Stonegate Capital Partners Initiates Coverage on Civeo Corporation (NYSE: CVEO)

DALLAS, TX -- March 28th, 2023 --  Civeo Corporation (NYSE: CVEO): Stonegate Capital Partners initiates their coverage on Civeo Corporation. The full report can be accessed by clicking on the following link: https://stonegateinc.com/reports/CVEO_Initiation.pdf

COMPANY UPDATES

• Significant Free Cash Flow Generation: The Company continues to maximize its generation of free cash flow. Civeo has been free cash flow positive every year since 2014 and is expected to maintain positive FCF going forward. In 2022 the Company generated $82.6 million of free cash flow, and the current 2023 outlook guides to a FCF midpoint of $51 million.
• Returning Capital to Shareholders: Throughout 2022, Civeo initiated a share repurchase program as part of its plan to return capital to shareholders. The equivalent of approximately 1.5 million common shares were repurchased for $45 million. During 4Q22, 40% of Class A Series 1 preferred shares, equal to 999,000 common, were repurchased. Since August 2021, 10% of fully diluted common shares have been repurchased.
• Camp Demobilization: With the upcoming construction wind down of the TMX and Coastal GasLink pipelines, Civeo will begin demobilizing its mobile camps starting in 2Q23 and into 2024. The Company will incur demobilization costs of CAD$13 million in 2023 and CAD$7 million in 2024, which will impose a significant hit to EBITDA. Current 2023 outlook is guiding to an EBITDA midpoint of $90 million, decreasing approximately 20% year-over-year.
• Room Rates: The Canadian segment slightly increased its average daily room rates from $99 to $100/night in 2022, while the Australian segment saw a decline, dropping from $79 to $75/night. The movements in roommates were affected by the weakening of the Australian and Canadian dollars compared to the U.S. dollar. An increase in billed rooms helped offset struggling roommates. Total billed rooms in 2022 were roughly 4.78 million, up 12% year-over-year, compared to 4.25 million billed rooms in 2021. Management has not provided guidance for expected room occupancy in 2023 but is expected to provide more clarity during 2H23.
• Continuing to Reduce Debt: The Company has steadily strengthened its balance sheet since 2019. Management has been transparent about prioritizing debt reduction and deleveraging. Net leverage ratio stands at 1.1x with total debt at $132 million as of December 31, 2022. The healthy balance sheet positioning rides in the wake of consistent free cash flow generation.
• Divesting U.S. Business: Civeo divested the U.S. segment’s offshore and wellsite businesses in the 2nd half of 2022, leaving Killdeer and Acadian Acres as the two remaining lodges. The Company is actively seeking opportunities to divest the remaining portion of its U.S. segment.
• Valuation: We are using both a DCF Analysis and Comp Analysis to frame valuation. Our DCF arrives at a valuation range of $27.76 to $35.70, with a mid-point of $31.19. Our comp analysis uses an EV/EBITDA framework on our F24 estimates and arrives at a range of $28.26 to $34.48, with a mid-point at $31.37.