Civeo(CVEO) - 2020 Q4 - Annual Report

Part I Cautionary Statement Regarding Forward-Looking Statements This section provides a safe harbor statement for forward-looking statements and lists key risk factors - On November 19, 2020, the company executed a 1-for-12 reverse share split, with all data retroactively adjusted[15] - Key risk factors that could cause actual results to differ from forward-looking statements include supply and demand for commodities, activity levels in Canadian oil sands, demand from China, and the impact of the COVID-19 pandemic[18][19] Business The company provides hospitality services to the natural resources industry with operations in Canada, Australia, and the U.S Key Financial and Operational Metrics (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Revenue | $529.7M | $527.6M | $466.7M | | Operating Loss | ($147.2M) | ($49.1M) | ($88.1M) | | Canada Billed Rooms | 2,095,784 | 3,078,727 | 3,007,229 | | Australia Billed Rooms | 1,968,284 | 1,717,186 | 1,512,030 | Revenue by Type and Geography (2020) | Revenue Type | Canada | Australia | U.S. | Total | | :--- | :--- | :--- | :--- | :--- | | Accommodation | $202.5M | $144.1M | $2.5M | $349.1M | | Mobile Facility Rental | $33.2M | - | $16.8M | $50.0M | | Food Service & Other | $33.9M | $90.5M | $0.1M | $124.4M | | Manufacturing | - | - | $6.2M | $6.2M | | Total Revenue | $269.6M | $234.5M | $25.5M | $529.7M | - The company's largest customers in 2020 were Fortescue Metals Group Ltd and Imperial Oil Limited, each accounting for more than 10% of total revenues[105] Operations by Geography Operations are geographically diversified, with performance tied to regional commodity markets like oil sands, LNG, and met coal - Canada (51% of 2020 Revenue): Operations were negatively impacted by low oil prices and COVID-19, partially offset by LNG-related activity[54][59][64] - Australia (44% of 2020 Revenue): Performance was strong, driven by a 2019 acquisition and robust mining activity, despite trade dispute risks[75][79][45] - U.S. (5% of 2020 Revenue): The segment saw a significant downturn due to the collapse in oil prices and drilling activity[91][96] Contracts and Human Capital Revenues are supported by multi-year contracts, and the company manages a workforce of approximately 2,000 employees - Lodge and village revenues are typically secured under take-or-pay or exclusivity contracts ranging from several months to three years[111] Contracted Room Expiration Schedule (as of Dec 31, 2020) | Year | Contracted Rooms Expiring | | :--- | :--- | | 2021 | 1,983 | | 2022 | 2,492 | | 2023 | 1,000 | | Thereafter | 3,473 | | Total | 8,948 | - As of December 31, 2020, Civeo had approximately 1,000 full-time and 1,000 hourly employees[115] Government Regulation The business is significantly affected by environmental laws and climate change regulations across its operating geographies - The company's business is affected by environmental laws, with potential cost increases from climate-related regulations[122][123] - Canada: Increasing federal carbon prices, set to reach $170 per tonne by 2030, may raise operating costs for oil sands customers[127][137] - Australia: Operations are regulated by federal and state environmental controls, with potential reforms to the EPBC Act[154][155] - U.S.: The Biden administration's reentry into the Paris Agreement signals potential for stricter future climate regulations[164][170] Risk Factors The company faces significant risks from commodity price volatility, the COVID-19 pandemic, customer concentration, and debt covenants - Macroeconomic Risk: Demand for services is highly sensitive to volatile commodity prices and has been adversely impacted by the COVID-19 pandemic[187][193] - Customer Risk: The company depends on a few significant customers, and the loss of any major customer could materially harm the business[197][204] - Operational Risk: The majority of major Canadian lodges are on land subject to provincial leases expiring between 2022 and 2028[217][218] - Financial Risk: Substantial indebtedness with restrictive covenants poses a risk of default and debt acceleration[231][233] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[285] Properties The company's principal properties consist of owned and leased land for its lodges, villages, and operational facilities - The company's principal properties include large-acreage sites for its lodges, with many major Canadian properties on leased government land[286][288] - Leases for the Canadian lodge properties generally have initial ten-year terms and are scheduled to expire between 2021 and 2028[291] Legal Proceedings The company does not expect pending legal proceedings to have a material adverse effect on its financial position - Civeo is involved in various legal proceedings but does not expect the outcomes to have a material adverse effect on its financial condition[292] Mine Safety Disclosures This section is not applicable to the company - Not applicable[293] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on the NYSE, and it currently does not pay cash dividends on common stock - The company's common shares are traded on the NYSE under the symbol CVEO[296] - Civeo does not pay cash dividends on its common shares; dividends on preferred shares are paid in-kind[298][299] Selected Financial Data This section is not applicable - Not applicable[308] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of COVID-19 and commodity prices, leading to a widened operating loss from impairments - The economic disruption from COVID-19 led to decreased demand and cost containment initiatives, including a 33% headcount reduction in North America[321] - In Australia, a trade dispute with China led to an unofficial embargo on Australian coal, causing met coal price volatility[334][336] - The company expects 2021 capital expenditures to be approximately $20.0 million to $25.0 million, an increase from $10.1 million in 2020[343][377] Results of Operations (2020 vs. 2019) The operating loss widened significantly due to $144.1 million in impairment expenses, despite flat revenues Consolidated Results of Operations (in thousands) | Line Item | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $529,729 | $527,555 | | Total Costs and Expenses | $676,917 | $576,606 | | Operating Loss | ($147,188) | ($49,051) | | Net Loss Attributable to Civeo | ($134,250) | ($58,491) | | Net Loss per Share | ($9.64) | ($4.33) | - The significant increase in operating and net loss in 2020 was primarily due to impairment expenses of $144.1 million[346][353] - Depreciation and amortization expense decreased by $27.2 million (22%) in 2020, mainly due to asset impairments[352] - Other income increased, primarily due to receiving $13.0 million from the Canada Emergency Wage Subsidy (CEWS)[358] Segment Results Strong Australian revenue growth offset sharp declines in the Canadian and U.S. segments Canadian Segment Results | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $269.6M | $325.7M | | Gross Margin % | 22.4% | 26.4% | | Billed Rooms | 2,095,784 | 3,078,727 | | Average Daily Rate | $95 | $91 | Australian Segment Results | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $234.5M | $156.1M | | Gross Margin % | 38.3% | 42.9% | | Billed Rooms | 1,968,284 | 1,717,186 | | Average Daily Rate | $73 | $73 | U.S. Segment Results | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $25.5M | $45.8M | | Gross Margin % | (10.0)% | 16.8% | Liquidity and Capital Resources The company maintained total available liquidity of $105.4 million and extended its credit agreement maturity to 2023 Available Liquidity (in thousands) | Component | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Unused Availability | $99,257 | $120,761 | | Cash and Equivalents | $6,155 | $3,331 | | Total Available Liquidity | $105,412 | $124,092 | - Cash from operations increased to $117.4 million in 2020 from $74.5 million in 2019, driven by working capital management and CEWS proceeds[375] - In September 2020, the company amended its Credit Agreement, extending the maturity date to May 30, 2023[388][389] Critical Accounting Policies Key policies include the impairment testing of goodwill and long-lived assets, which involves significant management assumptions - The company identifies impairment of goodwill and long-lived assets as a critical accounting policy, requiring significant assumptions[405][411][414] - For the annual goodwill impairment test on November 30, 2020, a qualitative assessment concluded the fair value of the Australia unit exceeded its carrying value[409] - Revenue is generally recognized over time as customers receive and consume benefits[429][430] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are exposure to changes in interest rates and foreign currency exchange rates - The company is exposed to interest rate risk through $251.1 million of floating-rate debt; a 100 basis point increase would raise annual interest expense by $2.5 million[444][446] - A hypothetical 10% adverse change in the CAD and AUD exchange rates would result in translation adjustments of approximately $16 million and $30 million, respectively[447] Financial Statements and Supplementary Data This section incorporates by reference the company's Consolidated Financial Statements and supplementary data - The Consolidated Financial Statements are included from page 71 to 109 of the report[448] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its independent auditors - There were no changes in or disagreements with accountants on accounting and financial disclosure[449] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[451] - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2020[454] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2020[456] Other Information This section is not applicable - Not applicable[457] Part III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[460] Executive Compensation Required information is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement[462] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Required information is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information regarding security ownership is incorporated by reference from the 2021 Proxy Statement[463] Certain Relationships and Related Transactions, and Director Independence Required information is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the 2021 Proxy Statement[464] Principal Accounting Fees and Services Required information is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement[465] Part IV Exhibits, Financial Statement Schedules This section provides an index to the financial statements and lists all exhibits filed with the Form 10-K - This section contains the index to financial statements and a list of all exhibits filed with the report[468][469] Form 10-K Summary This section is not applicable - None[475] Financial Statements Consolidated Statements of Operations The company reported a net loss of $134.3 million in 2020, driven by a significant $144.1 million impairment expense Consolidated Statements of Operations Highlights (in thousands) | Line Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | $529,729 | $527,555 | $466,692 | | Impairment expense | $144,120 | $26,148 | $28,661 | | Operating loss | ($147,188) | ($49,051) | ($88,055) | | Net loss attributable to Civeo | ($134,250) | ($58,491) | ($82,243) | | Diluted net loss per share | ($9.64) | ($4.33) | ($10.06) | Consolidated Balance Sheets Total assets decreased to $740.9 million due to impairments, while total liabilities declined from debt repayments Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $119,213 | $131,441 | | Property, plant and equipment, net | $486,930 | $590,309 | | Goodwill | $8,729 | $110,173 | | Total assets | $740,853 | $969,912 | | Total current liabilities | $116,765 | $110,040 | | Total long-term debt | $214,000 | $321,792 | | Total liabilities | $365,496 | $479,107 | | Total shareholders' equity | $375,357 | $490,805 | Consolidated Statements of Cash Flows Net cash from operations increased significantly to $117.4 million, while investing cash flow decreased sharply Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $117,361 | $74,481 | $54,391 | | Net cash used in investing activities | ($1,774) | ($38,578) | ($181,947) | | Net cash provided by (used in) financing activities | ($114,206) | ($44,631) | $109,523 | | Net change in cash | $2,824 | ($9,041) | ($20,275) | | Cash at end of period | $6,155 | $3,331 | $12,372 | Notes to Consolidated Financial Statements Key disclosures include details on impairment charges, acquisitions, debt amendments, and the 2020 reverse stock split - Note 4 - Impairment Charges: In Q1 2020, the company recorded a $93.6 million goodwill impairment for its Canadian reporting unit and $50.5 million in long-lived asset impairments[587] - Note 7 - Acquisitions: Details the 2019 Action acquisition for $16.9 million and the 2018 Noralta acquisition for $315.6 million[607][610][615] - Note 11 - Debt: As of Dec 31, 2020, total debt was $251.1 million under an amended credit agreement maturing in May 2023[627][630][631] - Note 19 - Preferred Shares: A beneficial conversion feature on preferred shares issued in the Noralta acquisition resulted in a one-time deemed dividend of $47.8 million in 2018[682][684]