Civeo Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Civeo provides remote workforce accommodation and related services in Canada, Australia and the United States. The comparable Q1 2014 results represent the pre-spin-off accommodations business of Oil States, while Q1 2015 reflects Civeo as a standalone company.
Financial performance and condition
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $171.0 million | $252.8 million | Down 32% |
| Operating income | $4.9 million | $52.9 million | Down 91% |
| Net income (loss) attributable to Civeo | $(0.016) million | $36.2 million | Declined $36.3 million |
| Diluted EPS | $0.00 loss per share | $0.34 | — |
| Cash from operations | $48.9 million | $90.7 million | Down $41.8 million |
| Capital expenditures | $10.7 million | $63.5 million | Down $52.8 million |
- Service and other revenue was $168.1 million; product revenue was $2.9 million. The filing attributes lower revenue primarily to reduced occupancy and weaker Canadian and Australian currencies.
- Service costs were $99.8 million and product costs $3.1 million. SG&A was $16.7 million; depreciation and amortization was $42.4 million. Operating margin was approximately 2.9%, versus approximately 20.9% a year earlier.
- Net interest expense was $4.5 million. Income tax expense was $1.2 million, an 83.4% effective rate versus 25.2% in Q1 2014; the filing cites earnings mix among tax jurisdictions and a $0.5 million discrete tax item.
- Net cash used in investing activities was $9.6 million; financing activities provided $0.5 million. Foreign exchange reduced cash by $23.3 million. Cash ended the quarter at $279.8 million.
- At March 31, total debt was $775.0 million, all under the floating-rate term loan; no revolving-credit borrowings were outstanding. Current debt was $29.1 million. Cash plus reported unused revolver availability was $560.7 million; covenant restrictions reduced borrowing capacity by $363.7 million.
- Total assets were $1.695 billion, total liabilities $943.9 million, and stockholders’ equity $750.9 million. The company reported a $111.0 million other comprehensive loss, primarily from currency translation; accumulated other comprehensive loss reached $309.3 million.
Material changes and segment trends
- Canada revenue fell 35% to $116.9 million. Lodge occupancy dropped to 68% from 90%, and RevPAR to $74 from $115. The weaker Canadian dollar accounted for an estimated $14.5 million of the year-over-year revenue decline. Segment gross margin decreased to 36.9% from 39.2%.
- Australia revenue fell 25% to $41.9 million amid lower occupancy and currency weakness. Village occupancy declined to 63% from 76%, RevPAR to $50 from $67, and gross margin to 57.8% from 62.1%.
- U.S. revenue declined 28% to $12.2 million, mainly on lower drilling activity. Gross margin fell to 5.7% from 24.8%, including a $1.1 million inventory write-down.
- Q1 2015 included a $2.7 million impairment charge after Civeo classified its Johnstown, Colorado manufacturing facility as held for sale. The facility’s carrying value was reduced to estimated fair value less selling costs; depreciation on it was discontinued.
Outlook, risks and other notable items
- Management said depressed oil prices, weaker oil-sands activity, project delays and cancellations, and low metallurgical-coal prices were pressuring customer spending and accommodation demand. It expected the Canadian revenue and earnings trend to continue through the rest of 2015 and described Australian occupancy as remaining lower.
- 2015 capital expenditures were forecast at $75–$85 million, excluding approximately $50 million for unannounced, uncommitted projects contingent on customer contracts. The company reported no assurance those conditional projects would proceed.
- Civeo expected to complete a proposed redomicile to Canada in Q2 or Q3 2015, but noted completion and anticipated benefits were not assured. Lenders had consented, subject to customary conditions, to a related credit-facility amendment; documentation was still being finalized.
- The existing facility required at least 3.0x interest coverage and no more than 3.5x leverage. Civeo was in compliance at quarter-end, but covenant limits reduced revolver availability. Without the redomicile and effective amendment, management forecast it might need to reduce debt by approximately $250 million, particularly in Q3/Q4 2015 and Q1 2016; it expected to use cash on hand and generated cash, potentially repatriating foreign cash.
- The board suspended the quarterly dividend in December 2014 to preserve financial flexibility. No future dividend was assured. A 1% increase in floating rates would add approximately $7.75 million to annual interest expense based on quarter-end debt.
- Management said cash on hand and operating cash flow should meet liquidity needs for the next 12 months. Pending claims and proceedings were not expected by management to have a material adverse effect, though outcomes were uncertain. Disclosure controls were deemed effective as of March 31, 2015.
Important facts for investors to verify
- Whether the Canada redomicile and associated credit-facility amendment were completed, and the final terms, timing and covenant headroom.
- Actual occupancy, RevPAR, customer commitments and project activity in Canada and Australia, and whether commodity conditions continued to constrain demand.
- Progress on the Johnstown facility sale, including proceeds and any further impairment or costs.
- Actual capital spending versus the $75–$85 million forecast and whether the conditional $50 million of projects received customer commitments.
- Cash generation, foreign-currency exposure, debt reduction needs and the status of the suspended dividend.
- The effect of the unusually high Q1 effective tax rate and the continuing comparability limitation between the pre-spin-off 2014 period and standalone 2015 results.