Civeo Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts are U.S. dollars. Civeo provides lodging, catering and related workforce-accommodation services to natural-resource industries in Canada, Australia and the U.S.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $165.7 million | $125.4 million |
| Operating income (loss) | $4.2 million | ($9.9 million) |
| Net income (loss) | $1.9 million | ($9.4 million) |
| Net income (loss) attributable to common shareholders | $0.9 million; $0.06 per diluted share | ($10.0 million); ($0.70) per diluted share |
| Cash provided by operating activities | $2.0 million | $12.8 million |
| Capital expenditures | $3.6 million | $3.4 million |
Revenue rose 32%, while operating income improved by $14.1 million. Operating margin was approximately 2.6%, versus approximately negative 7.9% a year earlier. Operating cash flow less capital expenditures was approximately negative $1.6 million.
- Revenue by segment: Canada $96.0 million (up 55%), Australia $63.5 million (up 7%) and U.S. $6.2 million (up 59%). Canada’s growth reflected higher lodge occupancy and rates and increased pipeline-related mobile-asset activity. Australia benefited from higher village occupancy, partly offset by unfavorable currency translation. U.S. activity increased in offshore rental, fabrication and wellsite services.
- Segment operating income (loss): Canada $4.0 million, Australia $6.1 million and U.S. negative $1.6 million. Corporate and eliminations were negative $4.3 million.
- Margins: Canada gross margin was 21.6%, up from 16.2%; Australia was 29.9%, up from 28.1%; U.S. was 1.2%, compared with negative 28.5%. Australian labor shortages and increased temporary-labor costs remained a cost pressure.
- Other earnings items: Net interest expense declined to $2.5 million from $3.4 million. Other income was $1.7 million, down from $4.9 million, which included $2.8 million of Canadian Emergency Wage Subsidy proceeds in Q1 2021 and higher prior-year asset-sale gains. The 2022 income-tax expense was $1.6 million, or 44.9% of pretax income.
Balance sheet, debt and liquidity
- At March 31, 2022, cash was $6.4 million; total assets were $673.1 million; and total shareholders’ equity was $373.0 million.
- Total debt was $175.9 million net of issuance costs (gross facility borrowings of $177.9 million), compared with $173.2 million net at December 31, 2021. Debt was floating-rate. The Canadian term loan is scheduled to be repaid by December 31, 2023; the $200 million revolving facility matures September 8, 2025.
- Available liquidity was reported as $83.1 million, including $76.7 million of unused revolver availability and $6.4 million of cash, versus $92.8 million at year-end. The company reported compliance with debt covenants at quarter-end.
- Current assets were $161.8 million and current liabilities were $119.2 million. Accounts receivable rose to $124.5 million from $114.9 million at year-end.
Changes, outlook and risks
- Operating recovery and higher customer activity drove the year-over-year improvement, particularly in Canada. Canadian lodge billed rooms increased to 635,555 from 480,066; Australian village billed rooms increased to 474,474 from 424,666.
- Operating cash flow was lower year over year; management attributed this principally to $21.8 million of working-capital use, reflecting higher receivables and lower accounts payable and accrual balances. Investing activities used $1.0 million, versus $3.3 million of cash provided in Q1 2021, which included asset-sale proceeds.
- Management expects 2022 capital expenditures of approximately $20 million to $25 million, subject to customer commitments, industry conditions and project timing. It believes cash on hand and operating cash flow will meet anticipated liquidity needs over the next 12 months.
- Demand and results remain sensitive to commodity prices and customer spending, COVID-19 developments, inflation, labor availability and regulatory conditions. Management cited Australian hospitality labor shortages and inflation-related labor, food and consumables costs; it said it was using service-scope changes and contractual protections to manage inflation risk.
- Pipeline and LNG project timing is a risk: Civeo expected its Coastal GasLink commitments to be completed in the second half of 2022 or early 2023, with timing potentially affected by project delays. Management also noted uncertainty around commodity markets and customer investment plans.
- Currency and interest-rate exposure are material. A 100-basis-point increase in floating interest rates was estimated to increase annual interest expense by approximately $1.8 million. A hypothetical 10% adverse currency move would produce estimated translation adjustments of approximately $20 million for the Canadian dollar and $25 million for the Australian dollar in other comprehensive income or loss.
- Class A preferred shares carry a 2% annual dividend, paid in kind in Q1; the company expected to continue in-kind dividends until mandatory conversion in April 2023. The quarter included $8.0 million of term-loan repayments and $7.7 million of net revolving-credit borrowings.
Investor verification priorities
- Reconcile the cash-flow statement’s $2.0 million of operating cash flow with management’s working-capital discussion and assess the sustainability of cash generation as activity grows.
- Verify the reported liquidity and debt figures, covenant headroom and exposure to rising floating rates.
- Track delivery and timing of Canadian pipeline and LNG work, Australian labor costs, and customer activity across commodity markets.
- Check share-repurchase disclosures: the note reports 500 shares repurchased under the program, while the quarterly purchase table also includes 46,077 shares surrendered for employee tax obligations.
- Monitor the $20–$25 million capital-spending plan, preferred-share conversion and related dividend obligations, and the outcome of pending legal claims. Management said it did not expect those claims to materially affect financial position, results or liquidity.