Civeo Corporation — Q3 2019 Form 10-Q
Business context and reporting period. Civeo provides lodging, food service and related hospitality services to natural-resource customers in Canada, Australia and the U.S. This unaudited filing covers the quarter and nine months ended September 30, 2019; amounts are U.S. dollars. Results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Three months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2019 |
|---|---|---|
| Revenue | $148.2 million, up 23% year over year | $378.9 million, up 8% |
| Operating income (loss) | $2.9 million, versus a $12.9 million loss | $(27.1) million, versus $(80.9) million |
| Net income (loss) | $5.1 million; $5.0 million attributable to Civeo | $(26.8) million; $(26.9) million attributable to Civeo |
| Common-share EPS | $0.02 diluted | $(0.17) diluted |
| Cash from operations | Not presented separately for the quarter | $33.5 million, versus $25.9 million |
| Capital expenditures | Not presented separately for the quarter | $25.5 million, versus $8.7 million |
At September 30, cash was $8.1 million and total available liquidity was $88.0 million, including $79.9 million of unused revolver availability. Debt principal outstanding was $393.5 million ($391.1 million net of unamortized issuance costs); $34.4 million was classified as current. Total assets were $1.01 billion and shareholders’ equity was $505.5 million. The filing does not provide a clear standalone EBITDA value.
Material changes versus the prior comparable period
- Q3 revenue growth reflected higher Canadian lodge, food-service and mobile-camp activity, plus the July acquisition of Action Industrial Catering in Australia. U.S. revenue declined.
- Q3 operating results improved to income from a loss, supported by increased Canada and Australia activity and lower SG&A and depreciation. Canada’s Q3 gross margin rose to 31.6% from 26.0%; Australia’s fell to 40.0% from 51.1%, and the U.S. fell to 8.7% from 19.3%.
- Nine-month operating loss narrowed mainly because impairment expense fell to $5.5 million from $28.7 million and SG&A declined. The prior-year common-share loss also included $49.1 million of preferred-share dividends attributable to the Noralta acquisition; 2019 preferred dividends were $1.4 million.
- Operating cash flow increased, but accounts receivable rose to $106.8 million from $70.2 million at year-end. Investing outflow was $34.7 million, substantially below 2018’s $186.1 million, which included Noralta and Acadian Acres acquisition spending.
Outlook, commentary, risks and unusual items
- Management expects 2019 capital expenditures, excluding acquisitions, of approximately $33 million to $37 million; $25.5 million had been spent through September. It expects cash on hand and operating cash flow to meet anticipated liquidity needs over the next 12 months, while noting additional capital may be needed if plans change or acquisitions are pursued.
- Management does not expect an immediate improvement in the business. Demand depends heavily on oil and metallurgical coal prices, customer spending and project activity. Risks include commodity-price volatility, Canadian oil-production curtailments, pipeline and LNG project delays, U.S. drilling activity and foreign-exchange movements.
- The September 30 credit amendment increased revolving commitments by $24 million and extended certain lenders’ maturities to November 30, 2021; some lender commitments still mature in November 2020. Maximum leverage limits tighten over time. Civeo reported compliance with covenants at quarter-end, but $17.4 million of borrowing capacity was unavailable to preserve covenant compliance.
- Q3 results included other income primarily from an Australian village sale and a $2.2 million release of an asset-retirement obligation assumed by the buyer. The nine-month period also included $2.6 million of insurance proceeds. The quarter’s $6.6 million tax benefit included benefits associated with Alberta’s tax-rate reduction and Action-related valuation allowances.
- In Q2, Civeo recorded $5.5 million of Australian impairment expense and corrected a previously unrecorded asset-retirement obligation, recognizing a $2.3 million liability and related prior-period expenses; management said the prior-period error was not material. A separate $28.7 million Canadian impairment was recorded in Q1 2018.
- Foreign-currency translation loss was $12.1 million in Q3. The filing estimates that a 100-basis-point rise in floating rates would increase annual interest expense by about $3.9 million. Legal proceedings are described as not expected to have a material adverse effect, subject to uncertainty in outcomes.
Important facts for investors to verify
- Whether Canadian lodge demand, Sitka LNG activity and pipeline-related contracts persist, and how project timing affects utilization and revenue.
- Action’s contribution to Australian revenue and its lower-margin service model, including whether its margins improve as integration progresses.
- Receivables growth, working-capital conversion and the sustainability of operating cash flow relative to capex and acquisition spending.
- Debt maturities, covenant headroom and the effect of tightening leverage limits, variable interest rates and any future refinancing needs.
- The assumptions underlying asset recoverability, the Australian ARO correction and the unusual gains and tax benefits included in reported results.