Civeo Corporation — FY 2018 Form 10-K
Business context and reporting period. Civeo provides lodging and hospitality services to natural-resource companies in Canada, Australia and the United States. This filing covers the year ended December 31, 2018; quarterly figures below relate to Q4. Results include Noralta from its April 2, 2018 acquisition and Acadian Acres from February 2018.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $466.7 million | $382.3 million |
| Gross profit | $136.3 million | $125.0 million |
| Gross margin | 29.2% | 32.7% |
| Operating loss | $88.1 million | $98.0 million |
| Net loss attributable to Civeo | $82.2 million | $105.7 million |
| Net loss attributable to common shareholders | $131.8 million | $105.7 million |
| Operating cash flow | $54.4 million | $56.8 million |
| Capital expenditures | $17.1 million | $11.2 million |
Revenue rose 22%, largely from Noralta and increased U.S. activity. Operating loss narrowed, but gross margin declined. Common-shareholder loss includes $49.6 million of preferred-share dividends, chiefly a noncash deemed dividend related to the preferred shares’ beneficial conversion feature. Q4 revenue was $114.5 million, gross profit $32.0 million and common-shareholder net loss $13.8 million; Q4 2017 figures were $101.3 million, $30.8 million and $47.6 million, respectively.
At year-end, cash was $12.4 million and debt outstanding was $379.2 million; revolving availability was $90.3 million, giving reported total available liquidity of $102.7 million. Operating cash flow was below 2017, while investing cash use of $181.9 million reflected $171.3 million of net acquisition payments. Total assets were $1.00 billion and shareholders’ equity was $535.4 million.
Material changes versus prior year
- Canada revenue increased $50.4 million to $296.0 million, primarily due to Noralta; Canadian gross margin fell to 23.9% from 30.1%, reflecting lower lodge rates and occupancy at some sites and reduced food-service margins.
- Australia revenue increased 7% to $119.2 million, while gross margin eased to 48.8% from 49.9%; a weaker Australian dollar reduced reported revenue.
- U.S. revenue more than doubled to $51.4 million, and gross margin improved to 14.3% from negative 17.3%, reflecting stronger activity and the Acadian Acres acquisition.
- Net interest expense increased $4.7 million, principally from borrowing to fund Noralta. The Canadian segment recorded $28.7 million of long-lived-asset impairment expense, compared with $31.6 million of impairment expense in 2017.
- Debt increased from $297.6 million to $379.2 million. The Noralta transaction included cash, 32.8 million common shares and preferred shares with an initial liquidation preference of $96.8 million.
Outlook, commentary and risks
- Management said it did not expect significant near-term improvement in oil-related customer activity and emphasized financial discipline, operational quality and integrating Noralta. It forecast 2019 capital expenditures of $40–$45 million, excluding acquisitions and uncommitted projects.
- Following LNG Canada’s positive final investment decision, Civeo reported Coastal GasLink mobile-accommodation awards totaling approximately C$100 million in expected revenue and Sitka Lodge room commitments estimated at C$70 million over an initial 18 months. Pipeline revenue was expected to begin in 2019; timing could be affected by project delays. Planned capital spending was approximately C$10 million for pipeline locations and C$15 million to expand Sitka Lodge.
- Management expected cash and operating cash flow to meet anticipated liquidity needs for the next 12 months. The credit agreement matures November 30, 2020; Civeo reported covenant compliance at year-end. Leverage limits tighten over 2019, and the agreement is secured by substantially all company and subsidiary assets.
- Key exposures include volatile oil and coal prices, customer spending and contract renewals, concentration in Alberta oil sands and Queensland coal markets, foreign-exchange movements, weather and regulatory changes. The company recorded $28.7 million of 2018 asset impairments and may face further impairment if demand remains weak.
- Canadian and Australian currencies weakened against the U.S. dollar during 2018, contributing to a $43.0 million foreign-currency translation loss in other comprehensive income. A 100-basis-point rise in floating rates was estimated to increase annual interest expense by about $3.8 million.
- The filing reports effective disclosure controls and internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls. Management corrected a nonmaterial overstatement of depreciation in Q4 by reversing $2.8 million.
Investor verification priorities
- Review the full financial statements and preferred-share terms to distinguish the $82.2 million loss attributable to Civeo from the $131.8 million loss attributable to common shareholders.
- Assess debt covenant headroom, the $90.3 million revolver availability, the 2020 maturity and the ability to fund planned capital spending.
- Verify customer commitments, contract renewals and project schedules for Noralta, Coastal GasLink and Sitka Lodge, including whether expected revenues and synergies materialize.
- Track Canadian lodge occupancy and rates, future impairment assumptions, and exposure to commodity prices, currency and customer concentration.
- Check whether 2019 capital expenditure plans and operating cash flow remain consistent with management’s liquidity expectations.