DALLAS, TX -- May 1st, 2025 -- Civeo Corporation (NYSE: CVEO): Stonegate Capital Partners updates their coverage on Civeo Corporation. Civeo reported negative free cash flow of ($13.5M) in 1Q25, down from $7.2M in the prior-year period, primarily due to negative operating cash flow of ($8.4M) and $5.3M in capital expenditures. Despite near-term headwinds, the Company reaffirmed its confidence in long-term free cash flow generation, supported by a capital-light model and a high mix of recurring asset-light services revenue. As part of its updated capital allocation strategy, Civeo increased its share repurchase authorization from 10% to 20% of shares outstanding and plans to use 100% of FCF to complete the program. In the quarter, the Company repurchased 153,000 shares for approximately $3.3M and suspended its quarterly dividend to prioritize buybacks and enhance financial flexibility. Net debt rose $20.9M quarter-over-quarter to $59.0M, resulting in a net leverage ratio of 0.8x.
Company Updates:
Quarterly Results: CVEO reported revenue, adj EBITDA, and adj EPS of $144.0M, $12.7M, and ($0.72), respectively. This compares to our/consensus estimates of $150.7M/$148.1M, $12.0M/$14.8M, and ($0.84)/($0.43), respectively. Consolidated revenue fell short of expectations; this underperformance was driven by weakness in both pricing and billed rooms volume in the Canadian segment, despite the robust performance observed in the Australian segment.
Canadian Segment: Civeo’s Canadian operations remained under pressure in 1Q25, with revenues falling 40.0% y/y to $40.4M and Adj. EBITDA declining to ($0.2M). This deterioration reflects reduced customer spending in the oil sands region and the loss of Fort Hills-related occupancy following the sale of McClelland Lake Lodge. Billed rooms declined to $358.7M, down from $610.0M y/y. In response, the Company implemented aggressive cost-cutting measures, including a 25% reduction in Canadian headcount and cold-shuttering two lodges, resulting in a $1.0M restructuring charge in the quarter, with a similar charge expected in 2Q25. Civeo also retained a third-party consultant to lead further cost-streamlining initiatives.
Australian Segment: The Australian segment remained a key driver of performance, posting 13% y/y revenue growth to $103.6M and stable Adj. EBITDA of $20.5M. Growth was driven by increased integrated services activity under the six-year, A$1.4B contract. The segment also advanced its strategic expansion in the Bowen Basin, with the acquisition of four villages and associated take-or-pay contracts expected to close in 2Q25. Despite FX headwinds, Australian operations continue to benefit from high occupancy and robust customer activity.
Guidance: CVEO revised its 2025 guidance, with revenue between $620M and $650M and Adj. EBITDA of $75M to $85M. The Company also lowered CapEx guidance to $20M–$25M, citing a continued focus on disciplined capital deployment. Guidance does not include any contribution from the pending Bowen Basin acquisition, expected to be accretive following its close in 2Q25. We believe this is reasonable and have adjusted our model.
Valuation: We use both a DCF and EV/EBITDA comp analysis to guide our valuation. Our DCF analysis produces a valuation range of $29.03 to $32.28 with a mid-point of $30.53. Our EV/EBITDA valuation results in a range of $31.07 to $37.91 with a mid-point of $34.49.
