Civeo Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts are U.S. dollars; financial figures are in millions unless stated otherwise. Civeo provides lodging, catering and related services to natural-resource customers in Canada, Australia and the U.S.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $178.8 | $185.0 | $346.4 | $350.6 |
| Operating income | $10.2 | $14.2 | $6.3 | $18.5 |
| Net income (loss) attributable to Civeo common shareholders | $4.5 | $9.1 | ($1.9) | $10.0 |
| Diluted EPS | $0.30 | $0.54 | ($0.13) | $0.60 |
| Operating margin | 5.7% | 7.7% | 1.8% | 5.3% |
Q2 revenue declined 3% year over year; operating income fell 29%. Six-month revenue declined 1%, while operating income fell 66%. The six-month results included $2.9 million of other income, principally gains on asset sales. Q2 interest expense was $3.6 million versus $2.6 million; six-month interest expense was $7.3 million versus $5.1 million. Income tax expense was $2.9 million in Q2 and $4.1 million for the half; management attributed the unusually high six-month effective rate (209%) in part to excluding Canada and the U.S., which were loss jurisdictions, from the annual effective tax-rate calculation.
Segment trends: Q2 Canada revenue declined 12% to $95.5 million and gross margin fell to 24.7% from 31.2%. Six-month Canada revenue declined 10% and gross margin fell to 21.2% from 26.7%, reflecting weaker lodge and mobile-asset activity, inflationary costs and currency effects. Q2 Australia revenue increased 22% to $82.5 million, while gross margin edged down to 29.1% from 29.7%; six-month revenue increased 21%, but gross margin declined to 26.8% from 29.8%. Australian billed rooms increased, while service-mix and inflation pressured margins. A renegotiated material contract included an approximately $1.5 million adjustment recognized in Q2.
Cash flow, debt and liquidity
- Six-month operating cash flow was $19.8 million, down from $23.6 million. Capital expenditures were $11.7 million, compared with $8.6 million; investing cash outflow was $9.0 million.
- Cash was $11.4 million at June 30, 2023. Total debt was $135.7 million, versus $131.0 million at year-end 2022; reported borrowings before unamortized issuance costs were $136.1 million. Approximate net debt, using reported total debt less cash, was $124.2 million.
- Total available liquidity was $89.0 million, including $77.6 million of unused revolver availability. The $200 million revolving facility matures September 2025; the C$100 million term loan is scheduled to be fully repaid by December 31, 2023. Civeo reported compliance with its debt covenants at quarter-end.
- Debt is floating-rate. Average rates for the first half were 7.9% on the Canadian term loan and 8.0% on the Canadian revolver. Management estimated a 100-basis-point rate increase would raise annual interest expense by approximately $1.4 million.
- Civeo repurchased 380,900 shares for $8.0 million in the first half. The share-repurchase program authorized in August 2022 was due to expire in August 2023.
Outlook, commentary and risks
- Management forecast 2023 capital expenditures of $35–$40 million, including $10 million for Australian village enhancements expected to be reimbursed by a customer. The company expects to fund spending with cash, operating cash flow and revolver borrowings, and said cash and operating cash flow should meet anticipated needs for the next 12 months.
- Demand remains sensitive to commodity prices and customer spending. Management cited uncertainty in oil, metallurgical coal and iron ore markets, inflation, labor shortages, supply-chain pressures, interest rates, foreign exchange, geopolitical events and regulation as risks.
- The McClelland Lake Lodge land lease expired in June 2023 and its hospitality contract expired in July. Civeo said it would continue serving the customer at other owned lodges under a short-term take-or-pay commitment through January 31, 2024, with assets to be removed by February 1, 2024. The lodge generated approximately C$60 million of revenue in full-year 2022. Civeo was marketing the assets for sale or redeployment and said no commercially viable local reinstallation opportunity had been identified to date.
- Pipeline-related mobile-asset activity and Canadian lodge occupancy were lower. Civeo also noted completion of the sale of its U.S. Acadian Acres lodge assets in Q1 2023 and prior sales of its U.S. wellsite services and offshore businesses.
- Legal claims and proceedings are pending or threatened; management believes any ultimate liability, net of applicable insurance or indemnity, will not materially affect financial position, results or liquidity. Civeo reported effective disclosure controls and no material second-quarter changes in internal control over financial reporting.
Important facts for investors to verify
- Whether Canadian activity declines and the McClelland Lake Lodge transition affect future revenue, utilization, asset value or redeployment proceeds.
- Whether Australian occupancy growth can translate into improved margins despite inflation and the greater mix of service-only business.
- Progress on term-loan repayment, interest costs, covenant headroom and available liquidity under the floating-rate credit facilities.
- Actual 2023 capital expenditures and reimbursement timing for Australian village enhancements.
- Effects of currency movements and commodity-driven changes in customers’ operating and capital-spending plans.