Civeo Corporation — 2022 Form 10-K
Business context and reporting period. Fiscal year ended December 31, 2022; comparisons are primarily with 2021. Civeo provides workforce lodging, catering and related hospitality services for natural-resource customers in Canada, Australia and the United States. Canada generated 57% of revenue, Australia 40% and the U.S. 3%. The company owned 26 lodges and villages with approximately 28,000 rooms and operated approximately 12,200 customer-owned rooms.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $697.1 million | $594.5 million |
| Operating income | $17.0 million | $6.1 million |
| Net income | $6.3 million | $2.5 million |
| Net income attributable to Civeo | $4.0 million | $1.4 million |
| Net income (loss) attributable to common shareholders | $2.2 million before the preferred-share repurchase premium; reported EPS was a loss of $0.21 per diluted share | Loss of $0.6 million; loss of $0.04 per diluted share |
| Operating cash flow | $91.8 million | $88.5 million |
| Capital expenditures | $25.4 million | $15.6 million |
| Year-end debt outstanding | $132.0 million | $175.1 million |
| Year-end cash and available liquidity | $8.0 million cash; $104.1 million total available liquidity | $6.3 million cash; $92.8 million total available liquidity |
Operating cash flow less capital expenditures was approximately $66.4 million in 2022, an indicative measure rather than a company-reported free-cash-flow figure. The consolidated gross margin was approximately 25.8%. The Canadian segment’s gross margin declined to 25.9% from 26.7%, and Australia’s declined to 27.8% from 28.6%; management cited inflation and a greater contribution from lower-margin integrated services in Australia. The U.S. segment’s gross margin was 1.1%.
Changes versus 2021
- Revenue increased 17%, primarily from higher Canadian lodge occupancy, pipeline-related mobile asset activity, stronger activity at Australian villages and increased Australian integrated services. Weaker Canadian and Australian currencies reduced reported revenue.
- Operating income increased $11.0 million, reflecting higher activity, partly offset by increased operating costs and SG&A. SG&A rose 15%, including higher compensation, share-based compensation, travel and technology costs.
- Net income attributable to Civeo common shareholders was affected by a $5.2 million preferred-share repurchase premium. Civeo repurchased preferred shares for approximately $30.6 million and converted the remaining preferred shares into approximately 1.5 million common shares in December 2022; no preferred shares remained outstanding at year-end.
- Operating cash flow increased modestly. Capital expenditures rose, while asset-sale proceeds were $16.3 million. Financing cash use included $30.4 million of term-loan repayments and $14.2 million of common-share repurchases.
- Other income fell to $5.1 million from $13.2 million. In 2022 it included $4.7 million of gains on asset sales; 2021 included wage-subsidy proceeds, a customer-dispute settlement and asset-sale gains.
Outlook, management commentary and risks
- Management forecast 2023 capital expenditures of approximately $25–$30 million and stated that cash on hand and operating cash flow should meet anticipated liquidity needs for the next 12 months. Spending may change with customer activity and project approvals.
- The McClelland Lake Lodge land lease and customer contract expire in June 2023 and the lease will not be renewed. The 2022 room commitments generated approximately C$60 million in revenue. Management is pursuing asset sale or redeployment options and said no commercially viable local relocation opportunity had been identified.
- Management expected contracted Coastal GasLink pipeline commitments to be completed in 2023, subject to possible construction delays. Australian met-coal and iron-ore demand and commodity prices, and Canadian oil-sands activity, remain key drivers of customer spending.
- Key risks include commodity-price volatility, customer concentration and contract renewals, inflation and labor shortages, foreign-exchange movements, seasonal weather, environmental and climate regulation, and dependence on remote, geographically concentrated markets. Suncor Energy, Imperial Oil and Fortescue Metals Group each accounted for more than 10% of 2022 revenue.
- Year-end debt was floating-rate and secured; the company reported compliance with its credit-agreement covenants. A 100-basis-point rate increase was estimated to add approximately $1.3 million to annual interest expense. The credit agreement matures in 2025, while the C$100 million term loan was scheduled to be repaid by December 31, 2023.
- Unusual items included $5.7 million of long-lived-asset impairment charges in 2022, related to an Australian village and a U.S. lodge, and $4.1 million of asset-retirement obligations for McClelland Lake. Total asset-retirement obligations were $18.1 million, including $4.6 million expected to be paid within one year.
- The company reported no cash dividends on common shares. The 2022 common-share repurchase authorization covered up to 5% of outstanding shares over 12 months; no shares were repurchased under that authorization by year-end.
Important facts for investors to verify
- Progress on McClelland Lake asset disposition or redeployment, the related contract expiration and the 2023 remediation cash costs.
- 2023 room commitments, occupancy and contract renewals, particularly at major Canadian lodges and Australian villages.
- Whether pricing and contract escalators offset inflation in labor, food, fuel and utilities, and how segment margins develop.
- Debt repayment, covenant headroom, floating-rate exposure and liquidity as the term loan comes due.
- Assumptions underlying the $25–$30 million capital-spending outlook and management’s expectation of adequate 12-month liquidity.
- Foreign-currency translation effects, deferred-tax-asset valuation allowances and the potential for further impairments.
The consolidated financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The auditor identified deferred-tax-asset realizability as a critical audit matter.