Civeo Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Dollar amounts below are U.S. dollars. Civeo provides workforce lodging, catering and related services to natural-resource industries in Canada, Australia and the U.S.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $154.2m | $114.7m | $279.6m | $253.5m |
| Operating income (loss) | $2.1m | $(1.8)m | $(7.8)m | $(150.9)m |
| Net income (loss) | $0.01m | $6.8m | $(9.4)m | $(139.0)m |
| Net income (loss) attributable to common shareholders | $(0.5)m | $6.1m | $(10.4)m | $(140.4)m |
| Diluted earnings (loss) per share | $(0.03) | $0.37 | $(0.73) | $(9.96) |
| Cash provided by operating activities | — | $29.4m | $45.3m |
Q2 revenue increased 34%, mainly from higher Canadian oil-sands lodge occupancy and pipeline-related mobile-asset activity, increased occupancy at Australian integrated-services villages, U.S. activity and stronger Canadian and Australian currencies. Six-month revenue rose 10%. The company reported a Q2 common-shareholder loss despite positive operating income, including a $7.9m Australian asset impairment and preferred dividends.
- Margins: Q2 segment gross margin was 31.1% in Canada (19.9% prior year), 29.9% in Australia (38.8%), and 16.2% in the U.S. (negative 23.9%). Australian margins were pressured by lower activity at some villages and higher temporary-labor costs.
- Cash and liquidity: Cash was $4.4m at June 30, 2021, versus $6.2m at year-end 2020. Cash from operations fell year over year, with working capital using $13.8m, largely due to higher Canadian receivables. Investing activities provided $0.5m; capital expenditures were $6.5m. Financing activities used $31.1m.
- Debt: Debt outstanding before unamortized issuance costs was $226.8m, down from $251.1m at year-end; reported total debt was $224.8m. The current portion was $35.6m and long-term debt, net, was $189.2m. Debt is floating-rate and facilities mature May 30, 2023. The company said it complied with its covenants at quarter-end.
- Available liquidity: $116.5m, including $112.1m of unused revolving availability and $4.4m cash.
Material changes and unusual items
- Q2 2021 included a $7.9m impairment of Australian undeveloped land and permitting costs after cancellation of a significant thermal-coal project and weaker near-term prospects for other projects. Certain land was classified as held for sale.
- Six-month 2020 results included $144.1m of impairments: $93.6m goodwill and $38.1m long-lived assets in Canada, and $12.4m long-lived assets in the U.S. These prior-year charges largely explain the improvement in reported operating loss in 2021.
- Q2 2020 other income included $4.7m from settlement of a Noralta acquisition representations-and-warranties claim and $6.2m of Canadian Emergency Wage Subsidy proceeds; Q2 2021 included $0.7m of subsidy income. Six-month 2021 subsidy income was $3.5m.
- Canadian and Australian dollar strength increased reported revenue, while currency translation affected other comprehensive income. The company sold its Canadian modular manufacturing facility in Q1 2021; remaining assets held for sale at June 30 were Australian land holdings.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of approximately $20m, excluding acquisitions and uncommitted growth projects, and said cash, operating cash flow and revolving borrowings should meet anticipated liquidity needs for the next 12 months.
- Management cited recovery in oil demand and prices, higher Canadian customer activity, Australian mining demand and U.S. drilling recovery, but emphasized uncertainty from COVID-19 and variants, commodity-price volatility, customer spending, project timing and regulatory conditions. The Australian thermal-coal project cancellation and Chinese restrictions on Australian coal exports are specific demand risks.
- Australian labor shortages and border closures are increasing reliance on more expensive temporary staff and putting pressure on wages. U.S. activity remains sensitive to oil prices, drilling plans, pipeline capacity and customer consolidation; Civeo was shifting mobile assets toward the Permian and Mid-Continent and expected the process to finish in Q3 2021.
- Interest-rate sensitivity: a 100-basis-point increase was estimated to raise annual interest expense by about $2.3m. A hypothetical 10% adverse currency move would create translation adjustments of approximately $17m for the Canadian dollar and $28m for the Australian dollar.
- Preferred shares carry a 2% annual dividend on liquidation preference, paid in kind for Q2; liquidation preference was approximately $96.5m at June 30. The company reported various legal claims but did not expect unprovided or uninsured outcomes to materially affect financial position, results or liquidity. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether stronger activity and reported revenue growth persist after separating currency effects, particularly in Canada and Australia.
- Whether Australian service margins recover as labor costs and village occupancy develop, and the effect of the canceled thermal-coal project on remaining land values.
- Receivables and working-capital trends, given the first-half operating cash-flow decline and increased Canadian receivables.
- Debt repayment capacity, covenant headroom and refinancing plans ahead of the May 2023 facility maturity.
- Progress against the approximately $20m 2021 capital-spending plan and whether operating cash flow supports the stated liquidity outlook.