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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 March 31, 2020
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
https://cdn.kscope.io/6570a63befea95420a5d95a158cb9767-hlxlogo.jpg
 
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  No
As of April 17, 2020, 150,005,466 shares of common stock were outstanding.
 




TABLE OF CONTENTS
PART I.
 
FINANCIAL INFORMATION
PAGE
 
 
 
 
Item 1.
 
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 

2



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
159,351

 
$
208,431

Restricted cash
52,374

 
54,130

Accounts receivable, net of allowance for credit losses of $1,371 and $0, respectively
147,120

 
125,457

Other current assets
71,755

 
50,450

Total current assets
430,600

 
438,468

Property and equipment
2,880,657

 
2,922,274

Less accumulated depreciation
(1,070,733
)
 
(1,049,637
)
Property and equipment, net
1,809,924

 
1,872,637

Operating lease right-of-use assets
187,553

 
201,118

Other assets, net
86,074

 
84,508

Total assets
$
2,514,151

 
$
2,596,731

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
90,425

 
$
69,055

Accrued liabilities
45,227

 
62,389

Current maturities of long-term debt
90,837

 
99,731

Current operating lease liabilities
53,063

 
53,785

Total current liabilities
279,552

 
284,960

Long-term debt
303,584

 
306,122

Operating lease liabilities
137,411

 
151,827

Deferred tax liabilities
104,930

 
112,132

Other non-current liabilities
36,286

 
38,644

Total liabilities
861,763

 
893,685

Redeemable noncontrolling interests
3,323

 
3,455

Shareholders equity:
 
 
 
Common stock, no par, 240,000 shares authorized, 149,962 and 148,888 shares issued, respectively
1,316,401

 
1,318,961

Retained earnings
430,726

 
445,370

Accumulated other comprehensive loss
(98,062
)
 
(64,740
)
Total shareholders equity
1,649,065

 
1,699,591

Total liabilities, redeemable noncontrolling interests and shareholders equity
$
2,514,151

 
$
2,596,731

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

3



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts) 
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
Net revenues
$
181,021

 
$
166,823

Cost of sales
179,011

 
150,569

Gross profit
2,010

 
16,254

Goodwill impairment
(6,689
)
 

Selling, general and administrative expenses
(16,348
)
 
(15,985
)
Income (loss) from operations
(21,027
)
 
269

Equity in losses of investment
(20
)
 
(40
)
Net interest expense
(5,746
)
 
(2,098
)
Other income (expense), net
(10,427
)
 
1,166

Royalty income and other
2,199

 
2,345

Income (loss) before income taxes
(35,021
)
 
1,642

Income tax provision (benefit)
(21,093
)
 
324

Net income (loss)
(13,928
)
 
1,318

Net loss attributable to redeemable noncontrolling interests
(1,990
)
 

Net income (loss) attributable to common shareholders
$
(11,938
)
 
$
1,318

 
 
 
 
Earnings (loss) per share of common stock:
 
 
 
Basic
$
(0.09
)
 
$
0.01

Diluted
$
(0.09
)
 
$
0.01

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
148,863

 
147,421

Diluted
148,863

 
147,751

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

4



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
Net income (loss)
$
(13,928
)
 
$
1,318

Other comprehensive income (loss), net of tax:
 
 
 
Net unrealized loss on hedges arising during the period
(96
)
 
(149
)
Reclassifications to net (income) loss
427

 
1,846

Income taxes on hedges
(66
)
 
(342
)
Net change in hedges, net of tax
265

 
1,355

Foreign currency translation gain (loss)
(33,587
)
 
2,802

Other comprehensive income (loss), net of tax
(33,322
)
 
4,157

Comprehensive income (loss)
(47,250
)
 
5,475

Less comprehensive loss attributable to redeemable noncontrolling interests:
 
 
 
Net loss
(1,990
)
 

Foreign currency translation loss
(228
)
 

Comprehensive loss attributable to redeemable noncontrolling interests
(2,218
)
 

Comprehensive income (loss) attributable to common shareholders
$
(45,032
)
 
$
5,475

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

5



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable
Noncontrolling
Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
148,888

 
$
1,318,961

 
$
445,370

 
$
(64,740
)
 
$
1,699,591

 
$
3,455

Net loss

 

 
(11,938
)
 

 
(11,938
)
 
(1,990
)
Expected credit losses recognized in retained earnings upon adoption of ASU 2016-13

 

 
(620
)
 

 
(620
)
 

Foreign currency translation adjustments

 

 

 
(33,587
)
 
(33,587
)
 
(228
)
Unrealized gain on hedges, net of tax

 

 

 
265

 
265

 

Accretion of redeemable noncontrolling interests

 

 
(2,086
)
 

 
(2,086
)
 
2,086

Activity in company stock plans, net and other
1,074

 
(4,730
)
 

 

 
(4,730
)
 

Share-based compensation

 
2,170

 

 

 
2,170

 

Balance, March 31, 2020
149,962

 
$
1,316,401

 
$
430,726

 
$
(98,062
)
 
$
1,649,065

 
$
3,323

 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable
Noncontrolling
Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
148,203

 
$
1,308,709

 
$
383,034

 
$
(73,964
)
 
$
1,617,779

 
$

Net income

 

 
1,318

 

 
1,318

 

Reclassification of deferred gain from sale and leaseback transaction to retained earnings

 

 
4,560

 

 
4,560

 

Foreign currency translation adjustments

 

 

 
2,802

 
2,802

 

Unrealized gain on hedges, net of tax

 

 

 
1,355

 
1,355

 

Activity in company stock plans, net and other
582

 
(659
)
 

 

 
(659
)
 

Share-based compensation

 
2,688

 

 

 
2,688

 

Balance, March 31, 2019
148,785

 
$
1,310,738

 
$
388,912

 
$
(69,807
)
 
$
1,629,843

 
$

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

6



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) 
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(13,928
)
 
$
1,318

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation and amortization
31,598

 
28,509

Goodwill impairment
6,689

 

Amortization of debt discounts
1,633

 
1,513

Amortization of debt issuance costs
833

 
902

Share-based compensation
2,259

 
2,719

Deferred income taxes
(6,517
)
 
(10
)
Equity in losses of investment
20

 
40

Unrealized gain on derivative contracts, net
(601
)
 
(829
)
Unrealized foreign currency (gain) loss
9,237

 
(1,128
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(25,375
)
 
(22,584
)
Income tax receivable
(17,033
)
 
(2,370
)
Other current assets
(5,475
)
 
(13,129
)
Accounts payable and accrued liabilities
15,543

 
(15,899
)
Other, net
(16,105
)
 
(13,298
)
Net cash used in operating activities
(17,222
)
 
(34,246
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(12,389
)
 
(11,655
)
Proceeds from sale of assets

 
25

Other

 
(326
)
Net cash used in investing activities
(12,389
)
 
(11,956
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repayment of term loans
(875
)
 
(936
)
Repayment of Nordea Q5000 Loan
(8,929
)
 
(8,929
)
Repayment of MARAD Debt
(3,556
)
 
(3,387
)
Debt issuance costs
(212
)
 
(113
)
Payments related to tax withholding for share-based compensation
(5,150
)
 
(826
)
Proceeds from issuance of ESPP shares
331

 
136

Net cash used in financing activities
(18,391
)
 
(14,055
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(2,834
)
 
821

Net decrease in cash and cash equivalents and restricted cash
(50,836
)
 
(59,436
)
Cash and cash equivalents and restricted cash:
 
 
 
Balance, beginning of year
262,561

 
279,459

Balance, end of period
$
211,725

 
$
220,023

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

7



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
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 2019 Annual Report on Form 10-K (our “2019 Form 10-K”) with the exception of the impact of adopting the new credit loss accounting standard in 2020 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income and statements of cash flows, as applicable. The operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Our balance sheet as of December 31, 2019 included herein has been derived from the audited balance sheet as of December 31, 2019 included in our 2019 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our 2019 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.
 
COVID-19
 
In March 2020, the World Health Organization classified the outbreak of COVID-19 as a pandemic. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity, as governments around the world imposed regulations in efforts to control the spread of COVID-19 such as shelter-in-place orders, quarantines, executive orders and similar restrictions. As a result, the global economy has been marked by significant slowdown and uncertainty, which has led to a precipitous decline in oil prices in response to demand concerns, further exacerbated by the price war among members of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”) during the first quarter 2020 and global storage considerations. The decline in oil prices has resulted in a significantly weaker outlook for oil and gas producers, who have begun to cut their capital and operating budgets. Our financial statements for the three-month period ended March 31, 2020 reflect the impact of these events and current market conditions, which include namely the recognition of goodwill impairment losses (Note 6) and tax benefits resulting from the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Note 8). The continued spread of COVID-19 or deterioration in oil prices could result in further adverse impact on our results of operations, cash flows and financial position, including further asset impairments.
 
New accounting standards adopted
 
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” which was updated by subsequent amendments. This ASU replaces the current incurred loss model for measurement of credit losses on financial assets (including trade receivables) with a forward-looking expected loss model based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance became effective for us as of January 1, 2020 and resulted in the recognition of $0.6 million (net of deferred taxes of $0.2 million) of allowances for expected credit losses related to our accounts receivable through a cumulative effect offset to retained earnings. The new credit loss standard is expected to accelerate recognition of credit losses on our accounts receivable. See Note 17 for additional information regarding allowance for credit losses on our accounts receivable.
 

8



New accounting standards issued but not yet effective
 
We do not expect any other new accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.
Note 2 — Company Overview
 
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We 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. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our life of field services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities (Note 13).
 
Our Well Intervention segment includes our vessels and/or equipment used to perform well intervention services 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 two chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. Our well intervention equipment includes intervention riser systems (“IRSs”) and subsea intervention lubricators (“SILs”), some of which we provide on a stand-alone basis.
 
Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and a ROVDrill, which are designed to complement well intervention services and offshore construction to both the oil and gas and the renewable energy markets. Our Robotics segment also includes two robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III, as well as spot vessels as needed, including the Ross Candies, which is under a flexible charter agreement.
 
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”), our ownership interest in Independence Hub, LLC (“Independence Hub”) (Note 4), and our ownership of oil and gas properties acquired from Marathon Oil Corporation (“Marathon Oil”) in January 2019. All of our current production facilities activities are located in the Gulf of Mexico.
 
On May 29, 2019, we acquired a 70% controlling interest in Subsea Technologies Group Limited (“STL”), a subsea engineering firm based in Aberdeen, Scotland, for $5.1 million. The holders of the remaining 30% noncontrolling interest have the right to put their shares to us in June 2024. These redeemable noncontrolling interests were recognized as temporary equity at their estimated fair value of $3.4 million at the acquisition date. In March 2020, we recorded an impairment loss to write off the goodwill associated with the STL acquisition (Note 6). STL is included in our Well Intervention segment (Note 13) and its revenue and earnings are immaterial to our consolidated results.
Note 3 — Details of Certain Accounts
 
Other current assets consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Contract assets (Note 10)
$
5,882

 
$
740

Prepaids
13,039

 
12,635

Deferred costs (Note 10)
28,481

 
28,340

Income tax receivable
16,982

 
1,261

Other
7,371

 
7,474

Total other current assets
$
71,755

 
$
50,450


 

9



Other assets, net consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Prepaids
$
694

 
$
777

Deferred recertification and dry dock costs, net
30,545

 
16,065

Deferred costs (Note 10)
8,594

 
14,531

Charter deposit (1)
12,544

 
12,544

Other receivable (2)
27,914

 
27,264

Goodwill (Note 6)

 
7,157

Intangible assets with finite lives, net
3,680

 
3,847

Other
2,103

 
2,323

Total other assets, net
$
86,074

 
$
84,508


(1)
This amount is deposited with the owner of the Siem Helix 2 to offset certain payment obligations associated with the vessel at the end of the charter term.
(2)
Agreed-upon amounts to be paid by Marathon Oil as the required plug and abandonment (“P&A”) work on the remaining Droshky wells is completed (Notes 7 and 14).
 
Accrued liabilities consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Accrued payroll and related benefits
$
17,469

 
$
31,417

Investee losses in excess of investment (Note 4)
2,673

 
4,069

Deferred revenue (Note 10)
11,376

 
11,568

Derivative liability (Note 19)
26

 
1,002

Other
13,683

 
14,333

Total accrued liabilities
$
45,227

 
$
62,389


 
Other non-current liabilities consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Deferred revenue (Note 10)
$
5,860

 
$
8,286

Asset retirement obligations (Note 14)
28,934

 
28,258

Other
1,492

 
2,100

Total other non-current liabilities
$
36,286

 
$
38,644



10



Note 4 — Equity Method Investments
 
We have a 20% ownership interest in Independence Hub that we account for using the equity method of accounting. Independence Hub owns the “Independence Hub” platform, which is in the process of being decommissioned and is expected to be substantially completed within the next 12 months. We recognized a liability of $2.7 million at March 31, 2020 and $4.1 million at December 31, 2019 for our share of Independence Hub’s estimated obligations, net of remaining working capital.
Note 5 — 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):
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
Operating lease cost
$
16,323

 
$
18,133

Variable lease cost
3,212

 
3,075

Short-term lease cost
7,174

 
4,158

Sublease income
(279
)
 
(353
)
Net lease cost
$
26,430

 
$
25,013


 
Maturities of our operating lease liabilities as of March 31, 2020 are as follows (in thousands):
 
Vessels
 
Facilities and Equipment
 
Total
 
 
 
 
 
 
Remainder of 2020
$
44,316

 
$
4,619

 
$
48,935

2021
54,184

 
5,630

 
59,814

2022
52,106

 
5,109

 
57,215

2023
34,580

 
4,565

 
39,145

2024
2,470

 
4,299

 
6,769

Thereafter

 
5,954

 
5,954

Total lease payments
$
187,656

 
$
30,176

 
$
217,832

Less: imputed interest
(21,611
)
 
(5,747
)
 
(27,358
)
Total operating lease liabilities
$
166,045

 
$
24,429

 
$
190,474

 
 
 
 
 
 
Current operating lease liabilities
$
48,296

 
$
4,767

 
$
53,063

Non-current operating lease liabilities
117,749

 
19,662

 
137,411

Total operating lease liabilities
$
166,045

 
$
24,429

 
$
190,474


 

11



Maturities of our operating lease liabilities as of December 31, 2019 are as follows (in thousands):
 
Vessels
 
Facilities and Equipment
 
Total
 
 
 
 
 
 
2020
$
60,210

 
$
6,610

 
$
66,820

2021
54,564

 
5,888

 
60,452

2022
52,106

 
5,257

 
57,363

2023
34,580

 
4,622

 
39,202

2024
2,470

 
4,349

 
6,819

Thereafter

 
6,251

 
6,251

Total lease payments
$
203,930

 
$
32,977

 
$
236,907

Less: imputed interest
(24,846
)
 
(6,449
)
 
(31,295
)
Total operating lease liabilities
$
179,084

 
$
26,528

 
$
205,612

 
 
 
 
 
 
Current operating lease liabilities
$
48,716

 
$
5,069

 
$
53,785

Non-current operating lease liabilities
130,368

 
21,459

 
151,827

Total operating lease liabilities
$
179,084

 
$
26,528

 
$
205,612


 
The following table presents the weighted average remaining lease term and discount rate:
 
March 31, 2020
 
December 31, 2019
 
 
 
 
Weighted average remaining lease term
3.7 years

 
4.0 years

Weighted average discount rate
7.53
%
 
7.54
%

 
The following table presents other information related to our operating leases (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
Cash paid for operating lease liabilities
$
16,472

 
$
17,148

ROU assets obtained in exchange for new operating lease obligations

 
89



12



Note 6 — Goodwill
 
The changes in the carrying amount of goodwill are as follows (in thousands): 
 
Well Intervention
 
 
Balance at December 31, 2019
$
7,157

Impairment loss (1)
(6,689
)
Other adjustments (2)
(468
)
Balance at March 31, 2020
$

(1)
As a result of the decline in oil prices as well as energy and energy services valuations during the three-month period ended March 31, 2020 due to the ongoing COVID-19 pandemic and the OPEC+ price war, we identified that it was more likely than not that the fair value of goodwill associated with our STL acquisition (Note 2) was less than its carrying amount. Based on the result of our goodwill impairment test as of March 31, 2020, we recorded a charge to write off the carrying amount of the goodwill. The fair value of the reporting unit used to determine the impairment was estimated using a discounted cash flow approach.
(2)
Relates to foreign currency adjustments.


Note 7 — Long-Term Debt
 
Scheduled maturities of our long-term debt outstanding as of March 31, 2020 are as follows (in thousands):
 
Term
Loan (1)
 
2022
Notes
 
2023 Notes
 
MARAD
Debt
 
Nordea
Q5000
Loan
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Less than one year
$
3,500

 
$

 
$

 
$
7,378

 
$
80,357

 
$
91,235

One to two years
28,875

 

 

 
7,746

 

 
36,621

Two to three years

 
125,000

 

 
8,133

 

 
133,133

Three to four years

 

 
125,000

 
8,538

 

 
133,538

Four to five years

 

 

 
8,965

 

 
8,965

Over five years

 

 

 
19,294

 

 
19,294

Gross debt
32,375

 
125,000

 
125,000

 
60,054

 
80,357

 
422,786

Unamortized debt discounts (2)

 
(7,207
)
 
(13,700
)
 

 

 
(20,907
)
Unamortized debt issuance costs (3)
(334
)
 
(1,103
)
 
(2,208
)
 
(3,415
)
 
(398
)
 
(7,458
)
Total debt
32,041

 
116,690

 
109,092

 
56,639

 
79,959

 
394,421

Less: current maturities
(3,500
)
 

 

 
(7,378
)
 
(79,959
)
 
(90,837
)
Long-term debt
$
28,541

 
$
116,690

 
$
109,092

 
$
49,261

 
$

 
$
303,584

(1)
Term Loan pursuant to the Credit Agreement (as defined below) matures in December 2021.
(2)
Convertible Senior Notes due 2022 and 2023 will increase to their face amounts through accretion of their debt discounts to interest expense through May 2022 and September 2023, respectively.
(3)
Debt issuance costs are amortized to interest expense over the term of the applicable debt agreement.
 

13



Below is a summary of certain components of our indebtedness:
 
Credit Agreement
 
On June 30, 2017, we entered into an Amended and Restated Credit Agreement (and the amendments made thereafter, collectively the “Credit Agreement”) with a group of lenders led by Bank of America, N.A. (“Bank of America”). On June 28, 2019, we amended our existing term loan (the “Term Loan”) and revolving credit facility (the “Revolving Credit Facility”) under the Credit Agreement. The Credit Agreement is comprised of a $35 million Term Loan and a Revolving Credit Facility of $175 million and matures on December 31, 2021. The Revolving Credit Facility permits us to obtain letters of credit up to a sublimit of $25 million. Pursuant to the Credit Agreement, subject to existing lender participation and/or the participation of new lenders, and subject to standard conditions precedent, we may request aggregate commitments of up to $100 million with respect to an increase in the Revolving Credit Facility. As of March 31, 2020, we had no borrowings under the Revolving Credit Facility, and our available borrowing capacity under that facility, based on the leverage ratios, totaled $172.6 million, net of $2.4 million of letters of credit issued under that facility.
 
Borrowings under the Credit Agreement bear interest, at our election, at either Bank of America’s base rate, the LIBOR or a comparable successor rate, or a combination thereof. The Term Loan bearing interest at the base rate will bear interest at a per annum rate equal to Bank of America’s base rate plus a margin of 2.25%. The Term Loan bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin of 3.25%. The interest rate on the Term Loan was 4.24% as of March 31, 2020. Borrowings under the Revolving Credit Facility bearing interest at the base rate will bear interest at a per annum rate equal to Bank of America’s base rate plus a margin ranging from 1.50% to 2.50%. Borrowings under the Revolving Credit Facility bearing interest at a LIBOR rate will bear interest per annum at the LIBOR or a comparable successor rate selected by us plus a margin ranging from 2.50% to 3.50%. A letter of credit fee is payable by us equal to the applicable margin for LIBOR rate loans multiplied by the daily amount available to be drawn under the applicable letter of credit. Margins on borrowings under the Revolving Credit Facility will vary in relation to the Consolidated Total Leverage Ratio (as defined below) as provided for in the Credit Agreement. We also pay a fixed commitment fee of 0.50% per annum on the unused portion of the Revolving Credit Facility.
 
The Term Loan principal is required to be repaid in quarterly installments of 2.5% of the aggregate principal amount of the Term Loan, with a balloon payment at maturity. Installment amounts are subject to adjustment for any prepayments on the Term Loan. We may prepay indebtedness outstanding under the Term Loan without premium or penalty, but may not reborrow any amounts prepaid. We may prepay indebtedness outstanding under the Revolving Credit Facility without premium or penalty, and may reborrow any amounts prepaid up to the amount available under the Revolving Credit Facility.
 
Our obligations under the Credit Agreement, and those of our subsidiary guarantors under their guarantee, are secured by (i) most of the assets of the parent company, (ii) the shares of our domestic subsidiaries (other than Cal Dive I - Title XI, Inc.) and of Helix Robotics Solutions Limited and (iii) most of the assets of our domestic subsidiaries (other than Cal Dive I - Title XI, Inc.) and of Helix Robotics Solutions Limited. In addition, these obligations are secured by pledges of up to 66% of the shares of certain foreign subsidiaries (restricted subsidiaries).
 
The Credit Agreement and the other documents entered into in connection with the Credit Agreement include terms and conditions, including covenants, which we consider customary for this type of transaction. The covenants include certain restrictions on our and certain of our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and make capital expenditures. In addition, the Credit Agreement obligates us to meet minimum ratio requirements of EBITDA to interest charges (Consolidated Interest Coverage Ratio), funded debt to EBITDA (Consolidated Total Leverage Ratio) and secured funded debt to EBITDA (Consolidated Secured Leverage Ratio).
 
We may designate one or more of our new foreign subsidiaries as subsidiaries not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”). The Unrestricted Subsidiaries are not pledged as collateral under the Credit Agreement, and the debt and EBITDA of the Unrestricted Subsidiaries with the exception of Helix Q5000 Holdings, S.à r.l. (“Q5000 Holdings”), a wholly owned Luxembourg subsidiary of Helix Vessel Finance S.à r.l., are not included in the calculations of our financial covenants except to the extent of any cash actually distributed by such subsidiary of Helix.
 

14



In January 2019, contemporaneously with our acquisition from Marathon Oil of several wells and related infrastructure associated with the Droshky Prospect located in offshore Gulf of Mexico Green Canyon Block 244, we amended the Credit Agreement to permit the issuance of certain security to third parties for required P&A obligations and to make certain capital expenditures in connection with acquired assets (Notes 2 and 14).
 
Convertible Senior Notes Due 2022 (“2022 Notes”)
 
On November 1, 2016, we completed a public offering and sale of the 2022 Notes in the aggregate principal amount of $125 million. The 2022 Notes bear interest at a rate of 4.25% per annum and are payable semi-annually in arrears on November 1 and May 1 of each year, beginning on May 1, 2017. The 2022 Notes mature on May 1, 2022 unless earlier converted, redeemed or repurchased. During certain periods and subject to certain conditions, the 2022 Notes are convertible by the holders into shares of our common stock at an initial conversion rate of 71.9748 shares of our common stock per $1,000 principal amount (which represents an initial conversion price of approximately $13.89 per share of common stock), subject to adjustment in certain circumstances. We have the right and the intention to settle the principal amount of any such future conversions in cash.
 
Prior to November 1, 2019, the 2022 Notes were not redeemable. Beginning November 1, 2019, if certain conditions are met, we may redeem all or any portion of the 2022 Notes at a redemption price payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” (as defined in the indenture governing the 2022 Notes). Holders of the 2022 Notes may require us to repurchase the notes following a “fundamental change” (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 occurring and continuing, either the trustee under the indenture or the holders of not less than 25% in aggregate principal amount then outstanding under the 2022 Notes may declare the entire principal amount of all the notes, and the interest accrued on such notes, if any, to be 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 2022 Notes together with any accrued and unpaid interest thereon will become immediately due and payable.
 
The 2022 Notes were initially accounted for by separating the net proceeds between long-term debt and shareholders’ equity. In connection with the issuance of the 2022 Notes, we recorded a debt discount of $16.9 million ($11.0 million net of tax) as a result of separating the equity component. The effective interest rate for the 2022 Notes is 7.3% after considering the effect of the accretion of the related debt discount over the term of the 2022 Notes. Interest expense (including amortization of the debt discount) related to the 2022 Notes totaled $2.1 million for each of the three-month periods ended March 31, 2020 and 2019. The remaining unamortized debt discount of the 2022 Notes was $7.2 million at March 31, 2020 and $8.0 million at December 31, 2019.
 
Convertible Senior Notes Due 2023 (“2023 Notes”)
 
On March 20, 2018, we completed a public offering and sale of the 2023 Notes in the aggregate principal amount of $125 million. The 2023 Notes bear interest at a rate of 4.125% per annum and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. The 2023 Notes mature on September 15, 2023 unless earlier converted, redeemed or repurchased. During certain periods and subject to certain conditions, the 2023 Notes are convertible by the holders into shares of our common stock at an initial conversion rate of 105.6133 shares of our common stock per $1,000 principal amount (which represents an initial conversion price of approximately $9.47 per share of common stock), subject to adjustment in certain circumstances. We have the right and the intention to settle the principal amount of any such future conversions in cash.
 
Prior to March 15, 2021, the 2023 Notes are not redeemable. On or after March 15, 2021, if certain conditions are met, we may redeem all or any portion of the 2023 Notes at a redemption price payable in cash equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest and a “make-whole premium” (as defined in the indenture governing the 2023 Notes). Holders of the 2023 Notes may require us to repurchase the notes following a “fundamental change” (as defined in the indenture governing the 2023 Notes).
 

15



The indenture governing the 2023 Notes contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee under the indenture or the holders of not less than 25% in aggregate principal amount then outstanding under the 2023 Notes may declare the entire principal amount of all the notes, and the interest accrued on such notes, if any, to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to us or a significant subsidiary, the principal amount of the 2023 Notes together with any accrued and unpaid interest thereon will become immediately due and payable.
 
The 2023 Notes were initially accounted for by separating the net proceeds between long-term debt and shareholders’ equity. In connection with the issuance of the 2023 Notes, we recorded a debt discount of $20.1 million ($15.9 million net of tax) as a result of separating the equity component. The effective interest rate for the 2023 Notes is 7.8% after considering the effect of the accretion of the related debt discount over the term of the 2023 Notes. Interest expense (including amortization of the debt discount) related to the 2023 Notes totaled $2.1 million for each of the three-month periods ended March 31, 2020 and 2019. The remaining unamortized debt discount of the 2023 Notes was $13.7 million at March 31, 2020 and $14.5 million at December 31, 2019.
 
MARAD Debt
 
This U.S. government-guaranteed financing (the “MARAD Debt”), pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, was used to finance the construction of the Q4000. The MARAD Debt is collateralized by the Q4000 and is guaranteed 50% by us. The MARAD Debt is payable in equal semi-annual installments, matures in February 2027 and bears interest at a rate of 4.93%.
 
Nordea Credit Agreement
 
In September 2014, Q5000 Holdings entered into a credit agreement (the “Nordea Credit Agreement”) with a syndicated bank lending group for a term loan (the “Nordea Q5000 Loan”) in an amount of up to $250 million. The Nordea Q5000 Loan was funded in the amount of $250 million in April 2015 at the time the Q5000 was delivered to us. Helix Vessel Finance S.à r.l., a direct wholly owned Luxembourg subsidiary of Helix, guaranteed the Nordea Q5000 Loan. The loan is secured by the Q5000 and its charter earnings as well as by a pledge of the shares of Q5000 Holdings. This indebtedness is non-recourse to Helix.
 
We amended the Nordea Q5000 Loan on March 11, 2020. Prior to the amendment, the Nordea Q5000 Loan incurred interest at a LIBOR rate plus a margin of 2.5% and was repayable in scheduled quarterly principal installments of $8.9 million with a balloon payment of $80.4 million on April 30, 2020. The amendment increases the margin to 2.75%, maintains the existing quarterly amortization requirements, and extends the final maturity to January 31, 2021 with a balloon payment on that date of $53.6 million. The remaining principal balance and unamortized debt issuance costs related to the Nordea Q5000 Loan are classified as current in the accompanying condensed consolidated balance sheets. We may elect to prepay indebtedness outstanding under the Nordea Q5000 Loan without premium or penalty, but may not reborrow any amounts prepaid. Quarterly principal installments are subject to adjustment for any prepayments on this debt.
 
The Nordea Credit Agreement and related loan documents include terms and conditions, including covenants and prepayment requirements, that we consider customary for this type of transaction. The covenants include restrictions on Q5000 Holdings’s ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, and pay dividends. In addition, the Nordea Credit Agreement obligates Q5000 Holdings to meet certain minimum financial requirements, including liquidity, consolidated debt service coverage and collateral maintenance.
 
Other
 
In accordance with the Credit Agreement, the 2022 Notes, the 2023 Notes, the MARAD Debt agreements and the Nordea Credit Agreement, we are required to comply with certain covenants, including with respect to the Credit Agreement, certain financial ratios such as a consolidated interest coverage ratio, a consolidated total leverage ratio and a consolidated secured leverage ratio, as well as the maintenance of minimum cash balance, net worth, working capital and debt-to-equity requirements. As of March 31, 2020, we were in compliance with these covenants.
 

16



The following table details the components of our net interest expense (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
Interest expense
$
7,394

 
$
7,896

Interest income
(466
)
 
(758
)
Capitalized interest
(1,182
)
 
(5,040
)
Net interest expense
$
5,746

 
$
2,098


Note 8 — 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 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, we recognized an estimated $5.8 million net tax benefit in the three-month period ended March 31, 2020, consisting of a $15.9 million current tax benefit and a $10.1 million deferred tax expense. This $5.8 million net tax benefit resulted from our deferred tax assets related to our net operating losses in the U.S. being utilized at the previous higher income tax rate applicable to the carryback periods.
 
We adopted the discrete effective tax rate method for recording income taxes for the three-month period ended March 31, 2020. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. We believe that the use of the discrete method is more appropriate than the annual effective tax rate method because of the current high degree of uncertainty in estimating annual pretax earnings created by uncertainty in future market conditions caused by the ongoing COVID-19 pandemic as well as uncertainty in the oil and gas market. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.
 
The effective tax rates for the three-month periods ended March 31, 2020 and 2019 were 60.2% benefit and 19.7% expense, respectively. The variance in the effective tax rate was primarily attributable to our carrying back certain net operating losses to prior periods with higher income tax rates as well as the result of the consolidation of certain U.S. branch operations with the Helix U.S. consolidated tax group.
 

17



Income taxes are provided based on the U.S. statutory rate and at the local statutory rate for each foreign jurisdiction adjusted for items that are allowed as deductions for federal and foreign income tax reporting purposes, but not for book purposes. The primary differences between the U.S. statutory rate and our effective rate are as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
 
 
 
 
U.S. statutory rate
21.0
 %
 
21.0
 %
Foreign provision
(3.0
)
 
(2.7
)
CARES Act
16.6

 

Subsidiary restructuring
23.8

 

Other
1.8

 
1.4

Effective rate
60.2
 %
 
19.7
 %

Note 9 — Shareholders’ Equity
 
The components of accumulated other comprehensive loss (“accumulated OCI”) are as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
 
 
 
 
Cumulative foreign currency translation adjustment
$
(98,042
)
 
$
(64,455
)
Net unrealized loss on hedges, net of tax (1)
(20
)
 
(285
)
Accumulated OCI
$
(98,062
)
 
$
(64,740
)
(1)
Relates to foreign currency hedges for the Grand Canyon III charter as well as interest rate hedge contracts for the Nordea Q5000 Loan (Note 19).
Note 10 — Revenue from Contracts with Customers
 
Disaggregation of Revenue
 
Our revenues are 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. The following table provides information about disaggregated revenue by contract duration (in thousands):
 
 
Well Intervention
 
Robotics
 
Production Facilities
 
Intercompany Eliminations (1)
 
Total Revenue
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
Short-term
$
82,324

 
$
22,441

 
$

 
$

 
$
104,765

Long-term (2)
58,328

 
12,817

 
15,541

 
(10,430
)
 
76,256

Total
$
140,652

 
$
35,258

 
$
15,541

 
$
(10,430
)
 
$
181,021

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Short-term
$
29,805

 
$
24,930

 
$

 
$

 
$
54,735

Long-term (2)
92,426

 
14,111

 
15,253

 
(9,702
)
 
112,088

Total
$
122,231

 
$
39,041

 
$
15,253

 
$
(9,702
)
 
$
166,823


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(1)
Intercompany revenues among our business segments are under agreements that are considered long-term.
(2)
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.
 
Contract Balances
 
Accounts receivable are recognized when our right to consideration becomes unconditional. Accounts receivable that have been billed to customers are recorded as trade accounts receivable while accounts receivable that have not been billed to customers are recorded as unbilled accounts receivable.
 
Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3). Contract assets were $5.9 million at March 31, 2020 and $0.7 million at December 31, 2019. We had no impairment losses on our contract assets for the three-month periods ended March 31, 2020 and 2019.
 
Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets (Note 3). Contract liabilities totaled $17.2 million at March 31, 2020 and $19.9 million at December 31, 2019. Revenue recognized for the three-month periods ended March 31, 2020 and 2019 included $3.4 million and $2.5 million, respectively, that were included in the contract liability balance at the beginning of each period.
 
We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
 
Performance Obligations
 
As of March 31, 2020, $677.7 million related to unsatisfied performance obligations was expected to be recognized as revenue in the future, with $392.2 million in 2020, $219.5 million in 2021 and $66.0 million in 2022 and thereafter. These amounts include fixed consideration and estimated variable consideration for both wholly and partially unsatisfied performance obligations, including mobilization and demobilization fees. These amounts are derived from the specific terms of our contracts, and the expected timing for revenue recognition is based on the estimated start date and duration of each contract according to the information known at March 31, 2020.
 
For the three-month periods ended March 31, 2020 and 2019, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
 

19



Contract Fulfillment Costs
 
Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3). Our deferred contract costs totaled $37.1 million at March 31, 2020 and $42.9 million at December 31, 2019. For the three-month periods ended March 31, 2020 and 2019, we recorded $9.2 million and $7.7 million, respectively, related to amortization of deferred contract costs existing at the beginning of each period. There were no associated impairment losses for any period presented.
 
For additional information regarding revenue recognition, see Notes 2 and 12 to our 2019 Form 10-K.
Note 11 — Earnings Per Share
 
We have shares of restricted stock issued and outstanding that are currently unvested. Shares of restricted stock are considered participating securities 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 earnings per share (“EPS”) under the two-class method in periods in which we have earnings. Under the two-class method, the undistributed earnings for each period are allocated based on the participation rights of both common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. Because the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. For periods in which we have a net loss we do not use the two-class method as holders of our restricted shares are not obligated to share in such losses.
 
The presentation of basic EPS on the face of the accompanying condensed consolidated statements of operations is computed by dividing net income or loss by the weighted average shares of our common stock outstanding. The calculation of diluted EPS is similar to that for basic EPS, except that the denominator includes dilutive common stock equivalents and the numerator excludes the effects of dilutive common stock equivalents, if any. The computations of the numerator (income) and denominator (shares) to derive the basic and diluted EPS amounts presented on the face of the accompanying condensed consolidated statements of operations are as follows (in thousands):
 
 
 
 
 
 
 
 

 
Three Months Ended
March 31, 2020
 
Three Months Ended
March 31, 2019
 
Income
 
Shares
 
Income
 
Shares
Basic:
 
 
 
 
 
 
 
Net income (loss) attributable to common shareholders
$
(11,938