Civeo's Tremendous Quarter

| About: Civeo Corporation (CVEO)

Summary

Shares of Civeo initially rose but ended up closing flat for the day despite management handily beating sales and earnings forecasts for the quarter.

In addition to making progress on debt reduction and some cost categories, the company announced good occupancy rates and some cost reductions.

Moving forward, I am still bullish on Civeo and intend to continue holding my stake in the enterprise for the foreseeable future.

Shares of Civeo Corp. (NYSE:CVEO) moved materially higher earlier in the day but eventually closed flat on July 29th after management released financial results for the second quarter of the firm's 2016 fiscal year. In this article, I decided that it would be a good time to look back and re-evaluate my prior thoughts on the business based on a previous article I wrote on the company just before earnings.

Civeo topped forecasts

According to management, performance during the quarter was stellar (my choice of words, not theirs) compared to where analysts had been forecasting. During this time frame, revenue for the company came in at $107.04 million. Although this represents a sizable decrease from the $143.15 million management reported the same quarter a year earlier, it is well above the $99.30 million analysts were expecting.

On the bottom line, results were also better than expected (though only marginally so). Based on the data provided, Civeo generated a loss per share of $0.11. This is worse than last year's second quarter when the business saw a loss of $0.05 per share but beat forecasts, which called for a loss per share during the quarter of $0.13. While a net loss is always a bad thing, it should be mentioned that this is due largely to the fact that the company has a nice chunk of depreciation and amortization that it books every quarter. Looking at free cash flow, the number for the quarter was an impressive $19.22 million.

Another item that management reported relates to 2016's fiscal outlook. Previously, management expected sales this year to range between $385 million and $415 million but this has been narrowed to between $390 million and $400 million. Meanwhile, EBITDA is now expected to be between $74 million and $82 million this year, a slightly narrowing guidance compared to prior forecasts calling for $72 million to $82 million.

A look at what I said to watch out for

Management also had some good news for its shareholders besides sales, profits and cash flow. For starters, they said that they reduced debt during the quarter by $17 million. Today, total debt for Civeo stands at $391.12 million. This actually falls in line with one of my expectations for the quarter, which is that management should be focusing more on debt reduction. Although the amount outstanding is still significant, they do have $131.9 million in liquidity on hand, $129.6 million of which is in the form of credit facility capacity.

Another issue that management addressed quite well was cost cutting. According to the firm's press release, its total cost of goods sold fell from 62.5% of sales in the second quarter last year to 60.3% this year. Unfortunately, selling, general and administrative costs rose by 1.4% of sales year over year, partially offsetting this, but as I said in my last article on the business, it wouldn't be a good idea to get hopes up in that category since corporate costs tend to be stickier than other costs.

The last noteworthy item that I believe investors should have kept an eye on related to news surrounding the Fort McMurray wildfire and the impact it could have on occupancy and room rates. According to management, occupancy rates did benefit from recovery efforts associated with the fire, bringing the rate in its Canadian operations up from 60% in the first quarter to 62% in the second. This was worse than the 63% occupancy rate seen in the second quarter of last year, but the overall drop year over year is small when you consider that there was a drop from 68% in the first quarter of last year to the first quarter this year.

Management did not say anything regarding the impact that the Fort McMurray wildfire had on room rates, but they were still down 10% year over year in the second quarter (just 5.4% if you adjust for currency fluctuations). This compares to a year-over-year decline seen in the first quarter of this year totaling 17.8% (9% after adjusting for currency fluctuations) so it is possible that the Fort McMurray wildfire had a positive impact there but it's also very possible that it could be driven by a stabilization of the energy industry in Canada instead.

Takeaway

Based on the data provided, I must say that I am quite happy with how things worked out for Civeo. I wish Mr. Market had cared more about the news than it did because any business operating in any other industry very likely would have soared in response to the kind of sales and earnings beat the company enjoyed. Having said that, if things continue to fare well for the enterprise, it's likely only a matter of time before investors give the company credit for its efforts.

Disclosure: I am/we are long CVEO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.