million and $3.4 million, respectively, were recognized as compensation cost.
Defined Contribution Plan
We sponsor a defined contribution 401(k) retirement plan. We suspended our discretionary contributions for an indefinite period beginning January 2021.
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”). As of September 30, 2021, 1.6 million shares were available for issuance under the ESPP. The ESPP currently has a purchase limit of 260 shares per employee per purchase period.
For more information regarding our employee benefit plans, including the 2005 Incentive Plan and the ESPP, see Note 14 to our 2020 Form 10-K.
Note 10 — Business Segment Information
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. Our U.S., U.K. and Brazil well intervention operating segments are aggregated into the Well Intervention segment for financial reporting purposes. Our Well Intervention segment provides services enabling our customers to safely access offshore wells for the purpose of performing production enhancement or decommissioning operations primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and the Siem Helix 1 and Siem Helix 2 chartered vessels. Our well intervention equipment includes IRSs, SILs and the ROAM, some of which we provide on a stand-alone basis. Our Robotics segment provides offshore construction, trenching, seabed clearance, inspection, repair and maintenance services to both the oil and gas and the renewable energy markets globally. Our Robotics services also complement well intervention services. Our Robotics segment includes ROVs, trenchers, a ROVDrill and two robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III, as well as spot vessels as needed. Our Production Facilities segment includes the HP I, the HFRS and our ownership of oil and gas properties (Note 11). All material intercompany transactions between the segments have been eliminated.
23
We evaluate our performance based on operating income of each reportable segment. Certain financial data by reportable segment are summarized as follows (in thousands):
Net revenues —
Well Intervention
Production Facilities
Intercompany eliminations
Income (loss) from operations —
(13,343)
18,844
(14,819)
24,910
4,936
6,983
2,257
11,940
5,089
4,134
16,285
11,142
Segment operating income (loss)
(3,318)
29,961
3,723
47,992
Goodwill impairment (1)
Corporate, eliminations and other
(7,013)
(10,946)
(25,550)
(29,121)
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):
4,267
4,120
17,060
11,334
7,506
7,162
19,902
21,501
11,773
11,282
36,962
32,835
Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments, most notably the majority of our cash and cash equivalents. The following table reflects total assets by reportable segment (in thousands):
2,042,180
2,134,081
109,450
132,550
121,258
129,773
Corporate and other
74,411
101,874
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Note 11 — Asset Retirement Obligations
Asset retirement obligations (“AROs”) are recorded at fair value and consist of estimated costs for subsea infrastructure plug and abandonment (“P&A”) activities associated with our oil and gas properties. The estimated costs are discounted to present value using a credit-adjusted risk-free discount rate. After its initial recognition, an ARO liability is increased for the passage of time as accretion expense, which is a component of our depreciation and amortization expense. An ARO liability may also change based on revisions in estimated costs and/or timing to settle the obligations.
Our AROs relate to our Droshky oil and gas properties that we acquired from Marathon Oil Corporation (“Marathon Oil”) in January 2019. In connection with assuming the P&A obligations related to those assets, we are entitled to receive agreed-upon amounts from Marathon Oil as the P&A work is completed. The following table describes the changes in our AROs (in thousands):
AROs at January 1,
28,258
Revisions in estimates
(2,631)
Accretion expense
736
2,021
AROs at September 30,
30,279
Note 12 — Commitments and Contingencies and Other Matters
Commitments
We have long-term charter agreements with Siem Offshore AS (“Siem”) for the Siem Helix 1 and Siem Helix 2 vessels, which historically have been used in connection with our contracts with Petróleo Brasileiro S.A. (“Petrobras”) to perform well intervention work offshore Brazil. The initial term of the charter agreements with Siem is for seven years, with options to extend. The Siem Helix 1 charter expires June 2023 and the Siem Helix 2 charter expires February 2024. We have time charter agreements for the Grand Canyon II and Grand Canyon III vessels. The expiration date of the Grand Canyon II charter was extended to December 2022, with an option to renew. The Grand Canyon III charter expires May 2023.
Contingencies and Claims
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations or cash flows.
Litigation
We are involved in various legal proceedings, some involving claims for personal injury under the General Maritime Laws of the United States and the Jones Act. In addition, from time to time we receive other claims, such as contract and employment-related disputes, in the normal course of business.
We are currently involved in several lawsuits filed by current and former offshore employees seeking overtime compensation. These suits are brought as collective actions and are in various stages of litigation. In one such lawsuit, during the third quarter 2021 the United States Court of Appeals for the Fifth Circuit issued a ruling adverse to us that may also have implications for some of the other cases in which we are involved, as well as the way offshore personnel are compensated throughout our industry. We intend to further appeal this matter and to continue vigorously defending these lawsuits. Notwithstanding that we believe we retain valid defenses, at this time we have established a liability for probable losses in certain of these matters. The final outcome of these matters remains uncertain and the ultimate liability to us could be more or less than the liability established.
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Note 13 — Statement of Cash Flow Information
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less. We classify cash as restricted when there are legal or contractual restrictions for its withdrawal. The following table provides supplemental cash flow information (in thousands):
Interest paid, net of interest capitalized
19,945
14,255
Income taxes paid (1)
6,771
6,436
Our capital additions include the acquisition of property and equipment for which payment has not been made. These non-cash capital additions totaled $0.3 million at September 30, 2021 and $1.6 million at December 31, 2020.
Note 14 — Allowance for Credit Losses
We estimate current expected credit losses on our accounts receivable at each reporting date. We estimate current expected credit losses based on our credit loss history, adjusted for current factors including global economic and business conditions, offshore energy industry and market conditions, customer mix, contract payment terms and past due accounts receivable.
The following table sets forth the activity in our allowance for credit losses (in thousands):
Balance at January 1,
3,469
Additions (reductions) (1)
(213)
2,387
Write-offs (2)
(1,846)
Adjustments (3)
785
Balance at September 30,
1,410
3,172
Note 15 — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value accounting rules establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
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Assets and liabilities measured at fair value are based on one or more of three valuation approaches as follows:
Our financial instruments include cash and cash equivalents, receivables, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments.
The principal amount and estimated fair value of our long-term debt are as follows (in thousands):
December 31, 2020
Principal
Fair
Amount (1)
Value (2) (3)
Term Loan (repaid September 2021) (4)
29,750
28,969
Nordea Q5000 Loan (matured January 2021) (5)
53,572
53,598
MARAD Debt (matures February 2027)
53,115
56,410
62,318
2022 Notes (mature May 2022)
34,638
33,513
2023 Notes (mature September 2023)
29,001
28,650
2026 Notes (mature February 2026)
210,143
211,383
326,897
404,732
418,431
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:
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Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
We caution you not to place undue reliance on forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 2020 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.
EXECUTIVE SUMMARY
Our Business
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. The services we offer to the oil and gas market cover the lifecycle of an offshore oil or gas field, and the services we offer to the renewable energy market are currently focused on offshore wind farm projects and cable burial operations. Our well intervention fleet includes seven purpose-built well intervention vessels, six IRSs, three SILs and the ROAM. Our robotics equipment includes 42 work-class ROVs, four trenchers and one ROVDrill. We charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations. Our well intervention and robotics operations are geographically dispersed throughout the world. Our Production Facilities segment includes the HP I, the HFRS and our ownership of oil and gas properties.
Economic Outlook and Industry Influences
Demand for our services is primarily influenced by the condition of the oil and gas and the renewable energy markets, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is also largely affected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:
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Crude oil prices historically have been volatile, which volatility has been exacerbated by the ongoing COVID-19 pandemic as well as actions taken by OPEC+ nations. Prices have recovered their losses from 2020 and are at their highest levels since 2014, but their stability remains uncertain. The decline in oil prices in 2020 and the overall volatility and uncertainty in prices, in addition to the shift in resource allocation to renewable energy, have caused oil and gas operators to drastically reduce spending (on both operational activities and capital projects), which has decreased the demand and rates for services provided by offshore oil and gas services providers. Historically, drilling rigs have been the asset class used for offshore well intervention work, and our customers have used drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities. Rig day rates are also a pricing indicator for our services. Rig overhang, combined with lower volumes of work and lower day rates quoted by drilling rig contractors, affects the utilization and/or rates we can achieve for our assets and services. Furthermore, additional volatile and uncertain macroeconomic conditions as well as ESG initiatives in some regions and countries around the world may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further volatility into our operations and/or financial results.
The ongoing COVID-19 pandemic has resulted in a new period of market weakness and challenges to us. While the full impact of the COVID-19 pandemic, including the duration of its negative impact on economic activity, remains unknown, we expect that the impact of COVID-19 on our industry will continue to be felt through 2021 and possibly longer. The uncertainty and other conditions of the current environment have resulted in challenges to renew or secure long-term contracts for our vessels and systems, as operators have been less willing to commit to future spending. These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce. The COVID-19 pandemic and its effects on our industry and the global economy have impacted our 2020 and 2021 operating results to date. Most if not all of our oil and gas customers cut their spending, which has reduced the demand and rates for the services offered to our oil and gas customers. The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of COVID-19 on our offshore workforce and challenges with offshore crew changes due to travel restrictions and quarantine measures.
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Despite this current period of market weakness and volatility, over the longer term we expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells. As oil and gas companies evaluate their budgetary spend allocations, we expect that they may be weighted towards production enhancement of existing wells rather than new exploration projects as enhancement is less expensive per incremental barrel of oil than exploration. Moreover, as the subsea tree base expands and ages, the demand for P&A services should persist. Our well intervention and robotics operations service the lifecycle of an oil and gas field and provide P&A services at the end of the life of a field as required by governmental regulations, and we believe that we have a competitive advantage in performing well intervention services efficiently.
We expect the fundamentals for our business will remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services. This expectation is based on multiple factors, including (1) maintaining the optimal production of a well through enhancement is fundamental to maximizing the overall economics of well production; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling; and (3) extending the production of offshore wells not only maximizes a well’s production economics but also enables the financial benefit of delaying P&A costs, which can be substantial.
Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and government subsidies for renewable energy projects.
Backlog
We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. In addition to serving the oil and gas market, our robotics assets are contracted for the development of offshore renewable energy projects (wind farms). We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. As of September 30, 2021, our consolidated backlog that is supported by written agreements or contracts totaled approximately $231 million, of which $69 million is expected to be performed over the remainder of 2021. Our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 2 chartered vessel and our fixed fee agreement for the HP I represent approximately 43% of our total backlog as of September 30, 2021. Backlog is not necessarily a reliable indicator of revenues derived from these contracts as services may be added or subtracted; contracts may be renegotiated, deferred, canceled and in many cases modified while in progress; and reduced rates, fines and penalties may be imposed by our customers. Furthermore, our contracts are in certain cases cancelable without penalty. If there are cancellation fees, the amount of those fees can be substantially less than the rates we would have generated had we performed the contract.
RESULTS OF OPERATIONS
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations.
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.
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We measure our operating performance based on EBITDA, Adjusted EBITDA and free cash flow. EBITDA, Adjusted EBITDA and free cash flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA and free cash flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA, Adjusted EBITDA and free cash flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA and free cash flow differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA and free cash flow should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.
We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision (release) for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, which are excluded from EBITDA as a component of net other income or expense. We define free cash flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
Adjustments:
Other (income) expense, net
4,015
(8,824)
1,438
3,672
36,719
33,985
EBITDA
26,685
53,197
87,002
120,916
(15)
(440)
General provision (release) for current expected credit losses
(138)
(38)
(121)
656
Realized losses from foreign exchange contracts not designated as hedging instruments
(682)
Adjusted EBITDA
26,532
52,719
87,512
119,977
The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands):
Cash flows from operating activities
Less: Capital expenditures, net of proceeds from sale of assets
Free cash flow
113,917
40,373
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Comparison of Three Months Ended September 30, 2021 and 2020
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
Increase/
(Decrease)
Percent
(9,489)
(7)
(7,179)
(14)
4,385
(491)
(12,774)
Gross profit (loss) —
(9,570)
21,905
(31,475)
(144)
6,894
8,452
(1,558)
(18)
5,451
4,672
779
225
(401)
626
(31,628)
(91)
Gross margin —
33
Total company
Number of vessels or robotics assets (1) / Utilization (2)
Well Intervention vessels
7 / 72
7 / 68
Robotics assets (3)
47 / 43
49 / 37
Chartered robotics vessels
5 / 99
5 / 95
147
344
491
Net Revenues. Our consolidated net revenues for the three-month period ended September 30, 2021 decreased by 7% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments, offset in part by higher revenues from our Production Facilities segment.
Our Well Intervention revenues decreased by 7% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower rates and vessel utilization in the Gulf of Mexico and Brazil, offset in part by higher utilization in the North Sea and on the Q7000 in West Africa. Our revenues in the Gulf of Mexico and Brazil were negatively impacted by the completion of our long-term contracts on the Q5000 during the second quarter 2021 and the Siem Helix 1 during the third quarter 2021. Our revenues in the North Sea and West Africa benefitted from utilization on the Seawell and the Q7000, both of which were stacked during the three-month period ended September 30, 2020.
Our Robotics revenues decreased by 14% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting fewer vessel days, including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities. Our results included 358 vessel days and 90 trenching days during the three-month period ended September 30, 2021 as compared to 450 vessel days and 154 trenching days during the same period in 2020.
Our Production Facilities revenues increased by 31% for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas prices, higher production volumes from our wells and higher revenues from the HFRS agreement.
Gross Profit (Loss). Our consolidated gross profit decreased by $31.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.
Our Well Intervention segment had a gross loss of $9.6 million for the three-month period ended September 30, 2021 as compared to a gross profit of $21.9 million for the same period in 2020, primarily reflecting lower segment revenues as well as higher costs associated with our activity in West Africa, which resumed in the first quarter 2021.
The gross profit related to our Robotics segment decreased by $1.6 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects.
The gross profit related to our Production Facilities segment increased by $0.8 million for the three-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues during the current quarter.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $13.3 million for the three-month period ended September 30, 2021 as compared to $16.1 million for the same period in 2020, primarily reflecting lower employee compensation costs.
Net Interest Expense. Our net interest expense totaled $5.9 million for the three-month period ended September 30, 2021 as compared to $7.6 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No. 2020-06 beginning January 1, 2021 (Note 5).
Gain (Loss) on Extinguishment of Long-Term Debt. The $0.1 million loss on extinguishment of long-term debt for the three-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facility (Note 5). The $9.2 million gain on extinguishment of long-term debt for the three-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes.
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Other Income (Expense), Net. Net other expense was $4.0 million for the three-month period ended September 30, 2021 primarily due to foreign currency transaction losses reflecting the weakening of the British pound. Net other income was $8.8 million for the same period in 2020 primarily due to foreign currency transaction gains reflecting the strengthening of the British pound.
Income Tax Provision (Benefit). Income tax benefit was $1.1 million for the three-month period ended September 30, 2021 as compared to a $5.2 million provision for the same period in 2020. The effective tax rates for the three-month periods ended September 30, 2021 and 2020 were 5.3% and 17.6%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act in 2020 (Note 6).
Comparison of Nine Months Ended September 30, 2021 and 2020
(29,909)
(39,466)
(29)
5,916
(4,127)
(67,586)
(12)
(3,386)
35,936
(39,322)
(109)
8,247
19,077
(10,830)
(57)
17,767
12,549
5,218
(1,874)
(1,348)
(526)
(45,460)
(69)
(1)
Well intervention vessels
7 / 79
7 / 71
47 / 35
49 / 35
5 / 93
35
5,726
(1,599)
4,127
Net Revenues. Our consolidated net revenues for the nine-month period ended September 30, 2021 decreased by 12% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments and higher intercompany eliminations, offset in part by higher revenues from our Production Facilities segment.
Our Well Intervention revenues decreased by 7% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower rates on the Q5000 and lower rates and utilization on the Q4000 in the Gulf of Mexico as well as lower rates and utilization on the Siem Helix 1 in Brazil. These revenue decreases were offset in part by higher rates and utilization on the Seawell in the North Sea and on the Q7000 in West Africa, both of which were stacked for most of the first nine months in 2020.
Our Robotics revenues decreased by 29% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, reflecting fewer vessel days, including reduced seabed clearance days using spot vessels, as well as a reduction in trenching activities. Our results included 759 vessel days and 246 trenching days during the nine-month period ended September 30, 2021 as compared to 1,353 vessel days and 315 trenching days during the same period in 2020.
Our Production Facilities revenues increased by 14% for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher HFRS revenues, higher oil and gas prices and higher production volumes from our wells.
The increase in intercompany eliminations was primarily attributable to higher elimination of revenues that our Well Intervention segment earned associated with its P&A work on our Droshky oil and gas properties on behalf of our Production Facilities segment during the nine-month period ended September 30, 2021.
Gross Profit (Loss). Our consolidated gross profit decreased by $45.5 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower gross profit in our Well Intervention and Robotics segments, offset in part by higher gross profit in our Production Facilities segment.
Our Well Intervention segment had a gross loss of $3.4 million for the nine-month period ended September 30, 2021 as compared to a gross profit of $35.9 million for the same period in 2020, primarily reflecting lower segment revenues as well as higher costs associated with our resumed activity in West Africa during the current period.
The gross profit related to our Robotics segment decreased by $10.8 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting lower revenues due to fewer spot vessel days on site clearance projects.
The gross profit related to our Production Facilities segment increased by $5.2 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020, primarily reflecting higher revenues during the current period.
Goodwill Impairment. The $6.7 million charge in the nine-month period ended September 30, 2020 reflects the impairment of the entire goodwill balance, which related to our acquisition of a controlling interest in STL (Note 10).
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $42.0 million for the nine-month period ended September 30, 2021 as compared to $48.3 million for the same period in 2020, primarily reflecting lower credit loss reserves and employee compensation costs. Our selling, general and administrative expenses for the nine-month period ended September 30, 2020 included a $2.4 million provision for current expected credit losses (Note 14).
Net Interest Expense. Our net interest expense totaled $17.9 million for the nine-month period ended September 30, 2021 as compared to $20.4 million for the same period in 2020, primarily reflecting lower interest expense due to a reduction in our overall debt levels and the elimination of accretion of debt discounts associated with the 2022 Notes, 2023 Notes and 2026 Notes as a result of the adoption of ASU No. 2020-06 beginning January 1, 2021 (Note 5), offset in part by the cessation of interest capitalization with the completion of the Q7000 in 2020. Net interest expense for the nine-month period ended September 30, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).
Gain (Loss) on Extinguishment of Long-Term Debt. The $0.1 million loss on extinguishment of long-term debt for the nine-month period ended September 30, 2021 was associated with the full repayment of the Term Loan in September 2021 concurrent with our entering into the ABL Facility (Note 5). The $9.2 million gain on extinguishment of long-term debt for the nine-month period ended September 30, 2020 was associated with the repurchase of $90.0 million in aggregate principal amount of the 2022 Notes and $95.0 million in aggregate principal amount of the 2023 Notes.
Other Expense, Net. Net other expense was $1.4 million for the nine-month period ended September 30, 2021 as compared to $3.7 million for the same period in 2020 primarily due to foreign currency transaction losses reflecting the weakening of the British pound in each of those periods.
Income Tax Benefit. Income tax benefit was $2.9 million for the nine-month period ended September 30, 2021 as compared to $16.1 million for the same period in 2020. The effective tax rates for the nine-month periods ended September 30, 2021 and 2020 were 7.5% and 9,777.0%, respectively, primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions and the impact of the CARES Act and the foreign subsidiary restructuring in 2020 (Note 6).
LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
Net working capital (1)
249,699
246,338
Long-term debt (1)
Liquidity (2)
307,194
451,532
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The carrying amounts of our long-term debt are as follows (in thousands):
Term Loan (repaid September 2021) (1)
29,559
Nordea Q5000 Loan (matured January 2021) (2)
53,532
53,361
2022 Notes (mature May 2022) (3)
33,477
2023 Notes (mature September 2023) (3)
26,922
2026 Notes (mature February 2026) (3)
152,712
Total debt (4)
349,563
(90,651)
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt.
The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our revenues and we expect these events to continue to impact our results into the foreseeable future. Our operating cash flows are impacted to the extent we cannot replace those revenues or reduce costs. Despite these challenges, we remain focused on maintaining a strong balance sheet and adequate liquidity. We have reduced, deferred or cancelled certain planned capital expenditures and reduced our overall cost structure commensurate with our level of activities. In 2020, we extended our debt maturity profile with refinancing a portion of the 2022 Notes and 2023 Notes with the 2026 Notes. We have at the same time continued to de-lever our balance sheet with the repayment of the Nordea Q5000 Loan in January 2021 and the Term Loan in September 2021. We have reduced operating costs through various measures including warm stacking our vessels when idle. These costs should return with increases in activity. We believe that our cash on hand, internally generated cash flows and availability under the ABL Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.
The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital. The yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes. The COVID-19 pandemic has also contributed to limited access to certain capital markets.
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An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt, and our failure to comply with these covenants and other restrictions could lead to an event of default. Current global and market conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we are able to secure financing. Decreases in our borrowing base may limit our ability to fully access the ABL Facility. At September 30, 2021, our available borrowing capacity under the ABL Facility was $69.6 million, net of $2.2 million of letters of credit issued under that facility. We currently do not anticipate borrowing under the ABL Facility other than for the issuance of letters of credit.
Operating Cash Flows
Net cash flows provided by operating activities were $121.3 million for the nine-month period ended September 30, 2021 as compared to $58.6 million for the same period in 2020. The increase in operating cash flows primarily reflects improvements in working capital, lower recertification and dry dock costs, and the receipt in 2021 of $18.9 million in income tax refunds related to the CARES Act.
Investing Activities
Capital expenditures represent cash paid principally for the acquisition, construction, completion, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Capital expenditures also include interest on property and equipment under development. Significant sources (uses) of cash associated with investing activities are as follows (in thousands):
Capital expenditures:
(1,556)
(18,489)
(255)
(5,616)
(449)
Our capital expenditures during the nine-month period ended September 30, 2020 primarily included payments associated with the construction and completion of the Q7000, which commenced operations in January 2020.
Financing Activities
Cash flows from financing activities consist primarily of proceeds and repayments related to our long-term debt. Net cash outflows from financing activities of $95.7 million for the nine-month period ended September 30, 2021 primarily reflect the repayment of $90.9 million related to our indebtedness, including the final maturity of $53.6 million of the Nordea Q5000 Loan and $28.0 million in full repayment of the Term Loan (Note 5). Net cash outflows from financing activities of $42.0 million for the nine-month period ended September 30, 2020 primarily reflect the repayment of $36.6 million of our indebtedness and entry into the 2026 Capped Calls as well as the repurchase of a portion of the 2022 Notes and 2023 Notes with proceeds from the issuance of the 2026 Notes (Note 5).
Free Cash Flow
Free cash flow increased by $73.5 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020. The increase was attributable to the increase in operating cash flows and the decrease in capital expenditures.
Free cash flow is a non-GAAP financial measure. See “RESULTS OF OPERATIONS” above for the definition and calculation of free cash flow.
39
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of September 30, 2021 and the scheduled years in which the obligations are contractually due (in thousands):
Less Than
More Than
Total (1)
1 Year
1-3 Years
3-5 Years
5 Years
MARAD debt
17,082
18,830
2022 Notes (2)
2023 Notes (3)
2026 Notes (4)
Interest related to debt (5)
71,664
18,303
32,335
20,943
83
5,641
Operating leases (6)
205,851
102,843
94,301
4,263
4,444
Total cash obligations
597,006
169,724
173,718
244,036
9,528
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
For information regarding our critical accounting estimates and policies, please read our “Critical Accounting Estimates and Policies” as disclosed in our 2020 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2021, we were exposed to market risks associated with foreign currency exchange rates. We had no exposure to interest rate risk as we had no outstanding debt subject to floating rates.
Foreign Currency Exchange Rate Risk. Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar. As such, our earnings are impacted by movements in foreign currency exchange rates when (i) transactions are denominated in currencies other than the functional currency of the relevant Helix entity or (ii) the functional currency of our subsidiaries is not the U.S. dollar. In order to mitigate the effects of exchange rate risk in areas outside the U.S., we endeavor to pay a portion of our expenses in local currencies to partially offset revenues that are denominated in the same local currencies. In addition, a substantial portion of our contracts are denominated, and provide for collections from customers, in U.S. dollars.
Assets and liabilities of our subsidiaries that do not have the U.S. dollar as their functional currency are translated using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected in “Accumulated other comprehensive loss” in the shareholders’ equity section of our condensed consolidated balance sheets. For the nine-month period ended September 30, 2021, we recorded foreign currency translation losses of $6.5 million to accumulated other comprehensive loss. Deferred taxes have not been provided on foreign currency translation adjustments since we consider our undistributed earnings (when applicable) of our non-U.S. subsidiaries without operations in the U.S. to be permanently reinvested.
When currencies other than the functional currency are to be paid or received, the resulting transaction gain or loss associated with changes in the applicable foreign currency exchange rate is recognized in the condensed consolidated statements of operations as a component of “Other income (expense), net.” Foreign currency gains or losses from the remeasurement of monetary assets and liabilities as well as unsettled foreign currency transactions, including intercompany transactions that are not of a long-term investment nature, are also recognized as a component of “Other income (expense), net.” For the nine-month period ended September 30, 2021, we recorded foreign currency transaction losses of $1.5 million, primarily related to our subsidiaries in the U.K.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2021. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2021 to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 12 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
(c)
Total number
(d)
of shares
Maximum
(a)
(b)
purchased as
number of shares
Average
part of publicly
that may yet be
price paid
announced
purchased under
Period
purchased
per share
program
the program (1)
July 1 to July 31, 2021
7,829,695
August 1 to August 31, 2021
September 1 to September 30, 2021
7,895,950
Item 6. Exhibits
Exhibit Number
Description
Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number)
2005 Amended and Restated Articles of Incorporation, as amended, of Helix Energy Solutions Group, Inc.
Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739)
3.2
Second Amended and Restated By-Laws of Helix Energy Solutions Group, Inc., as amended.
Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936)
4.1
Loan, Guaranty and Security Agreement, dated as of September 30, 2021, among Helix Energy Solutions Group, Inc., Helix Well Ops Inc., Helix Robotics Solutions, Inc., Deepwater Abandonment Alternatives, Inc., Helix Well Ops (U.K.) Limited and Helix Robotics Solutions Limited as Borrowers, the Lenders from time to time party thereto, and Bank of America, N.A. as Agent.
Exhibit 4.1 to the Current Report on Form 8-K filed on October 1, 2021 (001-32936)
31.1
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Owen Kratz, Chief Executive Officer.
Filed herewith
31.2
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 by Erik Staffeldt, Chief Financial Officer.
32.1
Certification of Helix’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
Furnished herewith
101.INS
XBRL Instance Document.
The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant)
Date: October 21, 2021
By:
/s/ Owen Kratz
Owen Kratz
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Erik Staffeldt
Erik Staffeldt
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)