Civeo Corporation — Q1 2017 Form 10-Q
Business context and reporting period. Civeo provides workforce accommodation, logistics and facility-management services to natural-resource industries, primarily in Canada, Australia and the United States. This unaudited report covers the three months ended March 31, 2017; amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $91.4 million | $95.0 million; down 3.8% |
| Operating loss | $17.7 million | $26.2 million loss |
| Net loss attributable to Civeo | $21.0 million; $0.17 per diluted share | $26.8 million; $0.25 per diluted share |
| Operating cash flow | $9.8 million | $11.3 million |
| Capital expenditures | $3.9 million | $4.8 million |
| Cash and cash equivalents | $27.1 million at March 31 | $1.8 million at December 31, 2016 |
| Total debt | $316.5 million gross; $312.0 million net of unamortized issuance costs | $357.3 million gross at December 31, 2016 |
| Total available liquidity | $199.8 million | $166.3 million at December 31, 2016 |
Net loss narrowed year over year, primarily because Q1 2016 included an $8.4 million U.S. asset impairment that did not recur. Lower revenue and higher net interest expense partly offset that improvement. Operating cash flow was positive but below the prior-year quarter, mainly due to working-capital movements.
Canada generated $60.5 million of revenue, down 8%; lodge occupancy rose to 72% from 60%, while average daily rate fell to $97 from $111 and mobile/open-camp/product revenue declined. Australia revenue increased 6% to $27.0 million, helped by currency translation and Western Australia occupancy, while village occupancy fell to 42% from 47%. U.S. revenue was $3.9 million; the segment continued to report a negative gross margin, though its loss narrowed.
Segment gross margin was 28.5% in Canada versus 27.1% a year earlier, and 50.4% in Australia versus 50.9%. Consolidated operating margin and EBITDA are not directly stated as margin measures in the filing; the reported consolidated result was an operating loss.
Material changes, financing and unusual items
- In February, Civeo issued 23 million shares at $3.00 each, receiving net proceeds of $64.8 million. It used part of the proceeds to repay revolving-credit borrowings; the offering increased shares outstanding.
- A February credit-agreement amendment reduced revolving commitments by $75 million, to $275 million, changed leverage-based pricing and revised the permitted leverage covenant schedule. At March 31, $172.7 million of revolver capacity was unused, but $100.9 million of borrowing capacity was unavailable to maintain covenant compliance. Civeo reported compliance with its covenants, including the 5.25-to-1 maximum leverage ratio then applicable and 3.0-to-1 minimum interest coverage ratio.
- Debt matures May 28, 2019 and is secured by substantially all company and subsidiary assets. Outstanding borrowings are floating-rate; a 100-basis-point rate increase was estimated to raise annual interest expense by approximately $3.2 million.
- Foreign-currency translation contributed $18.0 million of other comprehensive income. Management disclosed that a hypothetical 10% adverse move in the Canadian and Australian dollars would result in translation adjustments of approximately $23 million and $47 million, respectively.
Outlook, commentary and risks
- Management expects full-year 2017 revenue and EBITDA to be materially below 2016, despite improving oil and met-coal prices; it expects customer spending to lag commodity-price improvements, potentially by nine to 12 months.
- 2017 capital expenditures are forecast at $15 million to $18 million, excluding unannounced or uncommitted projects. Management expects available cash, operating cash flow and revolver borrowings to fund planned spending and says liquidity should meet anticipated needs for the next 12 months.
- The Cedar Valley Lodge project in Kitimat depends on LNG Canada’s positive final investment decision, which had been delayed indefinitely. Sitka Lodge room use was expected to continue through September 2017 under the existing contract, with an extension under discussion. If projects do not proceed or contracts are not extended, Canadian assets could face impairment.
- Key business sensitivities include oil, met-coal and natural-gas prices; customer capital spending and occupancy; foreign exchange; interest rates; and covenant-limited borrowing availability. Legal claims and proceedings are pending, but management believes any ultimate liability not covered by insurance or indemnity will not materially affect the company.
Most important facts for investors to verify
- Whether operating performance and customer activity support management’s expectation of materially lower 2017 revenue and EBITDA.
- Actual covenant headroom and borrowing availability, given the $100.9 million capacity reduction and 2019 debt maturity.
- Progress on LNG Canada’s final investment decision, Sitka Lodge contract extensions and potential Canadian asset impairment.
- Occupancy, room rates and customer activity trends in Canada and Australia, including the persistence of met-coal price gains.
- Effects of the share offering on dilution, and sensitivity of results to floating interest rates and Canadian- and Australian-dollar movements.