Civeo Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless otherwise stated. Civeo provides lodging and related hospitality services to natural-resource companies in Canada, Australia and the United States.
Financial and operating performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $108.6 million | $101.5 million |
| Operating loss | $(17.9) million | $(52.5) million |
| Net loss | $(17.0) million | $(55.3) million |
| Net loss attributable to common shareholders | $(17.5) million; $(0.11) per share | $(55.5) million; $(0.42) per share |
| Cash provided by operating activities | $6.3 million | $2.8 million |
| Capital expenditures | $9.7 million | $2.7 million |
| Cash and cash equivalents, at period end | $8.0 million | $12.4 million at December 31, 2018 |
| Total debt, carrying value | $380.9 million | $376.2 million at December 31, 2018 |
| Total available liquidity | $66.0 million | $102.7 million at December 31, 2018 |
Revenue increased 7%. Canada contributed $66.8 million, Australia $28.4 million and the U.S. $13.4 million. Segment gross margins were 18.2% in Canada, 47.2% in Australia and 25.3% in the U.S. Civeo reported no consolidated EBITDA figure in the financial statements summarized here.
Operating cash flow less capital expenditures was approximately negative $3.3 million. Current assets were $103.1 million and current liabilities $91.1 million. Debt included $34.1 million classified as current; the credit facilities and term loan mature November 30, 2020. Debt is floating-rate and secured by substantially all company and subsidiary assets.
Material changes versus the prior-year quarter
- Revenue rose $7.0 million, primarily reflecting the Noralta acquisition, higher Canadian food-service activity and stronger activity in some Australian and U.S. markets. Weaker Canadian and Australian currencies reduced reported revenue.
- The operating loss narrowed by $34.6 million. The prior-year quarter included a $28.7 million impairment of a Canadian oil-sands lodge; no impairment expense was recorded in Q1 2019. The 2018 quarter also included $1.0 million of Noralta acquisition costs.
- U.S. revenue rose 30% to $13.4 million, with improved drilling and completion activity and a full quarter of Acadian Acres operations. Canadian revenue increased 5%; Australian revenue increased 2% in reported dollars.
- Capital expenditures increased to $9.7 million, mainly for expansion of Sitka Lodge. Debt carrying value rose $4.7 million from year-end, while available liquidity fell $36.7 million.
Outlook, risks and other notable items
- Management expects 2019 capital expenditures, excluding acquisitions, of approximately $40–$45 million. The company said cash on hand and operating cash flow should meet anticipated liquidity needs over the next 12 months; capital spending and project timing remain dependent on market conditions, approvals, customer commitments and construction schedules.
- Management did not expect an immediate improvement in its business despite potentially favorable longer-term developments. Demand is sensitive to oil and metallurgical-coal prices, customer spending, pipeline capacity and regulatory or project delays. The filing discusses uncertainty around Canadian oil-sands activity, LNG and pipeline projects, U.S. shale activity, and Australian met-coal demand.
- At March 31, the company had $383.5 million of floating-rate debt outstanding. A 100-basis-point increase in rates was estimated to raise annual interest expense by approximately $3.8 million. A hypothetical 10% adverse currency move was estimated to result in translation adjustments of about $27 million for the Canadian dollar and $37 million for the Australian dollar in other comprehensive loss.
- The credit agreement requires at least 3.0:1 interest coverage and, at March 31, a maximum 4.75:1 leverage ratio; the permitted leverage ratio tightens over time. Civeo reported covenant compliance, but $39.1 million of borrowing capacity was unavailable to preserve leverage-covenant compliance. The company had $58.0 million of unused revolver availability before adding $8.0 million of cash.
- Civeo adopted the new lease accounting standard on January 1, 2019, recognizing $21.3 million of right-of-use assets and $22.4 million of lease liabilities at adoption. At March 31, operating lease liabilities totaled $23.4 million.
- Preferred shares issued in the Noralta acquisition carry a 2% annual dividend on liquidation preference, subject to increase in specified circumstances. The Q1 dividend was paid in kind; the company expected to continue doing so for the foreseeable future. The preferred shares had a $92.2 million aggregate liquidation preference at March 31.
- The filing identifies ordinary-course legal claims and proceedings; management did not expect their ultimate liability, net of applicable insurance or indemnity, to materially adversely affect financial position, results or liquidity. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether 2019 capital spending, particularly Sitka Lodge expansion, is supported by customer commitments and produces expected utilization and returns.
- Available revolver capacity and covenant headroom as leverage limits tighten, along with the company’s refinancing plan ahead of the November 2020 debt maturity.
- Trends in oil, coal and foreign-exchange markets and their effect on customer activity, occupancy, pricing and reported results.
- The contribution of Noralta and Acadian Acres to operating performance, and the potential effect of the preferred shares’ liquidation preference and conversion rights.
- Whether operating cash flow can fund capital expenditures and debt service without materially reducing liquidity or requiring additional financing.