Civeo Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; filed April 28, 2016. Civeo provides remote workforce accommodations and related services to natural-resource companies, primarily in Canada, Australia and the United States.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $95.0 | $171.0 |
| Operating income (loss) | $(26.2) | $4.9 |
| Net income (loss) | $(26.7) | $0.2 |
| Net loss attributable to Civeo | $(26.8); $(0.25) per diluted share | $(0.02) million; reported per-share loss rounded to $0.00 |
| Cash provided by operating activities | $11.3 | $48.9 |
| Capital expenditures | $4.8 | $10.7 |
- Revenue fell 44%, mainly from lower occupancy in Canada and Australia, weaker Canadian and Australian currencies, and lower U.S. activity. Service and other revenue was $91.8 million; product revenue was $3.3 million.
- Canadian revenue declined 44% to $65.5 million; lodge occupancy fell to 60% from 68%, and average daily rate to $111 from $135. Canadian gross margin declined to 27.1% from 36.9%.
- Australian revenue declined 39% to $25.5 million; village occupancy fell to 47% from 63%, and average daily rate to $68 from $80. Australian gross margin declined to 50.9% from 57.8%.
- U.S. revenue declined 67% to $4.0 million. The segment reported a gross margin of negative 41.4%, versus positive 5.7% a year earlier.
- At March 31, cash was $3.0 million, total current assets $92.1 million and current liabilities $65.9 million. Total debt was $410.0 million, net of $5.3 million of unamortized issuance costs, versus $396.9 million at year-end. Shareholders’ equity was $567.6 million.
- Operating cash flow decreased by $37.6 million year over year. Investing activities used $3.5 million; financing activities used $13.0 million. Cash declined by $4.9 million during the quarter.
Material changes and notable items
- Lower occupancy and foreign-exchange translation drove the sharp revenue decline. Cost of sales fell 36%, less than the revenue decline, while operating costs also included an $8.4 million impairment charge.
- The 2016 impairment related to U.S. fixed assets affected by continued reduced Bakken Shale drilling activity; the assets were written down to a fair value of $3.8 million. Q1 2015 included a $2.7 million impairment for a manufacturing facility subsequently sold.
- Q1 2016 net loss included $1.0 million of Redomicile Transaction costs. The company also recorded a $0.3 million loss on extinguishment of debt related to its credit-facility amendment.
- Foreign-currency translation generated $29.4 million of other comprehensive income in Q1 2016, compared with a $111.0 million loss in Q1 2015. This is separate from reported net income.
Liquidity, debt and outlook
- Reported total available liquidity was $69.0 million, comprising $66.1 million of unused revolver availability and $3.0 million of cash, down from $204.1 million at December 31, 2015. The company said $207.5 million of borrowing capacity was unavailable to maintain compliance with its leverage covenant.
- A February 2016 credit-facility amendment included a $25 million U.S. term-loan prepayment, reduced Canadian revolver commitments, increased certain interest margins and commitment fees, and relaxed the leverage covenant schedule. Civeo reported compliance with its covenants at March 31, 2016. The maximum leverage ratio for that date was 4.25:1; minimum interest coverage was 3.0:1.
- Management expected 2016 capital expenditures of approximately $30 million, excluding unannounced or uncommitted customer projects. It stated cash on hand and operating cash flow should meet liquidity needs over the next 12 months.
- Management expected Canadian revenue and earnings trends to remain materially weaker through 2016. It expected historically low met-coal prices to continue weighing on Australian occupancy throughout 2016. The filing does not provide earnings or revenue guidance.
- Key risks include sustained low oil, coal and natural-gas prices; customer spending cuts, project delays and mine closures; occupancy and room-rate pressure; currency fluctuations; floating-rate debt; and limited borrowing availability under the leverage covenant. A 1% rise in floating rates was estimated to increase annual interest expense by about $4.2 million.
- The company reported various pending or threatened claims and proceedings, but management did not expect their ultimate liabilities, net of applicable coverage, to materially adversely affect its financial position, results or liquidity. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Current and expected covenant headroom, including the effect of reduced revolver availability and the scheduled leverage limits.
- Whether occupancy, rates and customer spending in Canada and Australia stabilize, and whether U.S. activity improves.
- Cash generation and the ability to fund the approximately $30 million capital-spending plan while servicing debt.
- Further asset impairments, particularly if commodity prices and customer activity remain depressed.
- Foreign-exchange sensitivity and the impact of changes in Canadian and Australian currencies on reported results and equity.