Civeo Corporation — Q3 2020 Form 10-Q
Business context and reporting period. Civeo provides lodging, food, facility-management and related services to natural-resource customers in Canada, Australia and the U.S. This unaudited filing covers the three and nine months ended September 30, 2020; amounts below are U.S. dollars unless noted.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $142.9M | $148.2M | $396.4M | $378.9M |
| Operating income (loss) | $7.1M | $2.9M | ($143.8M) | ($27.1M) |
| Net income (loss) attributable to Civeo common shareholders | $6.5M | $4.5M | ($133.9M) | ($28.3M) |
| Basic and diluted EPS | $0.03 | $0.02 | ($0.79) | ($0.17) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $80.7M | $33.5M |
| Capital expenditures | $2.4M | $4.3M | $6.2M | $25.5M |
Margins and segments. Q3 gross margin was 28.4% in Canada (31.6% prior year), 40.4% in Australia (40.0%), and negative 17.6% in the U.S. (positive 8.7%). Q3 segment revenues were $71.8M in Canada, $64.7M in Australia and $6.4M in the U.S. Canada’s billed lodge rooms fell 42% year over year; Australian billed village rooms rose. For the first nine months, Australia revenue increased 59%, largely reflecting the Action acquisition, while Canada revenue declined 13% and U.S. revenue declined 40%.
Balance sheet and liquidity. At September 30, cash was $6.9M; total debt was $269.9M net of unamortized issuance costs ($272.5M principal), including $33.0M current maturities. Total available liquidity was $85.6M, comprising $78.7M unused borrowing availability and cash. Total assets were $732.9M, down from $969.9M at December 31, 2019. The company reported covenant compliance at quarter-end.
Material changes and unusual items
- Q3 revenue declined 4% year over year: lower Canadian oil-sands occupancy and weaker U.S. activity more than offset growth in Australia and Canadian mobile-camp work.
- Nine-month revenue grew 5%, mainly from Action and increased Australian activity, but the nine-month net loss widened substantially. It included $144.1M of impairment charges: $93.6M Canadian goodwill, $38.1M Canadian long-lived assets and $12.4M U.S. long-lived assets. These charges were recorded in Q1.
- Q3 operating income improved to $7.1M, primarily reflecting lower depreciation and amortization and SG&A, and stronger Australian activity. Q3 results also included $3.6M of Canadian Emergency Wage Subsidy income. Nine-month other income included $9.7M of subsidy income and $4.7M from a Noralta acquisition claim settlement.
- Nine-month operating cash flow increased to $80.7M, helped by working-capital movements, including lower Canadian receivables. Investing activities provided $1.7M, versus $34.7M used in the prior-year period. Financing activities used $79.6M, principally for debt repayments.
- The September 2020 credit amendment extended remaining lender commitments and loans to May 30, 2023, reduced total lender commitments by $96.2M, and increased interest margins and commitment fees. The maximum leverage covenant tightens from 3.75:1 at September 30 to 3.50:1 beginning December 31, 2020; minimum interest coverage is 3.0:1.
Outlook, commentary and risks
- Management expected 2020 capital expenditures, excluding customer-contract-dependent expansion spending, to be less than $15M, compared with $29.8M in 2019. It said cash on hand and operating cash flow should meet anticipated liquidity needs for the next 12 months, while noting that changed or inaccurate assumptions could require additional capital.
- Management described continuing COVID-19 and commodity-price uncertainty. Lower oil prices and pandemic-related disruption reduced Canadian oil-sands demand and U.S. drilling activity; management said these conditions could continue to pressure occupancy, customer spending and asset values. Australian occupancy had not materially declined due to COVID-19 at the filing date.
- The company planned a phased exit from the Bakken and Rockies mobile well-site markets through 2020 and the first half of 2021, with assets to be sold or moved to Texas and Oklahoma.
- Risks include volatile oil, met-coal and iron-ore markets; customer spending and occupancy; foreign-exchange movements; floating-rate debt; covenant headroom; and execution of the amended credit arrangements. A 100-basis-point increase in floating rates was estimated to add about $2.7M in annual interest expense. Management reported no off-balance-sheet arrangements and believed pending legal matters would not have a material adverse effect.
Important facts for investors to verify
- Whether Canadian oil-sands occupancy and customer activity recover, and how that affects segment margins and cash generation.
- Whether Australian growth and Action integration sustain operating performance, including the effect of Action’s service-oriented, lower-margin mix.
- The assumptions underlying the $144.1M impairment assessment and any further impairment indicators.
- Actual available borrowing capacity and covenant compliance as the maximum leverage threshold tightens to 3.50:1 at year-end.
- Whether 2020 capital spending stays below management’s stated limit and whether subsidy and claim-settlement income recurs; these items supported reported results and are not necessarily recurring.