Civeo Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Civeo provides workforce accommodation and hospitality services to natural-resources customers in Canada, Australia and the U.S. All dollar amounts below are U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $184.2 million | $155.1 million | $534.9 million | $434.7 million |
| Operating income (loss) | $10.8 million | $6.0 million | $29.3 million | $(1.8) million |
| Net income (loss) | $6.3 million | $1.0 million | $18.4 million | $(8.4) million |
| Net income (loss) attributable to common shareholders | $5.2 million | $0.1 million | $15.2 million | $(10.4) million |
| Diluted EPS | $0.32 | $0.00 | $0.91 | $(0.73) |
- Margins: Q3 Canadian gross margin was 29.3% (29.6% prior year); Australian margin was 27.7% (28.8%); U.S. margin was 1.7% (0.8%). Nine-month margins were 27.6% in Canada, 29.1% in Australia and 4.4% in the U.S.
- Cash flow: Nine-month operating cash flow was $62.4 million, versus $63.2 million. Investing activities used $5.3 million, including $17.5 million of capital expenditures and $12.0 million of asset-sale proceeds. Financing activities used $53.1 million, including $14.2 million of common-share repurchases.
- Debt and liquidity: Debt totaled $124.7 million net of issuance costs ($126.2 million before costs) at September 30, down from $173.2 million at December 31, 2021. Cash was $8.4 million; available liquidity was $117.3 million. The company reported compliance with its debt covenants.
- Other balance-sheet items: Total assets were $583.3 million, compared with $672.7 million at year-end 2021. The decline included currency translation effects and disposals. Preferred shares had a $98.9 million liquidation preference and accrued dividends in kind.
Changes and operating drivers
- Q3 revenue rose 19% year over year; nine-month revenue rose 23%. Growth primarily reflected higher Canadian lodge occupancy and rates, increased Canadian pipeline-related mobile-asset activity, and higher activity at Australian villages and integrated-services sites. Weaker Canadian and Australian currencies reduced reported revenue.
- Operating income improved substantially, including the nine-month comparison with 2021, which included a $7.9 million Australian asset impairment. Q3 other income included gains on asset sales; nine-month other income was lower year over year partly because 2021 included $3.5 million of Canadian wage subsidies.
- Foreign-currency translation losses were $20.7 million in Q3 and $32.8 million for the first nine months, weighing on comprehensive income and equity.
- The company sold its U.S. wellsite-services business on September 1, 2022, and recorded certain U.S. assets and liabilities as held for sale. During Q3 it also repurchased shares, including 374,753 shares directly from a shareholder for approximately $10.7 million.
Outlook, risks and contingencies
- Management expected 2022 capital expenditures of approximately $24 million to $29 million, subject to customer commitments, project approvals and timing. No specific revenue or earnings guidance is provided in the filing text.
- Management said available cash and operating cash flow should cover anticipated liquidity needs for the next 12 months. It also identified potential future capital needs, including acquisitions, lodge relocation, and possible debt or equity financing.
- Key sensitivities include commodity prices and customer spending; inflation and labor and food costs; Australian hospitality labor availability; foreign exchange; and floating interest rates. A 100-basis-point increase in rates was estimated to add about $1.3 million to annual interest expense. A hypothetical 10% adverse currency move in either the Canadian or Australian dollar could produce approximately $23 million of translation loss for each currency.
- The McClelland Lake Lodge lease in Alberta expires in June 2023 and will not be renewed. Relocation depends on securing an alternative site and an economically adequate customer contract; management expected greater clarity in the first half of 2023. Coastal GasLink and related LNG construction timing could also affect contract revenue.
- The company faces pending and threatened claims, but management did not expect any ultimate liability, net of applicable insurance or indemnity, to materially harm its financial position, results or liquidity. The preferred-share dividend was paid in kind; management expected this approach to continue until mandatory conversion in April 2023.
Important facts for investors to verify
- Whether growth and activity levels persist, particularly in Canadian mobile assets and Australian integrated services, and whether inflation and labor costs constrain margins.
- Execution and economics of the McClelland Lake Lodge relocation, and timing of LNG/pipeline work and remaining asset dispositions.
- Debt reduction, covenant headroom and liquidity under changing rates, currencies and commodity conditions.
- The impact of the 2023 preferred-share conversion and share repurchases on common-share count and shareholder returns.