Stonegate Capital Partners Updates Coverage on Civeo Corporation (NYSE: CVEO) 2024 Q1

DALLAS, TX -- April 29th, 2024 --  Civeo Corporation (NYSE: CVEO): Stonegate Capital Partners updates their coverage on Civeo Corporation.

COMPANY UPDATES

• Significant Free Cash Flow Generation: Civeo has been free cash flow positive every year since 2014 and is expected to maintain positive FCF going forward. CVEO built on the $81.7M in FCF posted in FY23 by starting the year with $7.2M in FCF for 1Q24. This is noticeable when compared to the negative FCF in 1Q23. CVEO stated its FCF guidance for FY24 in a range of $45.0M to $60.0M with a midpoint of $52.5M.
• Quarterly Results: CVEO reported revenue, adj EBITDA, and adj EPS of $166.1M, $17.3M, and ($0.35), respectively. This compares to our/consensus estimates of $157.4M/$154.7M, $14.9M/$14.5M, and ($0.07)/($0.20), respectively. Revenue was higher than expectations, driven by strength in the Australian market and greater than expected billed rooms. The operating margin was above our expectations by ~117bps. This led to an Adj. EBITDA beat of $2.8M vs our expectations.
• Capital Allocation: In 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 1Q24 worth approximately $3.2M, over 133,000 shares. Additionally, the Company decreased net debt by $67.7M year over year and $0.4M since the previous quarter. This translates into a net leverage ratio of 0.6x, which is unchanged since the previous quarter. CVEO also maintained its dividend for a fourth straight quarter at an annualized value of $1.00, equal to a dividend yield of 4.0%. CVEO ended the quarter with $120.1M in revolver availability and $16.8M in cash for $136.9M in liquidity.
• Canadian Segment: The Canadian market saw year over year revenues and adj. EBITDA decrease 25% and 54%, respectively. This was despite room rates increasing 2.1% year over year. Weakness in the Canadian market was driven by a significant decrease in mobile facility rental due to the challenging LNG market. The Company will incur demobilization costs of $4M in 2Q24, which will significantly impact EBITDA and is included in guidance. CVEO has now completed the sale of its McClelland Lake Lodge, with all proceeds accounted for.
• Australian Segment: The Australian market was a point of strength in the quarter as billed rooms and gross profits were up 17.5% and 37%, respectively. These strong results were despite the FX headwind. Management noted that three villages in the Bowen Basin were full, with healthy occupancy across the remainder of its owned village portfolio. Lastly, CVEO reiterated its goal to grow integrated services to A$500.0M in top line revenues by 2027.
• Guidance Update: Current 2024 Adj. EBTIDA guidance is in the range of $80.0M to $90.0M. This is a year-over-year decrease of 16.7% at the midpoint to account for the McClelland Lake sale as well as demobilization costs. We have adjusted our model accordingly.
• Valuation: We use both a DCF and EV/EBITDA comp analysis to guide our valuation. Our DCF analysis produces a valuation range of $31.17 to $36.94 with a mid-point of $33.68. Our EV/EBITDA valuation results in a range of $28.78 to $35.04 with a mid-point of $31.91.