ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.
Noralta Acquisition
On April 2, 2018, we completed our previously announced acquisition of Noralta Lodge Ltd. (Noralta). The consideration for the acquisition totaled (i) C$207.7 million (or approximately US$161.1 million) in cash, subject to customary post-closing adjustments for working capital, indebtedness and transaction expenses; (ii) 32.8 million of our common shares, and (iii) 9,679 shares of our Class A Series 1 Preferred Shares with an initial liquidation preference of US$96.79 million and initially convertible into 29.3 million of our common shares. We funded the cash consideration with cash on hand and borrowings under the Amended Credit Agreement. Please see Note 7 – Acquisitions to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further information.
Amended Credit Agreement
On April 2, 2018, we amended our Amended Credit Agreement. Please see Note 11 – Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further information.
Macroeconomic Environment
We provide workforce accommodations to the natural resource industry in Canada, Australia and the U.S. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our services has been driven by our customers’ capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand dynamics and estimates of resource production. As a result, demand for our products and services is largely sensitive to expected commodity prices, principally related to crude oil and metallurgical (met) coal.
In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands accommodations customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude and the availability of transportation infrastructure. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and limited capacity to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability.
After beginning to drop in the second half of 2014, global oil prices dropped during the first quarter of 2016 to their lowest levels in over ten years due to concerns over global oil demand, global crude inventory levels, worldwide economic growth and price cutting by major oil producing countries, such as Saudi Arabia. Increasing global supply, including increased U.S. shale oil production, also negatively impacted pricing. With falling WTI oil prices, WCS also fell. Prices began to increase in March 2016, and after falling slightly in the second quarter of 2017, prices continued to increase through the first half of 2018. WCS prices in the second quarter of 2018 averaged $49.93 per barrel compared to a low of $20.26 in the first quarter of 2016 and a high of $83.78 in the second quarter of 2014. The WCS Differential decreased from $26.00 per barrel at the end of the fourth quarter of 2017 to $21.00 per barrel at the end of the second quarter of 2018. As of July 23, 2018, the WTI price was $69.54 and the WCS price was $41.39, resulting in a WCS Differential of $28.15. The current level of the WCS Differential is resulting from continued pipeline access limitations.
There remains a risk that prices for Canadian oil sands crude oil related products could deteriorate for an extended period of time, and the discount between WCS crude prices and WTI crude prices could widen. The depressed price levels through the first quarter of 2016 negatively impacted exploration, development, maintenance and production spending and activity by Canadian operators and, therefore, demand for our services in late 2014 and throughout 2015 and 2016. Although we have seen an increase in oil prices since late 2016 and through the first half of 2018, we are not expecting significant improvement in customer activity in the near-term. The current outlook for expansionary projects in Canada is primarily related to proposed pipeline and in-situ oil sands projects. However, continued uncertainty and commodity price volatility and regulatory complications could cause our Canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets.
Our U.S. business is also primarily tied to oil prices, specifically oil shale drilling and completion activity, and therefore WTI oil prices, in the Bakken, Rockies and Permian Basins. With the recovery in oil prices since late 2016 and through the first half of 2018, coupled with ample capital availability for U.S. E&P companies, oil drilling and completion activity in the U.S. has significantly increased over the past year. The U.S. oil rig count has increased from its low of 316 rigs in May 2016 to over 800 rigs active in the second quarter of 2018. As of July 20, 2018, there were 858 active oil rigs in the U.S. (as measured by Bakerhughes.com). U.S. oil drilling and completion activity will continue to be dependent on sustained higher WTI oil prices and sufficient capital to support E&P drilling and completion plans.
In Australia, approximately 80% of our rooms are located in the Bowen Basin and primarily serve met coal mines in that region. Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which increased by 4.6% during the first half of 2018 compared to the first half of 2017. As of July 23, 2018, met coal spot prices were $176.15 per metric tonne. Current met coal pricing levels have not led our customers to approve any significant new projects. We expect that customers will look for a period of sustained higher prices before new projects are approved. Long-term demand for steel is expected to be driven by increased steel consumption per capita in developing economies, such as China and India, whose current consumption per capita is a fraction of developed countries. Our customers continue to actively implement cost, productivity and efficiency measures to further drive down their cost base.
Recent WTI crude, WCS crude and met coal pricing trends are as follows:
|
|
|
Average Price
(1)
|
|
|
|
WTI
|
|
|
WCS
|
|
|
Hard
|
|
|
|
Quarter
|
|
Crude
|
|
|
Crude
|
|
|
Coking Coal
(Met Coal)
|
|
|
|
ended
|
|
(per bbl)
|
|
|
(per bbl)
|
|
|
(per ton
ne
)
|
|
|
|
Third Quarter through 7/23/2018
|
|
$
|
71.26
|
|
|
$
|
49.95
|
|
|
$
|
196.00
|
|
|
|
6/30/2018
|
|
|
67.97
|
|
|
|
49.93
|
|
|
|
196.00
|
|
|
|
3/31/2018
|
|
|
62.89
|
|
|
|
37.09
|
|
|
|
235.00
|
|
|
|
12/31/2017
|
|
|
55.28
|
|
|
|
38.65
|
|
|
|
192.00
|
|
|
|
9/30/2017
|
|
|
48.16
|
|
|
|
37.72
|
|
|
|
170.00
|
|
|
|
6/30/2017
|
|
|
48.11
|
|
|
|
38.20
|
|
|
|
193.50
|
|
|
|
3/31/2017
|
|
|
51.70
|
|
|
|
38.09
|
|
|
|
285.00
|
|
|
|
12/31/2016
|
|
|
49.16
|
|
|
|
34.34
|
|
|
|
200.00
|
|
|
|
9/30/2016
|
|
|
44.88
|
|
|
|
30.67
|
|
|
|
92.50
|
|
|
|
6/30/2016
|
|
|
45.53
|
|
|
|
32.84
|
|
|
|
84.00
|
|
|
|
3/31/2016
|
|
|
33.41
|
|
|
|
20.26
|
|
|
|
81.00
|
|
|
|
12/31/2015
|
|
|
42.02
|
|
|
|
27.82
|
|
|
|
89.00
|
|
|
|
9/30/2015
|
|
|
46.48
|
|
|
|
31.54
|
|
|
|
93.00
|
|
|
|
6/30/2015
|
|
|
57.64
|
|
|
|
48.09
|
|
|
|
109.50
|
|
|
|
|
(1)
|
Source: WTI crude prices are from U.S. Energy Information Administration (EIA), and WCS crude prices and Seaborne hard coking coal contract prices are from Bloomberg.
|
Overview
As noted above, demand for our services is primarily tied to the outlook for crude oil and met coal prices. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in Canada, Australia, the U.S. and other markets.
Our business is predominantly located in northern Alberta, Canada and Queensland, Australia, and we derive most of our business from resource companies who are developing and producing oil sands and met coal resources and, to a lesser extent, other hydrocarbon and mineral resources. More than 80% of our revenue is generated by our accommodation facilities. Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive accommodations services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.
Generally, our customers are making multi-billion dollar investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are dependent on those customers’ long-term views of commodity demand and prices.
In response to decreases in crude oil prices beginning in late 2014, many of our customers in Canada curtailed their operations and spending, and most major oil sands mining operators began reducing their costs and limiting capital spending, thereby limiting the demand for accommodations of the kind we provide. In Australia, approximately 80% of our rooms are located in the Bowen Basin and primarily serve met coal mines in that region, where our customers continue to implement operational efficiency measures, in order to drive down their cost base.
In recent months, however, several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets. Since the announcement by OPEC in late November 2016 to cut production quotas and the subsequent rise in spot oil prices and future oil price expectations, certain operators with steam-assisted gravity drainage operations in the Canadian oil sands increased capital spending in 2017. Despite construction at the Fort Hill Energy LP project ending in early 2018, Canadian oil sands capital spending in 2018 is forecasted to be relatively flat, in the aggregate. In addition, recent regulatory approvals of several major pipeline projects have the potential to both drive incremental demand for mobile accommodations assets and to improve take-away capacity for Canadian oil sands producers over the longer term. However, these projects have been delayed due to the lack of agreement between the Canadian federal government, which supports the pipeline projects, and the British Columbia provincial government. The Canadian federal government recently announced the acquisition of Kinder Morgan’s Trans Mountain Pipeline, emphasizing their support for this particular project. Additionally, we believe that the Keystone XL pipeline in the U.S., if constructed, would be a positive catalyst for Canadian oil sands producers, as it would bolster confidence in future take-away capacity from the region to U.S. Gulf Coast refineries. In Australia, we believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable.
While we believe that these macroeconomic developments are positive for our customers and for the underlying demand for our accommodations services, we do not expect an immediate improvement in our business. Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve and integrating the recently acquired Noralta assets into our business.
We began expansion of our room count in Kitimat, British Columbia during the second half of 2015 to support potential liquefied natural gas (LNG) projects on the west coast of British Columbia. We were awarded a contract with LNG Canada (LNGC) for the provision of open lodge rooms and associated services that ran through October 2017. To support this contract, we developed a new accommodations facility, Sitka Lodge, which includes private washrooms, recreational facilities and other amenities. This lodge currently has 436 rooms, with the potential to expand to serve future accommodations demand in the region.
We recently announced the conditional contract award to supply accommodations for four locations along the Coastal GasLink (CGL) pipeline project in British Columbia, Canada. This pipeline would provide the natural gas for the proposed liquidation and export facility in Kitimat, British Columbia. Should the CGL project move forward, we expect to deploy approximately C$10 million in capital, primarily in 2019, across all four locations. In addition, we were awarded a contract with LNGC to construct a 4,500 person workforce accommodation center (Cedar Valley Lodge) for the proposed Kitimat liquefaction and export facility. Construction of CGL and Cedar Valley Lodge will not commence until LNGC’s joint venture participants have made a positive final investment decision (FID). The FID was originally planned for the end of 2016. However, FID has been delayed. Recent public statements by LNGC and news reports indicate that FID for LNGC is expected in the second half of 2018. Should the project ultimately move forward, British Columbia LNG activity and related pipeline projects could become a material driver of future activity for our Sitka Lodge, as well as for our mobile fleet assets, which are well suited for the related pipeline construction activity.
However, there can be no assurance that LNGC’s joint venture participants will reach a positive FID or that our contracts with LNGC will be extended. If the LNGC project, and other potential projects in the area, do not move forward, our future results of operations and our existing long-lived assets in Canada, including our Sitka Lodge, may be negatively affected, and we may be required to record material impairment charges equal to the excess of the carrying values of these assets over their fair values. As of June 30, 2018, the net book value of long-lived assets that are currently supporting, or could be used to support, potential LNG projects in British Columbia was approximately $74 million.
Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income in Canada and Australia. These revenues and profits are translated into U.S. dollars for U.S. Generally Accepted Accounting Principles (U.S. GAAP) financial reporting purposes. The Canadian dollar was valued at an average exchange rate of U.S. $0.77 for the second quarter of 2018, compared to U.S. $0.74 for the second quarter of 2017, an increase of approximately 4%. The Canadian dollar was valued at an average exchange rate of U.S. $0.78 for the first half of 2018 compared to U.S. $0.75 for the first half of 2017, an increase of approximately 4%. The Canadian dollar was valued at an exchange rate of $0.76 on June 30, 2018 and $0.80 on December 31, 2017. The Australian dollar was valued at an average exchange rate of U.S. $0.76 for the second quarter of 2018, compared to U.S. $0.75 for the second quarter of 2017, an increase of approximately 1%. The Australian dollar was valued at an average exchange rate of U.S. $0.77 for the first half of 2018 compared to U.S. $0.75 for the first half of 2017, an increase of approximately 2%. The Australian dollar was valued at an exchange rate of $0.74 on June 30, 2018 and $0.78 on December 31, 2017. These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
We continue to monitor the global economy, the demand for crude oil and met coal and the resultant impact on the capital spending plans of our customers in order to plan our business activities. We currently expect that our 2018 capital expenditures, exclusive of any business acquisitions, will total approximately $20 million to $25 million, including capital expenditures related to the recently acquired Noralta assets, compared to 2017 capital expenditures of $11.2 million. Please see “Liquidity and Capital Resources
”
below for further discussion of 2018 capital expenditures.
Results of Operations
Unless otherwise indicated, discussion of results for the three-
and six-
month period
s
ended
June 30, 201
8
, is based on a comparison
to
the corresponding period
s
of 201
7
.
Results of Operations
– Three Months Ended June 30, 201
8
Compared to Three Months Ended June 30, 201
7
|
|
|
Three Months Ended
J
une
30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
($ in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
86,518
|
|
|
$
|
57,668
|
|
|
$
|
28,850
|
|
|
Australia
|
|
|
30,577
|
|
|
|
28,607
|
|
|
|
1,970
|
|
|
United States and other
|
|
|
13,082
|
|
|
|
5,735
|
|
|
|
7,347
|
|
|
Total revenues
|
|
|
130,177
|
|
|
|
92,010
|
|
|
|
38,167
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
62,839
|
|
|
|
38,830
|
|
|
|
24,009
|
|
|
Australia
|
|
|
15,349
|
|
|
|
13,900
|
|
|
|
1,449
|
|
|
United States and other
|
|
|
10,549
|
|
|
|
6,754
|
|
|
|
3,795
|
|
|
Total cost of sales and services
|
|
|
88,737
|
|
|
|
59,484
|
|
|
|
29,253
|
|
|
Selling, general and administrative expenses
|
|
|
22,539
|
|
|
|
14,060
|
|
|
|
8,479
|
|
|
Depreciation and amortization expense
|
|
|
34,270
|
|
|
|
31,554
|
|
|
|
2,716
|
|
|
Other operating expense
|
|
|
132
|
|
|
|
279
|
|
|
|
(147
|
)
|
|
Total costs and expenses
|
|
|
145,678
|
|
|
|
105,377
|
|
|
|
40,301
|
|
|
Operating loss
|
|
|
(15,501
|
)
|
|
|
(13,367
|
)
|
|
|
(2,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and income, net
|
|
|
(7,833
|
)
|
|
|
(4,742
|
)
|
|
|
(3,091
|
)
|
|
Other income (expense)
|
|
|
252
|
|
|
|
476
|
|
|
|
(224
|
)
|
|
Loss before income taxes
|
|
|
(23,082
|
)
|
|
|
(17,633
|
)
|
|
|
(5,449
|
)
|
|
Income tax benefit
|
|
|
23,371
|
|
|
|
2,916
|
|
|
|
20,455
|
|
|
Net income (loss)
|
|
|
289
|
|
|
|
(14,717
|
)
|
|
|
15,006
|
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
122
|
|
|
|
99
|
|
|
|
23
|
|
|
Net income (loss) attributable to Civeo Corporation
|
|
|
167
|
|
|
|
(14,816
|
)
|
|
|
14,983
|
|
|
Dividends attributable to preferred shares
|
|
|
48,488
|
|
|
|
--
|
|
|
|
48,488
|
|
|
Net loss attributable to Civeo common shareholders
|
|
$
|
(48,321
|
)
|
|
$
|
(14,816
|
)
|
|
$
|
(33,505
|
)
|
We reported net loss attributable to Civeo for the quarter ended June 30, 2018 of $48.3 million, or $0.29 per diluted share. As further discussed below, net loss included costs totaling $5.6 million ($5.1 million after-tax, or $0.03 per diluted share) incurred in connection with the Noralta acquisition, primarily included in Selling, general and administrative (SG&A) expense below, and $48.5 million of dividends attributable to the preferred shares issued in the Noralta acquisition.
We reported net loss attributable to Civeo for the quarter ended June 30, 2017 of $14.8 million, or $0.11 per diluted share.
Revenues.
Consolidated revenues increased $38.2 million, or 41%, in the second quarter of 2018 compared to the second quarter of 2017. This increase was primarily due to increases in Canada due to the Noralta acquisition in the second quarter of 2018, as well as increased mobile facility rental revenue, and in Australia and the U.S. due to higher activity levels in certain markets. Additionally, a stronger Canadian dollar relative to the U.S. dollar in the second quarter of 2018 compared to the second quarter of 2017 contributed to increased revenues. Please see the discussion of segment results of operations below for further information.
Cost of Sales and Services.
Our consolidated cost of sales increased $29.3 million, or 49%, in the second quarter of 2018 compared to the second quarter of 2017, primarily due to increases in Canada due to the Noralta acquisition in the second quarter of 2018 and increased mobile facility rental activity, and in Australia due to higher occupancy levels in certain markets and the U.S. due to higher activity levels. Additionally, a stronger Canadian dollar relative to the U.S. dollar in the second quarter of 2018 compared to the second quarter of 2017 contributed to increased cost of sales and services. Please see the discussion of segment results of operations below for further description.
Selling, General and Administrative Expenses
.
SG&A expense increased $8.5 million, or 60%, in the second quarter of 2018 compared to the second quarter of 2017. This increase was primarily due to $5.4 million in costs incurred in connection with the Noralta acquisition and $2.4 million in higher share-based compensation expense associated with phantom share awards. The increase in share-based compensation was due to the increase in our share price during the period, which is used to remeasure the phantom share awards at each reporting date.
Depreciation and Amortization Expense.
Depreciation and amortization expense increased $2.7 million, or 9%, in the second quarter of 2018 compared to the second quarter of 2017, primarily due to additional property, plant and equipment acquired through recent acquisitions as well as incremental intangible amortization expense related to our acquisitions, partially offset by reduced depreciation expense resulting from impairments recorded in 2017.
Operating
Loss
.
Consolidated operating loss increased $2.1 million, or 16%, in the second quarter of 2018 compared to the second quarter of 2017, primarily due to higher SG&A and depreciation and amortization expense.
Interest Expense and Interest Income, net.
Net interest expense increased by $3.1 million, or 65%, in the second quarter of 2018 compared to the second quarter of 2017, primarily related to higher revolving credit facility borrowings to fund the Noralta acquisition and the write-off of $0.7 million of debt issuance costs associated with the Amended Credit Agreement.
Income Tax Benefit.
Our income tax benefit for the three months ended June 30, 2018 totaled $23.4 million, or 101.3% of pretax loss, compared to a benefit of $2.9 million, or 16.5% of pretax loss, for the three months ended June 30, 2017. The effective tax rate for the three months ended June 30, 2018 was impacted by an increase in the 2018 effective tax rate due to Canada no longer being considered a loss jurisdiction. Under ASC 740-270, Accounting for Income Taxes, the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter’s year-to-date provision.
Dividends Attributable to Preferred Shares.
We recorded dividends attributable to preferred shares of $48.5 million in the second quarter of 2018 primarily resulting from a beneficial conversion factor associated with the preferred shares issued as part of the Noralta acquisition. Please see Note 12 – Preferred Shares to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Other Comprehensive
Income
(
Loss
)
.
Other comprehensive loss increased $22.7 million in the second quarter of 2018 compared to the second quarter of 2017, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 2% in the second quarter of 2018 compared to a 3% increase in the second quarter of 2017. The Australian dollar exchange rate compared to the U.S. dollar decreased 4% in the second quarter of 2018 compared to a 1% increase in the second quarter of 2017.
Segment Results of Operations
–
Canad
i
a
n Segment
|
|
|
T
hree
M
onths
E
nded
J
une
3
0
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
Revenues ($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accommodation revenue (1)
|
|
$
|
80,620
|
|
|
$
|
53,637
|
|
|
$
|
26,983
|
|
|
Mobile facility rental revenue (2)
|
|
|
2,107
|
|
|
|
243
|
|
|
|
1,864
|
|
|
Catering and other services revenue (3)
|
|
|
3,716
|
|
|
|
2,646
|
|
|
|
1,070
|
|
|
Manufacturing revenue (4)
|
|
|
75
|
|
|
|
1,142
|
|
|
|
(1,067
|
)
|
|
Total revenues
|
|
$
|
86,518
|
|
|
$
|
57,668
|
|
|
$
|
28,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accommodation cost
|
|
$
|
52,902
|
|
|
$
|
32,877
|
|
|
$
|
20,025
|
|
|
Mobile facility rental cost
|
|
|
2,200
|
|
|
|
165
|
|
|
|
2,035
|
|
|
Catering and other services cost
|
|
|
3,479
|
|
|
|
1,883
|
|
|
|
1,596
|
|
|
Manufacturing cost
|
|
|
204
|
|
|
|
1,172
|
|
|
|
(968
|
)
|
|
Indirect other cost
|
|
|
4,054
|
|
|
|
2,733
|
|
|
|
1,321
|
|
|
Total cost of sales and services
|
|
$
|
62,839
|
|
|
$
|
38,830
|
|
|
$
|
24,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
27.4
|
%
|
|
|
32.7
|
%
|
|
|
(5.3%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available lodge rooms (5)
|
|
|
22,497
|
|
|
|
14,720
|
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable rooms for lodges (6)
|
|
|
15,141
|
|
|
|
8,138
|
|
|
|
7,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for lodges (7)
|
|
$
|
86
|
|
|
$
|
89
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy in lodges (8)
|
|
|
68
|
%
|
|
|
81
|
%
|
|
|
(13%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed rooms for lodges (9)
|
|
|
930,828
|
|
|
|
600,404
|
|
|
|
330,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
|
$
|
0.775
|
|
|
$
|
0.744
|
|
|
$
|
0.031
|
|
|
|
(1)
|
Includes revenues related to lodge and open camp rooms for the periods presented.
|
|
|
(2)
|
Includes revenues related to mobile camps for the periods presented.
|
|
|
(3)
|
Includes revenues related to catering and food services, laundry and water and wastewater treatment services for the periods presented.
|
|
|
(4)
|
Includes revenues related to modular construction and manufacturing services for the periods presented.
|
|
|
(5)
|
Average available rooms include rooms that are utilized for our personnel.
|
|
|
(6)
|
Rentable rooms exclude rooms that are utilized for our personnel and out-of-service rooms.
|
|
|
(7)
|
Average daily rate is based on rentable rooms and lodge/village revenue.
|
|
|
(8)
|
Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out-of-service rooms.
|
|
|
(9)
|
Billed rooms represents total billed days for the periods presented.
|
Our Canadian segment reported revenues in the second quarter of 2018 that were $28.9 million, or 50%, higher than the second quarter of 2017. The strengthening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 4%
in the second quarter of 2018 compared to the second quarter of 2017 resulted in a $3.7 million period-over-period increase in revenues. Excluding the impact of the stronger Canadian exchange rates, the segment experienced a 44% increase in accommodation revenues. This increase was driven by the Noralta acquisition in the second quarter of 2018. Additionally, increased mobile facility rental revenue was driven by increased pipeline related projects.
Our Canadian segment cost of sales and services increased $24.0 million, or 62%, in the second quarter of 2018 compared to the second quarter of 2017 primarily due to the Noralta acquisition in the second quarter of 2018 and increased mobile facility rental activity and related costs.
Our Canadian segment gross margin as a percentage of revenues decreased from 33% in the second quarter of 2017 to 27% in the second quarter of 2018. This decrease was driven by lower lodge rates.
Segment Results of Operations
–
Australian
Segment
|
|
|
Three Months Ended
June 30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (1) ($ in thousands)
|
|
$
|
30,577
|
|
|
$
|
28,607
|
|
|
$
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
$
|
15,349
|
|
|
$
|
13,900
|
|
|
$
|
1,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
49.8
|
%
|
|
|
51.4
|
%
|
|
|
(1.6%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available village rooms (2)
|
|
|
9,346
|
|
|
|
9,386
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable rooms for villages (3)
|
|
|
8,735
|
|
|
|
8,760
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for villages (4)
|
|
$
|
80
|
|
|
$
|
80
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy in Villages (5)
|
|
|
47
|
%
|
|
|
45
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed rooms for villages (6)
|
|
|
376,369
|
|
|
|
358,393
|
|
|
|
17,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
|
$
|
0.757
|
|
|
$
|
0.751
|
|
|
$
|
0.006
|
|
|
|
(1)
|
Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including facilities management.
|
|
|
(2)
|
Average available rooms include rooms that are utilized for our personnel.
|
|
|
(3)
|
Rentable rooms exclude rooms that are utilized for our personnel and out-of-service rooms.
|
|
|
(4)
|
Average daily rate is based on rentable rooms and lodge/village revenue.
|
|
|
(5)
|
Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out-of-service rooms.
|
|
|
(6)
|
Billed rooms represents total billed days for the periods presented.
|
Our Australian segment reported revenues in the second quarter of 2018 that were $2.0 million, or 7%, higher than the second quarter of 2017. The increase in revenues in the second quarter of 2018 compared to the second quarter of 2017 due to increased activity at our Bowen Basin and Gunnedah Basin villages, offset by reduced activity at our Western Australia villages compared to 2017.
Our Australian segment cost of sales increased $1.5 million, or 10%, in the second quarter of 2018 compared to the second quarter of 2017. The increase was driven by higher occupancy levels at our villages in the Bowen Basin and Gunnedah Basin.
Our Australian segment gross margin as a percentage of revenues decreased to 50% in the second quarter of 2018 from 51% in the second quarter of 2017. This was primarily driven by reduced take-or-pay revenue on expired contracts compared to 2017.
Segment Resu
lts of Operations – U
.
S
.
|
|
|
Three Months Ended
June 30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in thousands)
|
|
$
|
13,082
|
|
|
$
|
5,735
|
|
|
$
|
7,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
$
|
10,549
|
|
|
$
|
6,754
|
|
|
$
|
3,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
19.4
|
%
|
|
|
(17.8%
|
)
|
|
|
37.2
|
%
|
Our U.S. segment reported revenues in the second quarter of 2018 that were $7.3 million, or 128%, higher than the second quarter of 2017. The increase was primarily due to greater U.S. drilling activity in the Bakken, Rockies and Texas markets for our lodge and wellsite businesses, the Acadian Acres acquisition in February 2018 and higher revenues from our offshore business.
Our U.S. cost of sales increased $3.8 million, or 56%, in the second quarter of 2018 compared to the second quarter of 2017. The increase was driven by greater U.S. drilling activity in the Bakken, Rockies and Texas markets and greater activity in the offshore business.
Our U.S. segment gross margin as a percentage of revenues increased from (18%) in the second quarter of 2017 to 19% in the second quarter of 2018 primarily due to increased U.S. drilling activity in the Bakken, Rockies and Texas markets, as well as the offshore business and the Acadian Acres acquisition.
Results of Operations
– Six Months Ended June 30, 201
8
Compared to Six Months Ended June 30, 201
7
|
|
|
Six Months Ended
June 30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
($ in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
149,908
|
|
|
$
|
118,174
|
|
|
$
|
31,734
|
|
|
Australia
|
|
|
58,452
|
|
|
|
55,623
|
|
|
|
2,829
|
|
|
United States and other
|
|
|
23,321
|
|
|
|
9,642
|
|
|
|
13,679
|
|
|
Total revenues
|
|
|
231,681
|
|
|
|
183,439
|
|
|
|
48,242
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
114,362
|
|
|
|
82,118
|
|
|
|
32,244
|
|
|
Australia
|
|
|
30,682
|
|
|
|
27,302
|
|
|
|
3,380
|
|
|
United States and other
|
|
|
21,021
|
|
|
|
11,736
|
|
|
|
9,285
|
|
|
Total cost of sales and services
|
|
|
166,065
|
|
|
|
121,156
|
|
|
|
44,909
|
|
|
Selling, general and administrative expenses
|
|
|
39,426
|
|
|
|
28,270
|
|
|
|
11,156
|
|
|
Depreciation and amortization expense
|
|
|
65,034
|
|
|
|
64,383
|
|
|
|
651
|
|
|
Impairment expense
|
|
|
28,661
|
|
|
|
--
|
|
|
|
28,661
|
|
|
Other operating expense
|
|
|
511
|
|
|
|
729
|
|
|
|
(218
|
)
|
|
Total costs and expenses
|
|
|
299,697
|
|
|
|
214,538
|
|
|
|
85,159
|
|
|
Operating loss
|
|
|
(68,016
|
)
|
|
|
(31,099
|
)
|
|
|
(36,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and income, net
|
|
|
(13,597
|
)
|
|
|
(11,078
|
)
|
|
|
(2,519
|
)
|
|
Other income (expense)
|
|
|
2,511
|
|
|
|
730
|
|
|
|
1,781
|
|
|
Loss before income taxes
|
|
|
(79,102
|
)
|
|
|
(41,447
|
)
|
|
|
(37,655
|
)
|
|
Income tax benefit
|
|
|
24,056
|
|
|
|
5,864
|
|
|
|
18,192
|
|
|
Net loss
|
|
|
(55,046
|
)
|
|
|
(35,583
|
)
|
|
|
(19,463
|
)
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
244
|
|
|
|
220
|
|
|
|
24
|
|
|
Net loss attributable to Civeo Corporation
|
|
|
(55,290
|
)
|
|
|
(35,803
|
)
|
|
|
(19,487
|
)
|
|
Dividends attributable to preferred shares
|
|
|
48,488
|
|
|
|
--
|
|
|
|
48,488
|
|
|
Net loss attributable to Civeo common shareholders
|
|
$
|
(103,778
|
)
|
|
$
|
(35,803
|
)
|
|
$
|
(67,975
|
)
|
We reported net loss attributable to Civeo for the six months ended June 30, 2018 of $103.8 million, or $0.70 per diluted share. As further discussed below, net loss included (i) a $28.7 million pre-tax loss ($20.9 million after-tax, or $0.14 per diluted share) resulting from the impairment of fixed assets included in Impairment expense, (ii) costs totaling $6.6 million ($5.9 million after-tax, or $0.04 per diluted share) incurred in connection with the Noralta acquisition, primarily included in Selling, general and administrative (SG&A) expense below, and (iii) $48.5 million of dividends attributable to the preferred shares issued in the Noralta acquisition.
We reported net loss attributable to Civeo for the six months ended June 30, 2017 of $35.8 million, or $0.28 per diluted share.
Revenues
.
Consolidated revenues increased $48.2 million, or 26%, in the first half of 2018 compared to the first half of 2017. This increase was largely driven by increases in Canada due to the Noralta acquisition in the second quarter of 2018, as well as increased mobile facility rental revenue, and in Australia and the U.S. due to higher activity levels in certain markets Additionally, stronger Canadian and Australian dollars relative to the U.S. dollar in 2018 compared to 2017 contributed to increased revenues. Please see the discussion of segment results of operations below for further information.
Cost of Sales and Services.
Our consolidated cost of sales increased $44.9 million, or 37%, in the first half of 2018 compared to the first half of 2017, primarily due to increases in Canada due to the Noralta acquisition in the second quarter of 2018 and increased mobile facility rental activity, and in Australia due to higher occupancy levels in certain markets and the U.S. due to higher activity levels. Additionally, stronger Canadian and Australian dollars relative to the U.S. dollar in 2018 compared to 2017 contributed to increased cost of sales and services. Please see the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses.
SG&A expense increased $11.2 million, or 39%, in the first half of 2018 compared to the first half of 2017. This increase was primarily due to $6.4 million in costs incurred in connection with the Noralta acquisition and $3.1 million in higher share-based compensation expense associated with phantom share awards. The increase in share-based compensation was due to the increase in our share price during the period, which is used to remeasure the phantom share awards at each reporting date.
Depreciation and Amortization Expense.
Depreciation and amortization expense increased $0.7 million, or 1%, in the first half of 2018 compared to the first half of 2017 primarily due to additional property, plant and equipment acquired through recent acquisitions as well as incremental intangible amortization expense related to our acquisitions, partially offset by reduced depreciation expense resulting from impairments recorded in 2017 and certain assets becoming fully depreciated during 2017.
Impairment Expense.
We recorded pre-tax impairment expense of $28.7 million in the first quarter of 2018 associated with long-lived assets in our Canadian segment.
Please see Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating
Loss
.
Consolidated operating loss increased $36.9 million, or 119%, in the first half of 2018 compared to the first half of 2017 primarily due to the impairment expense recorded in the first half of 2018.
Interest Expense and Interest Income, net
.
Net interest expense increased by $2.5 million, or 23% in the first half of 2018 compared to the first half of 2017 primarily related to higher revolving credit facility borrowings to fund the Noralta acquisition.
Income Tax Benefit.
Our income tax benefit for the six months ended June 30, 2018 totaled $24.1 million, or 30.4% of pretax loss, compared to a benefit of $5.9 million, or 14.1% of pretax loss, for the six months ended June 30, 2017. Our effective tax rate for the six months ended June 30, 2018 and 2017 was reduced approximately 5% and 13%, respectively, by the exclusion of Australia and the U.S. for purposes of computing the interim tax provision since they are considered loss jurisdictions for tax accounting purposes.
Dividends Attributable to Preferred Shares.
We recorded dividends attributable to preferred shares of $48.5 million in the first half of 2018 primarily resulting from a beneficial conversion factor associated with the preferred shares issued as part of the Noralta acquisition. Please see Note 12 – Preferred Shares to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Other Comprehensive
Income
(
Loss
)
.
Other comprehensive loss increased $48.6 million in the first half of 2018 compared to the first half of 2017 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 5% in the first half of 2018 compared to a 3% increase in the first half of 2017. The Australian dollar exchange rate compared to the U.S. dollar decreased 5% in the first half of 2018 compared to a 6% increase in the first half of 2017.
Segment Results of Operations – Canadian Segment
|
|
|
S
ix
M
onths
E
nded
J
une
3
0
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
Revenues ($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accommodation revenue (1)
|
|
$
|
131,267
|
|
|
$
|
109,867
|
|
|
$
|
21,400
|
|
|
Mobile facility rental revenue (2)
|
|
|
9,901
|
|
|
|
802
|
|
|
|
9,099
|
|
|
Catering and other services revenue (3)
|
|
|
7,455
|
|
|
|
6,089
|
|
|
|
1,366
|
|
|
Manufacturing revenue (4)
|
|
|
1,285
|
|
|
|
1,416
|
|
|
|
(131
|
)
|
|
Total revenues
|
|
$
|
149,908
|
|
|
$
|
118,174
|
|
|
$
|
31,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and services ($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accommodation cost
|
|
$
|
89,567
|
|
|
$
|
69,211
|
|
|
$
|
20,356
|
|
|
Mobile facility rental cost
|
|
|
9,604
|
|
|
|
680
|
|
|
|
8,924
|
|
|
Catering and other services cost
|
|
|
6,697
|
|
|
|
4,296
|
|
|
|
2,401
|
|
|
Manufacturing cost
|
|
|
1,443
|
|
|
|
2,190
|
|
|
|
(747
|
)
|
|
Indirect other cost
|
|
|
7,051
|
|
|
|
5,741
|
|
|
|
1,310
|
|
|
Total cost of sales and services
|
|
$
|
114,362
|
|
|
$
|
82,118
|
|
|
$
|
32,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
23.7
|
%
|
|
|
30.5
|
%
|
|
|
(6.8%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available lodge rooms (5)
|
|
|
18,608
|
|
|
|
14,720
|
|
|
|
3,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable rooms for lodges (6)
|
|
|
11,831
|
|
|
|
8,496
|
|
|
|
3,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for lodges (7)
|
|
$
|
87
|
|
|
$
|
93
|
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy in lodges (8)
|
|
|
70
|
%
|
|
|
76
|
%
|
|
|
(6%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed rooms for lodges (9)
|
|
|
1,503,717
|
|
|
|
1,175,974
|
|
|
|
327,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Canadian dollar to U.S. dollar
|
|
$
|
0.783
|
|
|
$
|
0.750
|
|
|
$
|
0.033
|
|
|
|
(1)
|
Includes revenues related to lodge and open camp rooms for the periods presented.
|
|
|
(2)
|
Includes revenues related to mobile camps for the periods presented.
|
|
|
(3)
|
Includes revenues related to catering and food services, laundry and water and wastewater treatment services for the periods presented.
|
|
|
(4)
|
Includes revenues related to modular construction and manufacturing services for the periods presented.
|
|
|
(5)
|
Average available rooms include rooms that are utilized for our personnel.
|
|
|
(6)
|
Rentable rooms exclude rooms that are utilized for our personnel and out-of-service rooms.
|
|
|
(7)
|
Average daily rate is based on rentable rooms and lodge/village revenue.
|
|
|
(8)
|
Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out-of-service rooms.
|
|
|
(9)
|
Billed rooms represents total billed days for the periods presented.
|
Our Canadian segment reported revenues in the first half of 2018 that were $31.7 million, or 27%, higher than the first half of 2017. The strengthening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 4%
in the first half of 2018 compared to the first half of 2017 resulted in a $6.5 million year-over-year increase in revenues. In addition, excluding the impact of the stronger Canadian exchange rates, the segment experienced a 14% increase in accommodation revenues, primarily due to the Noralta acquisition in the second quarter of 2018. Additionally, increased mobile facility rental revenue was driven by increased pipeline related projects.
Our Canadian segment cost of sales and services increased $32.2 million, or 39%, in the first half of 2018 compared to the first half of 2017 primarily due to the Noralta acquisition in the second quarter of 2018 and increased mobile facility rental activity and related costs.
Our Canadian segment gross margin as a percentage of revenues decreased from 31% in the first half of 2017 to 24% in the first half of 2018 primarily due to lower lodge rates.
Segment Results of Operations – Australian Segment
|
|
|
Six Months Ended
June 30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (1) ($ in thousands)
|
|
$
|
58,452
|
|
|
$
|
55,623
|
|
|
$
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
$
|
30,682
|
|
|
$
|
27,302
|
|
|
$
|
3,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
47.5
|
%
|
|
|
50.9
|
%
|
|
|
(3.4%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available village rooms (2)
|
|
|
9,346
|
|
|
|
9,386
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable rooms for villages (3)
|
|
|
8,728
|
|
|
|
8,767
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily rate for villages (4)
|
|
$
|
80
|
|
|
$
|
81
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy in Villages (5)
|
|
|
45
|
%
|
|
|
43
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed rooms for villages (6)
|
|
|
717,948
|
|
|
|
689,601
|
|
|
|
28,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian dollar to U.S. dollar
|
|
$
|
0.771
|
|
|
$
|
0.755
|
|
|
$
|
0.016
|
|
|
|
(1)
|
Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including facilities management.
|
|
|
(2)
|
Average available rooms include rooms that are utilized for our personnel.
|
|
|
(3)
|
Rentable rooms exclude rooms that are utilized for our personnel and out-of-service rooms.
|
|
|
(4)
|
Average daily rate is based on rentable rooms and lodge/village revenue.
|
|
|
(5)
|
Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out-of-service rooms.
|
|
|
(6)
|
Billed rooms represents total billed days for the periods presented.
|
Our Australian segment reported revenues in the first half of 2018 that were $2.8 million, or 5%, higher than the first half of 2017. The strengthening of the average exchange rates for Australian dollars relative to the U.S. dollar by 2% in the first half of 2018 compared to the first half of 2017 resulted in a $1.2 million year-over-year increase in revenues. Excluding the impact of the stronger Australian exchange rates, the segment experienced a 3% increase in revenues in the first half of 2018 compared to the first half of 2017 due to increased activity at our Bowen Basin and Gunnedah Basin villages, offset by reduced activity at our Western Australia villages and reduced take-or-pay revenues on expired contracts compared to 2017.
Our Australian segment cost of sales increased $3.4 million, or 12%, in the first half of 2018 compared to the first half of 2017. The increase was driven by higher occupancy levels at our villages in the Bowen Basin and Gunnedah Basin.
Our Australian segment gross margin as a percentage of revenues decreased to 48% in the first half of 2018 from 51% in the first half of 2017. This was primarily driven by reduced take-or-pay revenue on expired contracts compared to 2017.
Segment Results of Operations – U
.
S
.
Segment
|
|
|
Six Months Ended
June 30
,
|
|
|
|
|
201
8
|
|
|
201
7
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues ($ in thousands)
|
|
$
|
23,321
|
|
|
$
|
9,642
|
|
|
$
|
13,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales ($ in thousands)
|
|
$
|
21,021
|
|
|
$
|
11,736
|
|
|
$
|
9,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of revenues
|
|
|
9.9
|
%
|
|
|
(21.7%
|
)
|
|
|
31.6
|
%
|
Our U.S. segment reported revenues in the first half of 2018 that were $13.7 million, or 142%, higher than the first half of 2017. The increase was primarily due to greater U.S. drilling activity in the Bakken, Rockies and Texas markets for our lodge and wellsite businesses, the Acadian Acres acquisition in February 2018 and higher revenues from our offshore business.
Our U.S. cost of sales increased $9.3 million, or 79%, in the first half of 2018 compared to the first half of 2017. The increase was driven by greater U.S. drilling activity in the Bakken, Rockies and Texas markets and greater activity in the offshore business.
Our U.S. segment gross margin as a percentage of revenues increased from (22%) in the first half of 2017 to 10% in the second half of 2018, primarily due to increased U.S. drilling activity in the Bakken, Rockies and Texas markets, as well as the offshore business and the Acadian Acres acquisition.
Liquidity
and
Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our accommodations, developing new lodges and villages, purchasing or leasing land under our land banking strategy, and for general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions and pay dividends. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under the Amended Credit Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of June 30, 2018 and December 31, 2017:
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
Lender commitments
(1)
|
|
$
|
239,500
|
|
|
$
|
275,000
|
|
|
Reductions in availability
(2)
|
|
|
--
|
|
|
|
(165,845
|
)
|
|
Borrowings against revolving credit capacity
|
|
|
(157,645
|
)
|
|
|
--
|
|
|
Outstanding letters of credit
|
|
|
(3,653
|
)
|
|
|
(1,773
|
)
|
|
Unused availability
|
|
|
78,202
|
|
|
|
107,382
|
|
|
Cash and cash equivalents
|
|
|
4,786
|
|
|
|
32,647
|
|
|
Total available liquidity
|
|
$
|
82,988
|
|
|
$
|
140,029
|
|
|
|
(1)
|
We also have a A$2.0 million bank guarantee facility. We had bank guarantees of A$0.7 million and A$0.8 million under this facility outstanding as of June 30, 2018 and December 31, 2017, respectively.
|
|
|
(2)
|
As of June 30, 2018, there were no reductions in our availability under the Amended Credit Agreement. As of December 31, 2017, $165.8 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.
|
Cash totaling $14.0 million was provided by operations during the first half of 2018, compared to $14.4 million provided by operations during the first half of 2017. During the first half of 2018 and 2017, ($7.4) million and ($13.5) million, respectively, was used for working capital. The decrease in working capital outflows from 2017 to 2018 is largely related to timing of payments.
Cash was used in investing activities during the six months ended June 30, 2018 in the amount of $187.6 million, compared to cash used in investing activities during the six months ended June 30, 2017 in the amount of $4.5 million. The increase in cash used in investing activities was primarily due to $161.4 million to fund the Noralta acquisition and $23.8 million to fund the Acadian Acres asset acquisition. Capital expenditures totaled $5.9 million and $6.0 million during the six months ended June 30, 2018 and 2017, respectively. Capital expenditures in the first half of 2018 and 2017 consisted primarily of routine maintenance capital expenditures. In addition, capital expenditures in the first half of 2017 consisted of investments in an enterprise information system.
We expect our capital expenditures for 2018, exclusive of any business acquisitions, to be in the range of $20 million to $25 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts. This range includes capital expenditures related to the assets we acquired in the Noralta acquisition. Whether planned expenditures will actually be spent in 2018 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Amended Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue depending on the economic environment in our industry and the availability of transactions at prices deemed to be attractive to us.
Net cash of $147.6 million was provided by financing activities during the six months ended June 30, 2018 primarily due to net borrowings under our revolving credit facilities of $162.1 million to primarily fund the Noralta acquisition, partially offset by repayments of term loan borrowings of $11.1 million and debt issuance costs of $2.7 million. Net cash of $14.8 million was provided by financing activities during the six months ended June 30, 2017 primarily due to net proceeds from our February 2017 equity offering of $64.8 million, offset by net repayments under our revolving credit facilities of $39.9 million, repayments of term loan borrowings of $8.0 million and debt issuance costs of $1.8 million.
The following table summarizes the changes in debt outstanding during the first half of 2018 (in thousands):
|
|
|
Canada
|
|
|
Australia
|
|
|
U.S.
|
|
|
Total
|
|
|
Balance at December 31, 2017
|
|
$
|
297,623
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
297,623
|
|
|
Borrowings under revolving credit facilities
|
|
|
196,565
|
|
|
|
35,558
|
|
|
|
--
|
|
|
|
232,123
|
|
|
Repayments of borrowings under revolving credit facilities
|
|
|
(61,058
|
)
|
|
|
(9,009
|
)
|
|
|
--
|
|
|
|
(70,067
|
)
|
|
Repayments of term loans
|
|
|
(11,068
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,068
|
)
|
|
Translation
|
|
|
(16,982
|
)
|
|
|
(1,420
|
)
|
|
|
--
|
|
|
|
(18,402
|
)
|
|
Balance at June 30, 2018
|
|
$
|
405,080
|
|
|
$
|
25,129
|
|
|
$
|
--
|
|
|
$
|
430,209
|
|
We funded the cash portion of the consideration for the Noralta acquisition with cash on hand and borrowings under the Amended Credit Agreement. Our Amended Credit Agreement allows us to include in our leverage ratio calculation the trailing twelve months of an acquired company’s EBITDA on a pro forma combined basis. By including Noralta’s EBITDA in our leverage ratio calculation, our borrowing capacity under the Amended Credit Agreement increased, thereby allowing us to borrow the necessary funds to pay the cash consideration portion of the acquisition.
We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months. If our plans or assumptions change, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders. In addition, in some cases, we may incur costs to acquire land and/or construct assets without securing a customer contract or prior to finalization of an accommodations contract with a customer. If the contract is not obtained or the underlying investment decision is delayed, the resulting impact could result in an impairment of the related investment.
Amended Credit Agreement
On April 2, 2018, the Amended Credit Agreement became effective, which:
|
|
●
|
provided for the reduction by $35.5 million of the aggregate revolving loan commitments under the Amended Credit Agreement, to a maximum principal amount of $239.5 million, allocated as follows: (1) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (2) a $159.5 million senior secured revolving credit facility, after combining the commitments of the previously existing two tranches of the Canadian revolving credit facility into one tranche, in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (3) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower;
|
|
|
●
|
extended the maturity date by 18 months, from May 30, 2019 to November 30, 2020;
|
|
|
●
|
adjusted the maximum leverage ratio financial covenant, as follows:
|
|
Period Ended
|
Maximum Leverage Ratio
|
|
|
|
|
June 30, 2018
|
4.50 : 1.00
|
|
September 30, 2018
|
4.25 : 1.00
|
|
December 31, 2018
|
3.75 : 1.00
|
|
March 31, 2019 & thereafter
|
3.50 : 1.00
|
; and
|
|
●
|
provided for other technical changes and amendments to the Credit Agreement.
|
U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total leverage to EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to the Canadian Dollar Offered Rate plus a margin of 2.25% to 4.00%, or a base rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our consolidated total leverage to EBITDA. Australian dollar amounts outstanding under the Amended Credit Facility bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our consolidated total leverage to EBITDA.
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) subsidiary indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 4.50 to 1.0 (as of June 30, 2018). As noted above, the permitted maximum leverage ratio changes over time. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement. EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization and other non-cash charges. We were in compliance with our covenants as of June 30, 2018.
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of June 30, 2018, we had nine lenders that are parties to the Credit Agreement, with commitments ranging from $24.9 million to $110.6 million.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board of Directors deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Amended Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may again be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future.
The preferred shares we issued in the Noralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially US$10,000 per share), subject to increase to up to 3% in certain circumstances, paid quarterly in cash or, at our option, by increasing the preferred shares’ liquidation preference, or any combination thereof. On June 30, 2018, a dividend was paid in-kind, thereby increasing the liquidation preference to $10,049 per share. We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash. For further information, please see Note 12 – Preferred Shares.
Off-Balance Sheet Arrangements
As of June 30, 2018, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
For additional information about our contractual obligations, refer to “Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2017. As of June 30, 2018, except for net borrowings under our revolving credit facilities, there were no material changes to this disclosures regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2017.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.