Civeo Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparative period is Q1 2019. Amounts are U.S. dollars. Civeo provides lodging, catering and related services to the natural resources industry through its Canada, Australia and U.S. segments.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $138.8 million | $108.6 million |
| Gross profit and margin | $35.5 million; 25.6% | $28.9 million; 26.6% |
| Operating loss | $149.1 million | $17.9 million |
| Net loss attributable to common shareholders | $146.5 million; $0.87 per share | $17.5 million; $0.11 per share |
| Cash from operations | $20.8 million | $6.3 million |
| Capital expenditures | $2.7 million | $9.7 million |
The operating and net losses included $144.1 million of impairment charges: $93.6 million for Canadian goodwill, $38.1 million for Canadian long-lived assets and $12.4 million for U.S. long-lived assets. Civeo reported $8.8 million of income tax benefit. Foreign currency translation contributed a $48.5 million other comprehensive loss.
Balance sheet and liquidity
- At March 31, 2020, cash was $5.6 million; total debt was $313.1 million, down from $356.9 million at December 31, 2019. Debt is predominantly floating-rate and secured by substantially all company and subsidiary assets.
- Total available liquidity was $149.6 million, including $144.0 million of unused revolving capacity. Total assets were $719.5 million and shareholders’ equity was $296.9 million.
- Debt maturities include a Canadian term loan and revolving loans due in 2020; the principal credit facilities mature November 30, 2021. The company said it intended and was able to refinance the 2020 maturities under its existing facility.
- Cash used in financing was $15.6 million, primarily from net revolving-credit repayments and term-loan repayments. Cash and equivalents ended the quarter at $5.6 million.
Material changes and operating trends
- Revenue increased 28% year over year. Canada revenue rose 19%, supported by higher activity at oil-sands lodges, Sitka Lodge and mobile facilities. Australia revenue rose 73%, largely reflecting the 2019 Action acquisition and stronger Bowen Basin activity. U.S. revenue fell 23% amid lower activity.
- Canada’s segment gross margin improved to 19% from 18%; Australia’s declined to 40% from 47%, partly because Action’s service-only model has lower margins. U.S. gross margin fell to 8% from 25%.
- Overall gross margin declined to 25.6% from 26.6%. Lower SG&A and depreciation partially offset higher operating costs; impairment charges drove the substantially larger operating loss.
- Debt decreased by $44.2 million during the quarter, including a $30.0 million translation reduction. Canadian and Australian currency depreciation also reduced reported results and equity.
Outlook, risks and unusual items
- Management cited COVID-19 disruption and the collapse in oil demand and prices as material risks. It expected oil prices to remain low through 2020, with adverse pressure on customer spending and Canadian occupancy. Sitka Lodge occupancy was expected to remain reduced at least through Q2 following LNG Canada’s workforce reduction. The company had not seen a COVID-related occupancy decline at its Australian villages as of the filing.
- Management expected 2020 capital expenditures, excluding expansionary spending, of approximately $15 million, versus $29.8 million in 2019; plans remained subject to change.
- Cost measures included 10%–20% compensation reductions for directors and senior management, a 25% North American headcount reduction in March and April, and reduced planned capital spending.
- Civeo was in compliance with its debt covenants at March 31, but said it was likely to breach the leverage covenant, particularly for the period ending December 31, 2020, when the permitted maximum leverage ratio tightens to 3.50:1. Management believed it was probable it could obtain an amendment, waiver or replacement financing for the following 12 months, but gave no assurance. A default could eliminate further borrowing access and allow lenders to accelerate secured debt.
- Other stated risks include commodity-price and customer-activity exposure, foreign-exchange movements, COVID-19 effects, and reliance on refinancing. A 100-basis-point increase in floating rates would raise annual interest expense by about $3.1 million. The company reported no off-balance-sheet arrangements and said pending legal matters were not expected to materially affect financial position, results or liquidity.
Investor facts to verify
- Whether Civeo obtained covenant relief or replacement financing, and the revised covenant terms and 2020 maturity arrangements.
- Subsequent oil-sands and U.S. activity, lodge occupancy, and the duration and financial effect of COVID-related reductions, especially at Sitka Lodge.
- Whether the $15 million capital-expenditure outlook and cost-reduction measures were maintained or revised.
- Assumptions behind the impairment tests and whether further asset or goodwill impairments were recorded.
- How foreign-exchange changes and floating-rate debt affect reported earnings, equity and liquidity.