Civeo Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unless otherwise stated, amounts are U.S. dollars. Civeo provides workforce accommodations and related services to natural-resource customers in Canada, Australia and the U.S.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $97.5m | $104.2m | $280.9m | $306.3m |
| Operating loss | $(21.3)m | $(49.0)m | $(52.4)m | $(81.2)m |
| Net loss attributable to Civeo | $(22.3)m | $(42.1)m | $(58.1)m | $(80.4)m |
| Loss per share, diluted | $(0.17) | $(0.39) | $(0.46) | $(0.75) |
- Q3 revenue declined 6%; nine-month revenue declined 8%. Lower Canadian rates and mobile, open-camp and product activity drove the decline. U.S. activity increased, while Australian Q3 revenue was roughly flat.
- Operating losses narrowed substantially, primarily because impairment expense fell to $4.4m in Q3 and the first nine months of 2017, from $37.7m and $46.1m, respectively, in comparable 2016 periods. The company remained loss-making.
- Segment gross margins: Canada was 32.1% in Q3 (31.2% prior year) and 31.1% for nine months (32.5%); Australia was 47.5% (51.4%) and 49.8% (51.6%); U.S. remained negative at (26.6)% ((30.9)%) and (23.6)% ((42.8)%).
- Cash from operations was $45.5m for nine months, versus $48.9m. Investing activities used $5.8m, including $8.0m of capital expenditures, versus $11.5m and $15.2m, respectively, in 2016.
- Cash was $54.0m at September 30, 2017, versus $1.8m at year-end 2016. Total available liquidity was $159.9m, including $105.9m of unused revolver availability; covenant limits restricted access to part of the stated commitments.
- Debt outstanding before unamortized issuance costs was $327.8m, down from $357.3m at year-end; reported carrying value was $324.2m. The company reported compliance with its financial covenants at September 30. Current assets exceeded current liabilities by approximately $72.2m.
- A February 2017 share offering issued 23m shares at $3.00 per share and raised net proceeds of $64.8m. The share count increased; 132.3m shares were outstanding at September 30.
Changes, outlook and risks
- Management expected full-year 2017 revenue and EBITDA to be materially below 2016; the filing gives no clear numeric revenue or EBITDA forecast. Expected 2017 capital expenditures were $12m–$15m, excluding unannounced or uncommitted projects.
- Management said customer activity may lag commodity-price improvements by 9–12 months and does not expect an immediate recovery. Demand depends significantly on oil and metallurgical coal prices, customer spending, and resource-project timing.
- The LNG Canada investment decision was delayed, with a decision then expected in the second half of 2018. Petronas and partners canceled the Pacific NorthWest LNG project in July 2017. About $75m of Canadian long-lived assets could support potential B.C. LNG projects; further project delays or cancellations could lead to additional impairment. Q3 impairment included $3.2m for Canadian leasehold improvements and $1.2m for undeveloped land.
- Canadian oil-sands activity remained pressured despite improved oil prices and pipeline approvals. Australian village demand was affected by lower Bowen Basin activity and expired take-or-pay contracts. U.S. activity rose with drilling, but that segment continued to report negative gross margins and incurred costs from an unforeseen contract cancellation.
- All $327.8m of debt outstanding was floating-rate; management estimated a 100-basis-point rate increase would raise annual interest expense by about $3.3m. A hypothetical 10% adverse currency move was estimated to generate translation adjustments of about $20m for the Canadian dollar and $47m for the Australian dollar in other comprehensive loss.
- Management believed available cash and operating cash flow would meet anticipated liquidity needs for the next 12 months, while noting additional capital might be needed if plans change or acquisitions are pursued. Pending legal matters were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether Canadian lodge rates, occupancy and mobile/open-camp activity stabilize, and whether Australian contract expirations continue to reduce revenue and margins.
- Actual customer commitments and timing for LNG Canada, pipeline and other projects; monitor impairment exposure against the disclosed approximately $75m asset base.
- Full-year revenue, EBITDA and capital spending against management’s outlook, alongside operating cash flow and available revolver capacity.
- Debt covenant headroom and refinancing needs ahead of the May 2019 credit-facility maturity, particularly given restricted borrowing availability and floating-rate exposure.
- U.S. segment progress toward positive margins, including the impact of drilling activity and contract cancellations.