Civeo Corporation — 2014 Form 10-K
Business context and reporting period
For the fiscal year ended December 31, 2014. Civeo provides remote workforce accommodations and related services to natural-resource companies, principally in Canada, Australia and the United States. More than three-fourths of revenue historically came from its lodges and villages, many contracted on take-or-pay terms.
Civeo spun off from Oil States on May 30, 2014. Thus, 2014 results combine five months of Oil States’ accommodations business with seven months as a standalone company; 2013 results are historical combined results and may not be directly comparable.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $942.9 million | $1,041.1 million |
| Operating income (loss) | $(142.9) million | $259.5 million |
| Net income (loss) attributable to Civeo | $(189.0) million | $181.9 million |
| Diluted earnings (loss) per share | $(1.77) | $1.70 |
| Cash from operating activities | $291.1 million | $337.4 million |
| Capital expenditures | $251.2 million | $291.7 million |
Fourth-quarter 2014 revenue was $219.7 million and net loss attributable to Civeo was $271.6 million, including substantial impairments and tax charges. Segment gross margins declined: Canada 39.2% versus 43.8%; Australia 58.0% versus 62.4%; and U.S. 21.9% versus 27.4%.
At year-end, cash and cash equivalents were $263.3 million, total assets $1.829 billion and stockholders’ equity $860.1 million. Debt was $775.0 million, including $19.4 million current maturities. Unused revolving availability was approximately $422.0 million; reported total available liquidity, including cash, was $685.3 million. The company was compliant with debt covenants at December 31, 2014, but expected to need to reduce debt by approximately $250 million during 2015 to meet the maximum leverage covenant.
Material changes versus prior period
- Revenue fell 9%, reflecting weaker Canadian and Australian currencies and lower occupancy and room rates. Canadian revenue declined 7%; Australian revenue declined 16.5%; U.S. revenue declined 9.2%.
- Occupancy at lodges and villages fell to 78% from 87%; RevPAR declined to $89 from $108. Canada occupancy was 85% versus 92%, and Australia was 68% versus 83%.
- Operating results swung to a loss, including $202.7 million of goodwill impairments and $76.2 million of long-lived asset impairments. Additional charges included a $9.0 million Australian brand impairment and a $2.6 million impairment for assets held by nonpaying customers in Mexico.
- Cash from operations decreased by $46.3 million. Capital expenditures remained high but declined from 2013.
- The company borrowed $775 million under a new five-year term loan in connection with the spin-off and paid Oil States a $750 million special distribution. The quarterly dividend of $0.13 per share was paid in Q3 and Q4, then suspended in late December to preserve financial flexibility.
Outlook, commentary and risks
- Management expected materially lower Canadian revenue and earnings in 2015 as oil-price weakness prompted customers to reduce or defer oil-sands spending. Persistently low metallurgical coal prices were also weighing on Australian demand. Management expected continued weakness in the Canadian and Australian dollars to reduce reported results.
- At the start of 2015, approximately 35%–40% of Canadian lodge rooms and Australian village rooms were contracted, down from more than 75% and 55%, respectively, at the start of 2014.
- Management forecast 2015 capital expenditures of $75–$85 million, excluding approximately $50 million of unannounced, uncommitted projects that depended on customer contracts.
- The company announced a proposed redomicile to Canada, expected in Q2 or Q3 2015, subject to conditions including lender consent. Completion and anticipated benefits were not assured.
- Debt has variable interest rates: a 1 percentage-point rate increase was estimated to raise annual interest expense by approximately $7.75 million. Covenant limits restrict, among other things, dividends and certain investments. The company said it expected to use cash on hand and 2015 cash generation to repay debt; this could reduce liquidity.
- Other key risks include commodity-price and customer-spending cycles, customer concentration, contract renewals and cancellations, foreign-exchange movements, environmental and regulatory requirements, weather disruptions, Canadian land-lease renewals, and further asset impairments. Imperial Oil accounted for more than 10% of 2014 revenue.
- Management reported effective disclosure controls at year-end. The filing does not include management’s assessment or auditor attestation of internal control over financial reporting because of the newly public company transition period. Management believed pending legal matters would not materially affect financial position, results or liquidity.
Important facts for investors to verify
- Debt covenant calculations, required repayment timing and the availability of cash to meet the anticipated approximately $250 million debt reduction.
- Current contract coverage, occupancy, room rates and renewals in Canada and Australia, particularly as commodity prices and customer budgets change.
- Actual 2015 capital spending, operating cash flow and liquidity compared with management’s forecast.
- Any additional impairments or changes in tax liabilities, including the deferred tax liability recognized on expected foreign-earnings remittances.
- Status, lender approvals and tax consequences of the proposed Canadian redomicile, and whether the dividend remains suspended.