Stonegate Capital Partners Updates Coverage on Civeo Corporation (NYSE: CVEO) 2023 Q1

DALLAS, TX -- May 1st, 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: Civeo Q1 2023 Report

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. As was expected the company had negative FCF in 1Q23 due to regular seasonality that saw CVEO building working capital. Despite this negative FCF in the quarter and increased CapEx guidance for FY23 the Company reiterated their 2023 FCF guidance 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. CVEO continued to return capital through share repurchases in 1Q23 on top of the approximately 1.5 million common shares repurchased in 4Q22. Since August 2021, 10% of fully diluted common shares have been repurchased. Management has indicated that a formal policy for capital allocation can be expected by the end of 2023.
• 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 $10M in 2023 and $6M in 2024, which will significantly impact EBITDA. Current 2023 EBTIDA guidance is in range of $85M to $95M, decreasing ~20% year-over-year at the midpoint. Given the potential for strong demand from customers doing turnaround work, we have modeled EBITDA towards the higher end of guidance.
• Room Rates: The Canadian segment saw a decrease in its average daily room rates from $106 in 1Q22 to $96 in 1Q23. while the Australian segment saw a narrower decline, dropping from $79 in 1Q22 to $78 in 1Q23. 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 1Q23 were roughly 1.17 million, up 5% year-over-year, compared to 1.11 million billed rooms in 1Q22.
• 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 1.2x with total debt at $142.6M as of 1Q23. This is compared to a Net leverage ratio of 1.4x and total debt of $177.9M in 1Q22.
• 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, with a sale worth ~$1.7M of Acadian Acres housing in 1Q23.
• 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 $30.37 to $36.95, with a mid-point at $33.66.