Civeo Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results, not a standalone 2021 fourth-quarter income statement. All dollar amounts are U.S. dollars unless noted.
Business context
Civeo provides lodging, catering and related hospitality services to natural-resources companies in Canada, Australia and the U.S. It owns and operates 27 lodges and villages with more than 28,000 rooms, and also serves customer-owned facilities and provides mobile accommodations. Canada generated about 54% of 2021 revenue, Australia 42% and the U.S. 4%. Three customers—Suncor, Imperial Oil and Fortescue Metals Group—each represented more than 10% of revenue.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $594.5 million | $529.7 million |
| Operating income (loss) | $6.1 million | $(147.2) million |
| Net income (loss) | $2.5 million | $(132.8) million |
| Net income (loss) attributable to Civeo common shareholders | $(0.6) million; $(0.04) per diluted share | $(136.1) million; $(9.64) per diluted share |
| Cash provided by operating activities | $88.5 million | $117.4 million |
| Capital expenditures | $15.6 million | $10.1 million |
| Debt outstanding at year-end | $175.1 million | $251.1 million |
| Cash and total available liquidity at year-end | $6.3 million; $92.8 million | $6.2 million; $105.4 million |
Revenue increased 12% year over year. Operating margin was approximately 1.0% of revenue; consolidated gross margin was approximately 26.6%, calculated from reported revenue and cost of sales and services. The filing does not present a standalone Q4 profit or cash-flow figure in the supplied text.
Cash from operations declined mainly because working capital provided less cash: working capital used $8.8 million in 2021 versus providing $19.9 million in 2020, primarily reflecting higher receivables. Operating cash flow less capital expenditures was approximately $73.0 million, a derived figure, not a company-reported free-cash-flow measure.
Changes versus prior year
- Revenue rose by $64.7 million, led by more billed rooms and turnaround work at Canadian oil-sands lodges, Canadian pipeline-related mobile-asset activity, and higher occupancy in Australian integrated-services villages. Stronger Canadian and Australian currencies also increased reported revenue.
- Canada revenue increased 19%; its gross margin improved to 26.7% from 22.4%, principally due to mobile-asset activity and operating efficiencies.
- Australia revenue increased 7%, but gross margin fell to 28.6% from 38.3%. Lower village activity, a shift in certain contracts from construction to lower-margin operations, and labor shortages and temporary-labor costs weighed on margins.
- U.S. revenue declined 14% as drilling, offshore fabrication and wellsite activity weakened. The U.S. segment remained loss-making at the operating level, with an $8.9 million operating loss.
- Operating results improved sharply from 2020, when Civeo recorded $144.1 million of impairments, including a $93.6 million Canadian goodwill impairment. FY2021 included $7.9 million of impairments for Australian undeveloped land and permitting assets.
- Debt declined by $75.9 million year over year. The company entered a new $200 million revolving facility maturing in September 2025 and a C$100 million term loan scheduled to be fully repaid by December 2023. It reported covenant compliance at year-end.
Outlook, risks and unusual items
- Management forecast 2022 capital expenditures of approximately $20 million to $25 million, subject to customer activity, project approvals and schedules. It expected available cash, operating cash flow and revolver borrowings to fund the spending, and said liquidity should meet anticipated needs over the next 12 months.
- Management described improving oil demand and prices and elevated met-coal prices, but noted continued commodity-price, COVID-19, regulatory and customer-spending uncertainty. CGL pipeline commitments were expected to be completed in early 2023; delays to the LNG Canada or pipeline projects could affect revenue timing.
- Major risks include commodity-price volatility; customer concentration and contract renewal or termination; competition and room oversupply; Australian labor shortages; COVID-19 effects; weather and geographic concentration; environmental and climate regulation; foreign-exchange movements; and Canadian lodge lease and permit renewals. Canadian lodge land leases generally expire from 2022 to 2028.
- Other notable items: 2021 other income included $3.5 million of Canadian wage subsidies, $2.7 million from a customer contract-dispute settlement and a $6.2 million gain on asset sales. Civeo repurchased 217,179 shares for approximately $4.6 million during 2021 and pays no common-share cash dividend. Preferred shares carry a 2% annual dividend paid in kind and are scheduled to mandatorily convert in April 2023.
- Auditors issued unqualified opinions on the financial statements and internal controls. The audit identified deferred-tax-asset realizability as a critical audit matter; deferred tax assets were $80.6 million net of an $85.4 million valuation allowance.
Important facts for investors to verify
- Whether Canadian oil-sands turnaround and pipeline activity, including the CGL project, sustains room demand and meets the expected completion timing.
- Whether Australian village occupancy recovers and labor shortages, temporary staffing costs and lower-margin integrated-services contracts improve.
- Customer concentration, contract expirations and renewal prospects; only 29% of rentable rooms were committed for 2022 under specified minimum-commitment contracts, excluding certain contract types.
- Debt covenant headroom, scheduled repayments, interest-rate exposure and the effect of lower commodity prices on liquidity. A 100-basis-point increase in floating rates was estimated to add about $1.8 million in annual interest expense.
- Assumptions supporting deferred tax asset recoverability, remaining Australian goodwill, impairment valuations and the estimated timing and cost of asset-retirement obligations.
- Execution and funding of the 2022 capital plan, and whether share repurchases and preferred-share obligations remain consistent with debt-reduction priorities.