Civeo Corporation — Q3 2021 Form 10-Q
Business context and reporting period. Civeo provides workforce accommodation and hospitality services to natural-resource customers in Canada, Australia and the U.S. This unaudited report covers the three and nine months ended September 30, 2021; financial amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $155.1 million | $142.9 million | $434.7 million | $396.4 million |
| Operating income (loss) | $6.0 million | $7.1 million | $(1.8) million | $(143.8) million |
| Net income (loss) | $1.0 million | $7.4 million | $(8.4) million | $(131.6) million |
| Net income (loss) attributable to common shareholders | $0.1 million | $6.5 million | $(10.4) million | $(133.9) million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $63.2 million | $80.7 million |
| Capital expenditures | $3.4 million | $2.4 million | $9.6 million | $6.2 million |
- Q3 revenue increased 9%, while operating income fell 15%. Common-shareholder earnings were $62,000, or $0.00 per diluted share, versus $6.5 million, or $0.39 per share, a year earlier.
- Nine-month revenue rose 10%. The much smaller operating and net losses versus 2020 largely reflect the prior-year $144.1 million impairment charge; 2021 included a $7.9 million impairment of Australian undeveloped land and permitting assets.
- Australia’s segment gross margin fell to 28.8% in Q3 from 40.4% and to 28.9% for the nine-month period from 39.7%. Management cited lower-margin service work, lower occupancy in some locations, and higher labor costs. Canada’s gross margin improved to 29.6% in Q3 from 28.4% and to 26.5% year to date from 22.5%.
- Operating cash flow for nine months decreased by $17.4 million year over year, with increased receivables contributing to the change in working capital.
- At September 30, cash was $4.9 million and total debt was $193.2 million, down from $248.6 million at December 31, 2020. Current liabilities were $136.9 million versus current assets of $158.0 million. Available liquidity, including cash and unused revolver capacity, was $78.2 million, down from $105.4 million at year-end.
Material changes, outlook and risks
- Revenue growth reflected Canadian oil-sands lodge turnarounds and pipeline-related mobile-asset activity, increased occupancy at Australian integrated-services villages, and stronger Canadian and Australian currencies. Lower activity at some Australian villages and in U.S. operations partly offset growth.
- Australian operating costs rose faster than revenue, including due to labor shortages and reliance on more expensive temporary staff. The U.S. segment remained small; nine-month revenue declined 22% as drilling and offshore fabrication activity fell.
- On September 8, 2021, Civeo replaced its credit agreement with a facility providing $200 million in revolving commitments maturing in 2025 and a C$100 million term loan scheduled for full repayment by December 31, 2023. The agreement sets leverage and interest-coverage covenants; Civeo reported compliance at September 30. Debt is floating-rate and secured. Management estimated a 100-basis-point rate increase would add about $2.0 million to annual interest expense.
- Management expects 2021 capital expenditures of approximately $20 million, excluding acquisitions and growth projects, subject to customer activity and project timing. It believes cash on hand and operating cash flow will meet anticipated liquidity needs over the next 12 months. No earnings or revenue forecast is provided.
- In August, the Board authorized repurchases of up to approximately 715,000 common shares over 12 months. Civeo repurchased 20,105 shares for about $0.4 million in Q3. Preferred dividends were paid in kind; the preferred shares carry a 2% annual dividend on liquidation preference.
- Key uncertainties include commodity prices and customer spending, COVID-19 and related restrictions, project delays, Australian labor availability and costs, currency movements, and regulatory or climate-related changes. The Chinese embargo on Australian coal continued. The company reported no off-balance-sheet arrangements and said pending legal matters were not expected to materially affect its financial position, results or liquidity.
- Other notable items: Q3 2020 included $3.6 million of Canadian Emergency Wage Subsidy income; nine-month 2021 included $3.5 million of that subsidy, versus $9.7 million in the prior-year period. The nine months of 2020 also included a $4.7 million Noralta acquisition-related claim settlement. Foreign-currency translation reduced nine-month 2021 comprehensive income by $15.4 million.
Important facts for investors to verify
- Whether Australian labor pressures, lower village occupancy and weaker segment margins persist or improve.
- Whether Canadian turnaround and pipeline activity, and the recovery in U.S. activity, translate into sustained profitable growth.
- Available revolver capacity, debt amortization and refinancing needs, and ongoing compliance with credit covenants.
- Whether operating cash flow can fund the stated capital plan and share repurchases while preserving liquidity.
- Potential effects of commodity-price volatility, COVID-19, project delays and foreign-exchange movements on utilization and reported results.