Civeo Corporation — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing also reports unaudited quarterly results. Unless indicated otherwise, financial figures are U.S. dollars. The 2014 annual comparison combines five months of Oil States’ historical accommodations business with seven months of Civeo as a standalone company, so it is not fully comparable.
Business context
Civeo provides remote workforce accommodations, catering, logistics and facility management to natural-resource customers, principally in Canada and Australia, with smaller U.S. operations. Its lodge and village facilities generate more than three-quarters of revenue and are commonly supported by take-or-pay contracts. In July 2015, Civeo redomiciled from Delaware to British Columbia, Canada.
Financial and operating performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $518.0 million | $942.9 million |
| Operating income (loss) | $(145.0) million | $(142.9) million |
| Net income (loss) attributable to Civeo | $(131.8) million | $(189.0) million |
| Diluted loss per share | $(1.24) | $(1.77) |
| Cash from operating activities | $186.1 million | $291.1 million |
| Capital expenditures | $62.5 million | $251.2 million |
- Revenue fell 45%, mainly from lower occupancy and room rates in Canada and Australia, lower U.S. activity, and weaker Canadian and Australian currencies. Canada produced $344.2 million of revenue, Australia $136.0 million, and the U.S. and other $37.8 million.
- Lodge and village occupancy declined to 58% from 78%; average daily rate fell to $100 from $125. Canada occupancy was 60% and its rate $121, versus 85% and $146 in 2014. Australia occupancy was 56% and its rate $74, versus 68% and $94.
- Segment gross margins declined: Canada 33.0% from 39.2%; Australia 55.4% from 58.0%; and U.S. 3.8% from 21.9%.
- Operating cash flow decreased 36%. Working capital provided $67.1 million, including a substantial reduction in accounts receivable; therefore, reported operating cash flow included a material working-capital benefit.
- Cash and cash equivalents were $7.8 million at year-end, down from $263.3 million. Total assets were $1.071 billion and shareholders’ equity was $563.8 million.
Debt, liquidity and shareholder returns
- Year-end debt was $401.6 million, including $349.5 million of term loans and $52.0 million drawn under revolving facilities. The company reported $5.1 million of outstanding letters of credit.
- Reported unused revolver availability was $196.2 million after $121.7 million of covenant-related availability reductions. Including cash, stated available liquidity was $204.1 million.
- Civeo reported compliance with its credit-facility covenants at December 31, 2015: minimum interest coverage of 3.0x and maximum leverage of 4.0x for that period. A February 2016 amendment revised pricing and covenant terms, reduced commitments, and added a cash-triggered mandatory revolver repayment provision.
- The facility is secured by substantially all company and subsidiary assets, matures in May 2019, and has floating rates. Management estimated that a 1 percentage-point rate increase would add about $4.0 million of annual interest expense based on year-end debt.
- The $0.13 quarterly dividend was suspended in December 2014 and was not paid in 2015. Debt covenants restrict dividends.
Changes, outlook and material items
- Demand weakened amid low oil, oil-sands and metallurgical-coal prices, customer spending cuts, project delays and lower resource-sector activity. Management expected these pressures to continue into 2016, including lower Canadian oil-sands and Australian village occupancy. No specific 2016 revenue or earnings guidance is provided.
- Management forecast approximately $30 million of 2016 capital expenditures, excluding unannounced or uncommitted projects, compared with $62.5 million in 2015.
- 2015 impairment expense totaled $122.9 million: $43.2 million of Canadian goodwill and approximately $79.7 million of long-lived and intangible assets. Goodwill was fully impaired by September 2015. Further impairments remain possible if commodity prices, occupancy or cash-flow assumptions worsen.
- The new 436-room Sitka Lodge in British Columbia was built to serve LNG Canada’s proposed project; most rooms were contracted, but future demand depends on the project proceeding. Civeo cautioned that project delays or cancellation could harm results and asset values.
- Currency translation remained a significant headwind: 93% of 2015 revenue originated outside the U.S. The Canadian and Australian dollars weakened against the U.S. dollar, and 2015 other comprehensive loss included a $168.4 million foreign-currency translation loss.
- Other unusual items included $7.0 million of redomicile costs and a $1.5 million debt-issuance-cost write-off. The company also recorded in 2015 an $11.9 million impairment relating to assets it said should have been impaired in 2014; it judged the prior-period error immaterial. A $3.6 million foreign-currency gain recorded in Q4 was likewise identified as relating to Q3 and deemed immaterial to that quarter.
- Quarterly Q4 2015 revenue was $97.3 million, gross profit $31.8 million and attributable net loss $10.6 million. Q4 2014 revenue was $219.7 million and attributable net loss $271.6 million, which included substantial impairment charges.
- On February 24, 2016, Civeo disclosed receiving an NYSE notice because its 30-trading-day average share price was below $1.00. It had six months to regain compliance or face possible suspension and delisting.
- Key risks include commodity-price and customer-spending exposure, customer concentration, contract renewals and cancellations, foreign exchange, debt covenant and refinancing capacity, environmental and climate regulation, lease renewals, and Canadian/U.S. tax treatment of the redomicile. Pending legal matters were not expected by management to have a material adverse effect. The filing reports no off-balance-sheet arrangements.
- Management and the auditor reported effective internal controls at year-end. A material weakness identified during 2015 concerning depreciable lives for asset-retirement-obligation assets was stated to have been remediated.
Investor facts to verify
- Current borrowing availability, covenant calculations and headroom under the February 2016 amended credit facility, including the cash-sweep provision.
- Contract renewals, cancellations and actual room commitments for 2016–2017, as well as customer credit quality and concentration.
- Whether LNG Canada and other proposed LNG projects reach final investment decisions and sustain Sitka Lodge utilization.
- Assumptions and sensitivity behind the 2015 asset impairments, and the risk of additional write-downs in weak commodity and occupancy conditions.
- NYSE listing compliance status, progress on the share-price cure period, and any consequences for financing or trading liquidity.
- Tax consequences and potential challenges related to the Canadian redomicile, deferred tax assets, and foreign tax credits.