Civeo Corporation — Q2 2020 Form 10-Q
Business context and reporting period. Civeo provides lodging, catering and related services to natural-resource industries in Canada, Australia and the U.S. This unaudited filing covers the quarter and six months ended June 30, 2020; all amounts are U.S. dollars.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $114.7 million | $122.2 million | $253.5 million | $230.7 million |
| Operating income (loss) | $(1.8) million | $(12.1) million | $(150.9) million | $(29.9) million |
| Net income (loss) | $6.8 million | $(14.8) million | $(139.0) million | $(31.9) million |
| Net income (loss) attributable to common shareholders | $6.1 million; $0.03/share | $(15.3) million; $(0.09)/share | $(140.4) million; $(0.83)/share | $(32.8) million; $(0.20)/share |
| Operating cash flow | Not separately reported | Not separately reported | $45.3 million | $10.0 million |
| Capital expenditures | Not separately reported | Not separately reported | $3.8 million | $21.2 million |
- Q2 gross margin as a percentage of segment revenue was 19.9% in Canada, 38.8% in Australia and negative 23.9% in the U.S. The filing does not provide a consolidated gross-margin percentage or consolidated EBITDA.
- At June 30, cash was $7.3 million; total debt was $299.5 million before $1.5 million of unamortized issuance costs. Current debt was $33.5 million and long-term debt, net of current maturities, was $264.5 million.
- Available liquidity was $166.2 million, comprising $158.9 million of unused revolver availability and $7.3 million of cash. Current assets were $117.9 million and current liabilities $99.5 million.
- Total assets were $734.6 million, down from $969.9 million at year-end 2019, largely reflecting impairment charges. Total shareholders’ equity was $334.2 million.
Material changes versus comparable periods
- Q2 revenue fell 6% year over year: Canada declined 32% and the U.S. declined 64%, partly offset by an 84% increase in Australia, including the Action acquisition. For the first half, revenue grew 10%, principally due to Action and higher Australian activity.
- Canadian oil-sands lodge billed rooms fell 45% in Q2. Lower occupancy and activity from COVID-19 and weak oil prices weighed on Canada and the U.S.; Australian village occupancy held up, with higher Bowen Basin activity.
- First-half impairment expense was $144.1 million: $93.6 million for Canadian goodwill, $38.1 million for Canadian long-lived assets and $12.4 million for U.S. long-lived assets. Canadian goodwill was written down to zero.
- Q2 earnings included $12.6 million of other income, including $6.2 million from Canada’s Emergency Wage Subsidy and $4.7 million from settlement of a Noralta acquisition claim. These items helped produce quarterly net income despite an operating loss.
- Six-month operating cash flow rose to $45.3 million from $10.0 million, primarily reflecting working-capital movements, including lower Canadian receivables. Cash from investing activities was $2.7 million; financing activities used $43.6 million, including net revolver and term-loan repayments.
- Net interest expense declined year over year in both the quarter and half-year, attributed to lower average debt and interest rates. Segment gross margins weakened in Canada, Australia and the U.S. versus the prior-year periods.
Outlook, commentary and risks
- Management expected approximately $15 million of 2020 capital expenditures, excluding contract-dependent expansion projects, versus $29.8 million in 2019. Spending plans could change with market conditions, COVID-19 impacts, approvals and customer commitments.
- Management said cash on hand and operating cash flow should cover anticipated liquidity needs for the next 12 months, while noting that changed assumptions, COVID-19, oil-market weakness or acquisitions could require additional capital. The company reported compliance with debt covenants at June 30, 2020.
- The credit agreement matures November 30, 2021. The maximum leverage covenant was 3.75:1 through September 2020 and falls to 3.50:1 from December 2020; the minimum interest coverage ratio is 3.0:1. Some Canadian loans totaling $27.1 million had November 2020 maturities; management said it intended and was able to refinance them under the existing facility.
- Key exposures include sustained low oil prices and customer spending, COVID-19-related disruptions, lodge occupancy, commodity demand, and Canadian- and Australian-dollar translation. A 100-basis-point increase in rates was estimated to add about $3.0 million to annual interest expense. A hypothetical 10% adverse currency move would result in translation adjustments of about $10 million for the Canadian dollar and $35 million for the Australian dollar.
- Management reduced 2020 capital-spending plans by about 25%, reduced North American headcount by approximately 25% from March through June, and implemented 10%–20% salary and compensation reductions for the board, executive leadership and other senior management. It also cited enhanced sanitation, screening and other measures at facilities.
- Management reported no material expected adverse effect from pending claims and proceedings, while noting outcomes cannot be assured. The company reported effective disclosure controls as of June 30, 2020.
Important facts for investors to verify
- Whether Canadian oil-sands occupancy and U.S. activity recover, and how persistent COVID-19 and commodity-price effects are.
- How much Q2 profitability depended on the wage subsidy, acquisition-claim settlement and other unusual income, and whether these amounts recur.
- Whether the $15 million capital-spending outlook and management’s 12-month liquidity assessment remain achievable under operating and working-capital stress.
- Debt refinancing and covenant headroom ahead of the 2020 loan maturities and November 2021 facility maturity, including the lower leverage limit from year-end 2020.
- The assumptions supporting the first-quarter impairment valuations and the risk of further impairments if commodity prices, customer spending or expected cash flows weaken.
- Impact of Action’s service-focused revenue mix on Australian margins, and the status of preferred-share dividends, which were paid in kind and increase the liquidation preference.