Civeo Corporation — Q1 2023 Form 10-Q
Business and period: Civeo provides lodging, catering and related hospitality services to natural-resource companies in Canada, Australia and the U.S. The filing covers the three months ended March 31, 2023; comparative figures are for Q1 2022. Amounts below are U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $167.6 million | $165.7 million |
| Operating income (loss) | $(3.9) million | $4.2 million |
| Net income (loss) attributable to Civeo common shareholders | $(6.4) million | $0.9 million |
| Diluted EPS | $(0.42) | $0.06 |
| Cash from operations | $0.4 million | $2.0 million |
| Capital expenditures | $4.8 million | $3.6 million |
- Revenue increased 1%. Costs of sales and services rose 6% to $133.5 million, and total operating costs and expenses increased 6% to $171.5 million. Approximate gross margin on services and sales was 20.3%, down from 24.1%; operating margin was negative 2.3%, versus positive 2.6%.
- Interest expense was $3.7 million, up from $2.5 million, primarily reflecting higher interest rates. Other income was $2.5 million, including a higher gain on asset sales, principally the Acadian Acres accommodation assets.
- At March 31, cash was $12.4 million and total debt was $141.9 million, up from $131.0 million at year-end. Net debt was approximately $129.6 million. Total available liquidity was $90.6 million, including $78.2 million of unused credit availability.
- Current assets were $158.6 million and current liabilities were $103.2 million. Operating cash flow was modest, with working-capital outflows of $15.6 million.
Changes and segment performance
- Canada revenue declined 7% to $89.5 million. Lower mobile-asset activity and lower lodge average daily rates outweighed higher billed lodge rooms; Canadian gross margin fell to 17.4% from 21.6%.
- Australia revenue increased 21% to $77.0 million, driven by higher village occupancy and integrated-services activity. Higher operating costs and a greater share of lower-margin services reduced gross margin to 24.3% from 29.9%.
- Consolidated revenue growth was offset by inflation-driven labor and operating costs, lower Canadian mobile activity and weaker Canadian and Australian currencies against the U.S. dollar. Depreciation and amortization also increased, partly because useful lives were shortened for certain Canadian assets, including McClelland Lake Lodge.
- During Q1, Civeo repurchased 168,656 shares for $3.8 million. The U.S. segment was no longer separately reportable and is included in Corporate, other and eliminations; comparative segment presentation was revised.
Outlook, risks and contingencies
- Management expects 2023 capital expenditures of $45–$50 million, versus $25.4 million in 2022. The approximately $20 million increase relates to Australian village enhancements for which the customer is expected to reimburse Civeo, making the spending net neutral to cash flow. The forecast may change with customer commitments, industry conditions and project timing.
- Management said available cash and operating cash flow should meet anticipated liquidity needs for the next 12 months. The C$100 million term loan was scheduled to be fully repaid by December 31, 2023; the $200 million revolving facility matures September 8, 2025. Civeo was in compliance with its debt covenants at quarter-end.
- McClelland Lake Lodge’s land lease and hospitality contract expire in June 2023. Civeo does not currently see a commercially viable local redeployment option and is marketing the assets for sale or redeployment; 2022 revenue associated with the lodge was approximately C$60 million. Failure to find an economic alternative could affect asset value and results.
- Key business sensitivities include commodity prices and customer spending, inflation and labor availability, interest rates, and currency movements. A 100-basis-point increase in floating rates was estimated to raise annual interest expense by about $1.4 million. Management estimated that a 10% adverse currency move could result in translation losses recorded in other comprehensive loss of approximately $17 million for the Canadian dollar and $22 million for the Australian dollar.
- The filing describes pending or threatened legal claims but says management does not expect resulting liabilities, net of provisions, indemnities or insurance, to have a material adverse effect. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether Australian revenue growth can translate into improved margins as inflation and the integrated-services mix affect costs.
- Progress on sale or redeployment of McClelland Lake Lodge assets and the financial impact after the June 2023 contract and lease expirations.
- Whether the customer-reimbursed Australian enhancements proceed as planned and whether the $45–$50 million capital-spending forecast changes.
- Debt reduction, repayment of the term loan by year-end, revolving-facility availability and covenant headroom amid higher borrowing costs.
- Customer activity and commodity-market developments in Canada and Australia, including pipeline-project timing and exchange-rate effects.