Civeo Corporation — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Civeo provides workforce accommodations, logistics and facility-management services to natural-resource customers, primarily in Canada and Australia, with a smaller U.S. business. Its results are sensitive to commodity prices, customer spending and room occupancy. More than three-fourths of revenue comes from large-scale lodges and villages.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $92.0 | $107.0 | $183.4 | $202.1 |
| Operating loss | $(13.4) | $(6.0) | $(31.1) | $(32.2) |
| Net loss attributable to Civeo | $(14.8) | $(11.5) | $(35.8) | $(38.3) |
| Basic and diluted loss per share | $(0.11) | $(0.11) | $(0.28) | $(0.36) |
| Operating cash flow | Not stated separately | Not stated separately | $14.4 | $35.2 |
| Capital expenditures | Not stated separately | Not stated separately | $6.0 | $9.9 |
- Q2 total costs and expenses were $105.4 million. Service and product costs were $59.5 million; SG&A was $14.1 million; depreciation and amortization was $31.6 million. A consolidated gross-margin measure is not presented in the filing.
- At June 30, cash was $27.3 million; current assets were $115.2 million and current liabilities were $52.7 million. Total debt before unamortized issuance costs was $320.2 million, including $16.0 million current; balance-sheet debt net of issuance costs was $316.2 million.
- Total available liquidity was $144.8 million: $117.5 million of unused revolver availability and $27.3 million cash. Availability was reduced by $156.3 million to maintain covenant compliance. Revolving borrowings were zero at quarter-end.
- Net loss improved year over year for the first half, while operating cash flow fell by $20.8 million, principally due to working-capital outflows of $13.5 million, including timing of property-tax and insurance payments.
Material changes versus comparable periods
- Q2 revenue declined 14% year over year, and operating loss widened to $13.4 million from $6.0 million. The principal driver was Canada: lower room utilization and rates, lower mobile/open-camp/product activity, and weaker Canadian-dollar translation. Canadian revenue fell 25% to $57.7 million; its Q2 gross margin declined to 32.7% from 38.3%.
- For the first half, revenue declined 9%. Canadian revenue fell $24.5 million; Australian revenue rose $2.6 million and U.S. revenue rose $3.2 million. The first-half operating loss improved modestly, largely because the $8.4 million U.S. asset impairment recorded in 2016 did not recur.
- Australia’s Q2 revenue increased 4% to $28.6 million, with 45% occupancy unchanged and average daily rate rising to $80 from $76. The U.S. Q2 revenue increased 137% to $5.7 million as activity improved, but the segment still recorded negative gross margin.
- February’s share offering issued 23 million shares at $3 each and raised net proceeds of $64.8 million. Proceeds were partly used to repay revolver borrowings. The offering increased shares outstanding; the filing reported 132.25 million common shares outstanding as of July 24, 2017.
Outlook, commentary and risks
- Management expected full-year 2017 revenue and EBITDA to be materially below 2016, despite some potentially favorable medium- and long-term market developments. The filing does not provide a numerical revenue or EBITDA forecast.
- Management forecast 2017 capital expenditures of $12–$15 million, excluding unannounced or uncommitted projects, and stated that cash, operating cash flow and revolver borrowings were expected to meet anticipated liquidity needs over the following 12 months.
- Management cited subdued customer activity despite improved oil prices, with spending potentially lagging price changes by 9–12 months. Risks include commodity-price weakness or volatility, customer cost-cutting, and a wider Canadian heavy-oil discount.
- The LNG Canada Sitka Lodge contract ran through September 2017. A final investment decision for the proposed Cedar Valley Lodge project remained delayed. Civeo warned that project cancellation or non-extension could affect Canadian results and asset values, potentially requiring material impairment charges. After quarter-end, on July 25, 2017, Petronas and partners cancelled the separate Pacific NorthWest LNG project.
- Debt is floating-rate and secured by substantially all company and subsidiary assets. Civeo reported compliance with its covenants at June 30, 2017; the maximum leverage covenant was 5.25:1.00 then, and required interest coverage was at least 3.0:1.00. The filing does not state the actual covenant ratios. A 100-basis-point increase in floating rates was estimated to add about $3.2 million to annual interest expense.
- Foreign-currency translation, particularly for Canadian- and Australian-dollar net assets, affects reported results and equity. The company had no foreign-exchange agreements outstanding. Management said pending legal matters were not expected to have a material adverse effect, while noting outcomes cannot be assured.
Most important facts for investors to verify
- Whether Canadian lodge rates, utilization and mobile/open-camp activity stabilize, and whether Australian occupancy gains persist.
- Whether the Sitka Lodge contract was extended beyond September 2017 and the status of LNG Canada’s final investment decision and related asset recoverability.
- Actual covenant headroom and borrowing availability, given the substantial capacity unavailable under the leverage covenant.
- Cash conversion and working-capital trends, alongside the expected 2017 capital-spending range.
- The effect of the 23-million-share issuance on per-share results and dilution, and whether management’s full-year outlook changes.