Civeo Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars. Civeo provides lodging, catering, facilities management and related services to the natural-resources industry, principally in Canada and Australia.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $183.6M | $184.2M | $530.0M | $534.9M |
| Operating income | $16.0M | $10.8M | $22.3M | $29.3M |
| Operating margin | 8.7% | 5.9% | 4.2% | 5.5% |
| Net income attributable to Civeo common shareholders | $9.0M | $5.2M | $7.1M | $15.2M |
| Diluted EPS | $0.61 | $0.32 | $0.47 | $0.91 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $56.6M | $62.4M |
- Q3 revenue was essentially flat year over year. Higher Australian activity largely offset lower Canadian mobile-facility activity and reduced U.S. operations following business sales. Q3 operating income rose 49%, helped by Australian activity and lower depreciation and amortization.
- For the first nine months, revenue fell 1% and operating income fell 24%. Common-shareholder net income declined to $7.1M from $15.2M, reflecting lower operating income, higher interest expense and lower gains on asset sales.
- Q3 Canadian revenue declined 8% to $95.1M; Australian revenue increased 19% to $87.9M. Nine-month Canadian revenue declined 9% to $280.1M, while Australian revenue rose 21% to $247.4M. Australian growth reflected higher village occupancy and integrated-services activity; Canadian results were pressured by weaker mobile-asset activity and fewer lodge billed rooms.
- Gross margin percentage for the first nine months declined in both Canada (24.4% versus 27.6%) and Australia (27.1% versus 29.1%), with inflation and changes in activity and service mix among the cited factors.
Balance sheet, cash flow and capital allocation
- At September 30, 2023, cash was $7.8M and total debt was $103.0M, compared with $131.0M at December 31, 2022. The debt was floating-rate. Available liquidity, including unused revolver capacity, was $110.6M.
- Current assets were $190.6M and current liabilities $125.3M. Accounts receivable rose to $153.9M from $119.8M at year-end; the filing attributes working-capital movements partly to timing and customer payments.
- Nine-month capital expenditures were $21.2M. Investing cash use was $14.1M, including $7.1M in asset-sale proceeds. Financing cash use was $42.0M, including $22.3M of term-loan repayments, $9.2M of share repurchases, $6.7M of net revolver repayments and $3.7M of dividends.
- The company paid a quarterly dividend of $0.25 per common share in September and authorized a new share-repurchase program covering up to 5% of outstanding shares over 12 months.
- The $200M revolving credit facility matures in September 2025; the C$100M term loan was scheduled to be fully repaid by December 31, 2023. Civeo reported compliance with its debt covenants at quarter-end.
Outlook, commentary and risks
- Management forecast 2023 capital expenditures of approximately $35M–$40M, including $10M of Australian village enhancements expected to be reimbursed by a customer. It said cash on hand and operating cash flow should meet anticipated liquidity needs for the next 12 months.
- Civeo agreed to sell its McClelland Lake Lodge assets for approximately C$49M (about US$36M), subject to customary closing conditions, with completion expected before January 31, 2024. The lodge’s land lease and hospitality contract ended in 2023. Civeo recorded $4.9M of demobilization costs in Q3 and received $9.1M in sale-related cash proceeds; remaining costs and sale proceeds were expected in Q4 2023 and Q1 2024.
- Management cited commodity-price uncertainty, customer spending changes, inflation, labor shortages, supply-chain disruption, foreign-exchange movements and interest-rate increases as risks. A 100-basis-point rise in floating rates would increase annual interest expense by approximately $1.0M, based on quarter-end debt and rates.
- The company expects most contracted commitments tied to the CGL pipeline project to be completed in Q4 2023, but construction delays could extend them. Management also noted uncertainty in commodity markets and potential effects on customer production and investment.
- Pending or threatened legal and administrative matters were described; management believes their ultimate effect, net of applicable provisions, insurance or indemnities, will not materially affect financial position, results or liquidity. Disclosure controls were assessed as effective at the reasonable-assurance level.
Most important facts for investors to verify
- Whether the McClelland Lake Lodge sale closes on schedule and the timing and amount of remaining proceeds and demobilization costs.
- Whether Australian occupancy growth can continue while cost inflation and service mix weigh on segment margins.
- Whether Canadian mobile-asset and lodge activity recovers, including the timing of pipeline-related work.
- Progress on repaying the term loan and maintaining covenant compliance amid floating-rate exposure; confirm the term-loan repayment status after the stated December 31, 2023 maturity.
- Whether operating cash flow, working-capital movements and the $35M–$40M capital-spending plan support dividends and repurchases without additional borrowing.