Market Overview

Civeo Reports Third Quarter 2019 Results

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Civeo Corporation (NYSE:CVEO) today reported financial and operating results for the third quarter ended September 30, 2019.

Highlights include:

  • Reported third quarter revenues of $148.2 million, net income of $4.5 million and operating cash flow of $23.6 million
  • Delivered third quarter Adjusted EBITDA of $36.2 million, up 62% year-over-year, and free cash flow of $20.3 million
  • Reduced leverage ratio from 4.26x as of June 30, 2019 to 3.52x as of September 30, 2019
  • Completed strategic acquisition of Action Industrial Catering ("Action") on July 1, 2019, expanding the Company's presence in both the Integrated Services and Western Australian markets
  • Completed an amendment and extension to its entire credit agreement to, among other things, extend the maturity date of the revolving commitments and term loan commitments for the majority of lenders by twelve months to November 30, 2021, and preferentially adjust the permitted leverage ratio to provide the Company more financial flexibility through the maturity of the agreement
  • Today announced contract extensions from two major customers in Australia with expected contracted revenues of approximately A$37 million

"The third quarter results demonstrated the diverse activity drivers and operating leverage of our lodge and village operations in our Canadian and Australian segments. In Australia, strong customer metallurgical coal margins continue to drive improved performance and growing contract coverage at our villages. We also benefited from the contributions of the recently completed Action acquisition. In British Columbia, our newly expanded Sitka Lodge is benefiting from LNG-related construction activity. Finally, we experienced strong seasonal turnaround and maintenance activity in the Canadian oil sands. The sequentially improved Adjusted EBITDA coupled with lower expansionary capital expenditures allowed us to reduce our aggregate leverage this quarter, as well as significantly reduce our leverage ratio. We were also very pleased to complete the amendment and extension to our credit agreement and appreciate the continued support of our key bank relationships as well as one new lender," stated Bradley J. Dodson, Civeo's President and Chief Executive Officer.

Mr. Dodson added, "We generated improved year-over-year revenue and Adjusted EBITDA, up 23% and 62%, respectively. The significant year-over-year improvement is primarily due to increased Bowen Basin activity in Australia, strong turnaround activity in the Canadian oil sands and the contribution from our newly-expanded Sitka Lodge supporting LNG activity in British Columbia. This improvement was partially offset by lower occupancy and decreased drilling and completion activity in the U.S."

Mr. Dodson concluded, "We are encouraged by the Company's achievements this quarter and we will continue to focus on operational execution, revenue diversification, free cash flow generation, deleveraging our balance sheet and winning new work as opportunities present themselves."

Third Quarter 2019 Results

In the third quarter of 2019, Civeo generated revenues of $148.2 million and reported net income of $4.5 million, or $0.02 per diluted share. During the third quarter of 2019, Civeo produced operating cash flow of $23.6 million, Adjusted EBITDA of $36.2 million and free cash flow of $20.3 million.

Overall, the third quarter of 2019 outperformed the third quarter of 2018 due to stronger results in Canada and Australia coupled with a reduction in SG&A in part related to $2.0 million in professional fees incurred in 2018.

By comparison, in the third quarter of 2018, Civeo generated revenues of $120.5 million and reported a net loss of $14.3 million, or $0.09 per diluted share, which included roughly $2.0 million in professional fees. During the third quarter of 2018, Civeo generated operating cash flow of $11.9 million, Adjusted EBITDA of $22.4 million and free cash flow of $9.8 million.

(EBITDA is a non-GAAP financial measure that is defined as net income plus interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA adjusted to exclude impairment charges and certain costs associated with Civeo's acquisition of Noralta Lodge Ltd. ("Noralta") and Action. Free cash flow is a non-GAAP financial measure that is defined as net cash flows provided by operating activities less capital expenditures plus proceeds from asset sales. Please see the reconciliations to GAAP measures at the end of this news release.)

Business Segment Results

(Unless otherwise noted, the following discussion compares the quarterly results for the third quarter of 2019 to the results for the third quarter of 2018.)

Canada

During the third quarter of 2019, the Canadian segment generated revenues of $91.1 million, operating income of $2.9 million and Adjusted EBITDA of $25.0 million, compared to revenues of $76.8 million, operating loss of $7.6 million and Adjusted EBITDA of $16.0 million in the third quarter of 2018. The third quarter of 2019 results reflect the impact of a weakened Canadian dollar relative to the U.S. dollar, which decreased revenues and Adjusted EBITDA by $1.0 million and $0.3 million, respectively.

On a constant currency basis, the Canadian segment experienced a 20% period-over-period increase in revenues driven by a 7% year-over-year increase in billed rooms related to oil sands maintenance and turnaround activity and the contribution from the newly expanded Sitka Lodge serving LNG activity. Adjusted EBITDA for the Canadian segment increased 56% year-over-year with the higher lodge occupancy and related operating leverage.

Australia

During the third quarter of 2019, the Australian segment generated revenues of $47.7 million, operating income of $4.7 million and Adjusted EBITDA of $17.2 million, compared to revenues of $31.1 million, operating income of $0.5 million and Adjusted EBITDA of $12.4 million in the third quarter of 2018. The third quarter of 2019 results reflect the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and Adjusted EBITDA by $2.2 million and $1.0 million, respectively.

On a constant currency basis, the Australian segment experienced a 61% period-over-period increase in revenues primarily driven by contributions from the acquisition of Action Catering. Australian village occupancy increased year-over-year with billed rooms up 15% primarily due to continued improvement in metallurgical coal activity across the Bowen Basin. Adjusted EBITDA from the Australian segment increased 38% year-over-year due to higher village occupancy coupled with contributions from the recent acquisition of Action Catering. The Australian revenues in the third quarter of 2019 increased more year-over-year than the Australian Adjusted EBITDA did due to the acquisition of Action Catering and the inherent lower margins in the service-only business model.

Civeo today announced that it has been awarded two contract extensions in Australia to provide rooms and hospitality services from the Company's Dysart and Coppabella accommodation facilities in Australia. The contracts are expected to generate a combined A$37 million during their respective terms. The details are as follows:

  • A contract extension from BHP Mitsubishi Alliance Coal Operations Pty Ltd ("BMA") at Civeo's existing Dysart accommodation facility that will generate approximately A$27 million in contracted revenues from 2019 to 2021. Civeo will continue to provide rooms and hospitality services at Dysart to BMA for an additional two years through September 2021. As part of the extension agreement, the "take-or-pay" committed rooms will increase from 280 rooms to 480 rooms.
  • A contract extension from a major coal producer at Civeo's existing Coppabella accommodation facility that will generate approximately A$10 million in contracted revenues over 2019-2022. Civeo will continue to provide rooms and hospitality services at Coppabella to this producer for an additional 30 months through August 2022.

U.S.

The U.S. segment generated revenues of $9.3 million, operating loss of $2.2 million and Adjusted EBITDA of $0.3 million in the third quarter of 2019, compared to revenues of $12.6 million, operating loss of $1.3 million and Adjusted EBITDA of $2.4 million in the third quarter of 2018. Revenues and Adjusted EBITDA declined year-over-year primarily due to lower drilling and completion activity driving lower occupancy in the U.S. lodges, partially offset by improvement in the Company's wellsite business.

Income Taxes

Civeo recognized an income tax benefit of $6.6 million, which resulted in an effective tax rate of 421.4%, in the third quarter of 2019. The effective tax rate for the three months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.

During the third quarter of 2018, Civeo recognized an income tax benefit of $5.3 million, which resulted in an effective tax rate of 28%.

Financial Condition

As of September 30, 2019, Civeo had total liquidity of approximately $88.0 million, consisting of $79.9 million available under its revolving credit facilities and $8.1 million of cash on hand.

Civeo's total debt outstanding on September 30, 2019 was $393.5 million, a $11.8 million decrease since June 30, 2019.

Civeo recently announced the completion of an amendment and extension to its entire credit agreement. Among other things, the amended credit facility extends the maturity date of both (1) the revolving commitments and (2) term loan commitments for the majority of lenders by twelve months to November 30, 2021; adjusts the permitted level of Civeo's leverage ratio to a maximum of 4.25x for the third quarter of 2019, 4.00x in the fourth quarter of 2019, 3.75x in the first, second and third quarter of 2020 and 3.50x in the fourth quarter of 2020 and thereafter; and increases the total commitment by approximately $24 million through the addition of a new lender.

During the third quarter of 2019, Civeo invested $4.3 million in capital expenditures, up from $2.7 million during the third quarter of 2018.

Fourth Quarter and Full Year 2019 Guidance

For the fourth quarter of 2019, Civeo expects Adjusted EBITDA of $19.5 million to $23.5 million and for the full year of 2019, Civeo is increasing Adjusted EBITDA guidance to a range of $98.0 million to $102.0 million. The Company is lowering its full year 2019 capital expenditure guidance to a range of $33 million to $37 million.

Conference Call

Civeo will host a conference call to discuss its third quarter 2019 financial results today at 11:00 a.m. Eastern time. This call is being webcast and can be accessed at Civeo's website at www.civeo.com. Participants may also join the conference call by dialing (800) 239-9838 in the United States or (323) 794-2551 internationally and using the conference ID 7512562#. A replay will be available after the call by dialing (844) 512-2921 in the United States or (412) 317-6671 internationally and using the conference ID 7512562#.

About Civeo

Civeo Corporation is a leading provider of hospitality services with prominent market positions in the Canadian oil sands and the Australian natural resource regions. Civeo offers comprehensive solutions for lodging hundreds or thousands of workers with its long-term and temporary accommodations and provides food services, housekeeping, facility management, laundry, water and wastewater treatment, power generation, communications systems, security and logistics services. Civeo currently operates a total of 30 lodges and villages in Canada, Australia and the U.S., with an aggregate of approximately 31,000 rooms. Civeo is publicly traded under the symbol CVEO on the New York Stock Exchange. For more information, please visit Civeo's website at www.civeo.com.

Forward Looking Statements

This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements in this news release include the statements regarding Civeo's future plans, priorities, contracted revenues and borrowing needs; growth opportunities and ability to adapt to market conditions; expectations about activity, market demand and commodity price environment in 2019; expected benefits of the contract extensions from two major Australian customers and fourth quarter and full year 2019 guidance. The forward-looking statements included herein are based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the accommodations industry, risks associated with the level of supply and demand for oil, coal, iron ore and other minerals, including the level of activity and developments in the Canadian oil sands, the level of demand for coal and other natural resources from Australia, and fluctuations in the current and future prices of oil, coal, iron ore and other minerals, risks associated with currency exchange rates, risks associated with the Noralta acquisition, risks associated with the acquisition of Action Catering, risks associated with the development of new projects, including whether such projects will continue in the future, and other factors discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of Civeo's annual report on Form 10-K for the year ended December 31, 2018 and other reports the Company may file from time to time with the U.S. Securities and Exchange Commission. Each forward-looking statement contained in this news release speaks only as of the date of this release. Except as required by law, Civeo expressly disclaims any intention or obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

- Financial Schedules Follow -

CIVEO CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenues

$

148,163

 

 

$

120,491

 

 

$

378,866

 

 

$

352,172

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales and services

99,480

 

 

82,227

 

 

264,350

 

 

249,383

 

Selling, general and administrative expenses

14,334

 

 

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