Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from _________________________ to _________________________
Commission file number: 001-36246
Civeo Corporation
 
(Exact name of registrant as specified in its charter)
British Columbia, Canada
98-1253716
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
Three Allen Center, 333 Clay Street, Suite 4980,
77002
Houston, Texas
(Zip Code)
(Address of principal executive offices)
 
(713) 510-2400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]
NO [  ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES [X]
NO [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "accelerated filer," "large accelerated filer," "smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [  ]
Accelerated Filer [X]
Emerging Growth Company [  ]
 
 
 
Non-Accelerated Filer [  ]  
Smaller Reporting Company [  ]
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [  ]
NO [X ]

The Registrant had 169,301,917 common shares outstanding as of April 22, 2019.



CIVEO CORPORATION
INDEX
 
Page No.
Part I -- FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements:
 
 
 
Consolidated Financial Statements
 
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 
Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018
Consolidated Balance Sheets – as of March 31, 2019 (unaudited) and December 31, 2018
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 
Notes to Unaudited Consolidated Financial Statements
 
 
Cautionary Statement Regarding Forward-Looking Statements
 
 
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.   Controls and Procedures
 
 
 
 
Part II -- OTHER INFORMATION
 
 
 
Item 1.     Legal Proceedings
 
 
Item 1A.  Risk Factors
 
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6.     Exhibits
 
 
(a) Index of Exhibits
 
 
Signature Page


2


PART I -- FINANCIAL INFORMATION
 
ITEM 1. Financial Statements

CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Revenues:
 
 
 
Service and other
$
100,079

 
$
93,083

Rental
6,490

 
3,321

Product
1,981

 
5,100

 
108,550

 
101,504

Costs and expenses:
 
 
 
Service and other costs
72,644

 
68,806

Rental costs
5,150

 
4,522

Product costs
1,836

 
4,373

Selling, general and administrative expenses
16,096

 
16,514

Depreciation and amortization expense
30,782

 
30,764

Impairment expense

 
28,661

Other operating expense (income)
(65
)
 
379

 
126,443

 
154,019

Operating loss
(17,893
)
 
(52,515
)
 
 
 
 
Interest expense
(6,635
)
 
(5,822
)
Interest income
27

 
58

Other income
2,978

 
2,259

Loss before income taxes
(21,523
)
 
(56,020
)
Income tax benefit
4,484

 
685

Net loss
(17,039
)
 
(55,335
)
Less: Net income attributable to noncontrolling interest

 
122

Net loss attributable to Civeo Corporation
(17,039
)
 
(55,457
)
Less: Dividends attributable to Class A preferred shares
459

 

Net loss attributable to Civeo common shareholders
$
(17,498
)
 
$
(55,457
)
 
 
 
 
 
 
 
 
Per Share Data (see Note 9) 
 
 
 
Basic net loss per share attributable to Civeo Corporation common shareholders
$
(0.11
)
 
$
(0.42
)
 
 
 
 
Diluted net loss per share attributable to Civeo Corporation common shareholders
$
(0.11
)
 
$
(0.42
)
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
Basic
165,330

 
131,631

Diluted
165,330

 
131,631

The accompanying notes are an integral part of these financial statements.


3


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
 
 
 
Net loss
$
(17,039
)
 
$
(55,335
)
 
 
 
 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment, net of taxes of zero
5,379

 
(7,821
)
Total other comprehensive income (loss)
5,379

 
(7,821
)
 
 
 
 
Comprehensive loss
(11,660
)
 
(63,156
)
Less: Comprehensive income attributable to noncontrolling interest

 
122

Comprehensive loss attributable to Civeo Corporation
$
(11,660
)
 
$
(63,278
)
The accompanying notes are an integral part of these financial statements.


4


CIVEO CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 
March 31, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
7,992

 
$
12,372

Accounts receivable, net
73,513

 
70,223

Inventories
4,276

 
4,313

Prepaid expenses
5,565

 
7,036

Other current assets
3,702

 
3,556

Assets held for sale
8,058

 
10,297

Total current assets
103,106

 
107,797

 
 
 
 
Property, plant and equipment, net
650,919

 
658,905

Goodwill
119,158

 
114,207

Other intangible assets, net
111,542

 
119,409

Operating lease right-of-use assets
22,225

 

Other noncurrent assets
1,048

 
1,359

Total assets
$
1,007,998

 
$
1,001,677

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
30,053

 
$
28,334

Accrued liabilities
13,371

 
15,956

Income taxes
572

 
310

Current portion of long-term debt
34,068

 
33,329

Deferred revenue
3,598

 
3,035

Other current liabilities
9,407

 
5,719

Total current liabilities
91,069

 
86,683

 
 
 
 
Long-term debt, less current maturities
346,841

 
342,908

Deferred income taxes
13,838

 
18,442

Operating lease liabilities
18,529

 

Other noncurrent liabilities
16,404

 
18,220

Total liabilities
486,681

 
466,253

 
 
 
 
Commitments and contingencies (Note 12)

 

 
 
 
 
Shareholders’ Equity:
 
 
 
Preferred shares (Class A Series 1, no par value; 50,000,000 shares authorized, 9,042 shares issued and outstanding, respectively; aggregate liquidation preference of $92,236,909 as of March 31, 2019)
56,739

 
56,280

Common shares (no par value; 550,000,000 shares authorized, 171,401,230 shares and 166,392,479 shares issued, respectively, and 169,301,917 shares and 165,932,334 shares outstanding, respectively)

 

Additional paid-in capital
1,564,667

 
1,562,133

Accumulated deficit
(728,748
)
 
(710,551
)
Common shares held in treasury at cost, 2,099,313 and 460,145 shares, respectively
(5,471
)
 
(1,189
)
Accumulated other comprehensive loss
(365,870
)
 
(371,249
)
Total Civeo Corporation shareholders’ equity
521,317

 
535,424

Noncontrolling interest

 

Total shareholders’ equity
521,317

 
535,424

Total liabilities and shareholders’ equity
$
1,007,998

 
$
1,001,677

The accompanying notes are an integral part of these financial statements.

5


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands)
 
 
Attributable to Civeo
 
 
 
 
 
Preferred
Shares
 
Common
Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount
 
Par Value
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total
Shareholders’
Equity
Balance, December 31, 2017
$

 
$

 
$
1,383,934

 
$
(579,113
)
 
$
(358
)
 
$
(328,213
)
 
$
117

 
$
476,367

Net income (loss)

 

 

 
(55,457
)
 

 

 
122

 
(55,335
)
Currency translation adjustment

 

 

 

 

 
(7,821
)
 

 
(7,821
)
Dividends paid

 

 

 

 

 

 
(119
)
 
(119
)
Cumulative effect of implementation of ASU 2014-09

 

 

 
394

 

 

 

 
394

Issuance of shares for acquisition

 

 
4,500

 

 

 

 

 
4,500

Share-based compensation

 

 
2,200

 

 
(594
)
 

 

 
1,606

Balance, March 31, 2018
$

 
$

 
$
1,390,634

 
$
(634,176
)
 
$
(952
)
 
$
(336,034
)
 
$
120

 
$
419,592

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
$
56,280

 
$

 
$
1,562,133

 
$
(710,551
)
 
$
(1,189
)
 
$
(371,249
)
 
$

 
$
535,424

Net income (loss)

 

 

 
(17,039
)
 

 

 

 
(17,039
)
Currency translation adjustment

 

 

 

 

 
5,379

 

 
5,379

Cumulative effect of implementation of ASU 2016-02

 

 

 
(699
)
 

 

 

 
(699
)
Dividends attributable to Class A preferred shares
459

 

 

 
(459
)
 

 

 

 

Share-based compensation

 

 
2,534

 

 
(4,282
)
 

 

 
(1,748
)
Balance, March 31, 2019
$
56,739

 
$

 
$
1,564,667

 
$
(728,748
)
 
$
(5,471
)
 
$
(365,870
)
 
$

 
$
521,317

 
Preferred
Shares (in
thousands)
 
Common
Shares (in
thousands)
Balance, December 31, 2018
9,042

 
165,932

Stock-based compensation

 
3,370

Balance, March 31, 2019
9,042

 
169,302

The accompanying notes are an integral part of these financial statements.


6


CIVEO CORPORATION
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(17,039
)
 
$
(55,335
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
30,782

 
30,764

Impairment charges

 
28,661

Deferred income tax provision (benefit)
(4,745
)
 
2

Non-cash compensation charge
2,534

 
2,200

Gains on disposals of assets
(1,452
)
 
(2,147
)
Provision for loss on receivables, net of recoveries
(32
)
 
(35
)
Other, net
(410
)
 
2,047

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,377
)
 
4,837

Inventories
87

 
2,190

Accounts payable and accrued liabilities
(1,417
)
 
(10,352
)
Taxes payable
262

 
(1,358
)
Other current assets and liabilities, net
148

 
1,364

Net cash flows provided by operating activities
6,341

 
2,838

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(9,679
)
 
(2,696
)
Payments related to acquisitions, net of cash acquired

 
(23,771
)
Proceeds from disposition of property, plant and equipment
4,457

 
2,718

Other, net
1,518

 
110

Net cash flows used in investing activities
(3,704
)
 
(23,639
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Revolving credit borrowings
80,324

 
47,166

Revolving credit repayments
(74,928
)
 
(11,525
)
Term loan repayments
(8,608
)
 
(4,079
)
Taxes paid on vested shares
(4,282
)
 
(594
)
Net cash flows provided by (used in) financing activities
(7,494
)
 
30,968

 
 
 
 
Effect of exchange rate changes on cash
477

 
(837
)
Net change in cash and cash equivalents
(4,380
)
 
9,330

Cash and cash equivalents, beginning of period
12,372

 
32,647

 
 
 
 
Cash and cash equivalents, end of period
$
7,992

 
$
41,977

 
 
 
 
Non-cash investing activities:
 
 
 
Value of common shares issued as consideration for acquisitions
$

 
$
4,500

 
 
 
 
Non-cash financing activities:
 
 
 
Preferred dividends paid-in-kind
$
459

 
$

The accompanying notes are an integral part of these financial statements.


7

CIVEO CORPORATION
 
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS



1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
Description of the Business
 
We are a hospitality company servicing the natural resources industry in Canada, Australia and the U.S. We provide a full suite of hospitality services for our guests, including lodging, food service, housekeeping and maintenance at accommodation facilities that we or our customers own. We also, in many cases, provide services that support the day-to-day operations of accommodation facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and group logistics. We also offer development activities for workforce accommodation facilities, including site selection, permitting, engineering and design, manufacturing management and site construction, along with providing hospitality services once the facility is constructed. We operate in some of the world’s most active oil, coal and iron ore producing regions, and our customers include major and independent oil companies, mining companies and oilfield and mining service companies. We operate in three principal reportable business segments – Canada, Australia and U.S.
 
Basis of Presentation
 
Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this report to “dollars” or “$” are to U.S. dollars.
 
The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) has been condensed or omitted pursuant to those rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which Civeo considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of Civeo at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. Certain reclassifications have been made to the consolidated statements of operations for the three months ended March 31, 2018 to conform to current year presentation.
 
The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.
 
The financial statements included in this report should be read in conjunction with our audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

2.
RECENT ACCOUNTING PRONOUNCEMENTS
 
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards or other guidance updates, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption. 

In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those fair values and a residual measurement approach. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019, and early adoption is

8

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


permitted. We will adopt this new standard no later than January 1, 2020. The impact of the new standard will be dependent on the specific facts and circumstances of future individual goodwill impairments, if any.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASU 2016-13). This new standard changes how companies will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 is effective for financial statements issued for reporting periods beginning after December 15, 2019 and interim periods within the reporting periods. We anticipate adopting ASU 2016-13 as of January 1, 2020. We are currently evaluating the impact of this new standard on our consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), which replaces the existing guidance for lease accounting. The guidance is effective for financial statements issued for reporting periods beginning after December 15, 2018 and interim periods within the reporting periods. Effective with this quarterly report on Form 10-Q for the quarter ended March 31, 2019, we have adopted this standard effective January 1, 2019 using the optional transition method, which allows us upon adoption to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit for the application of the standard to our existing leases. Upon adoption of this standard, we recognized a cumulative effect adjustment of $0.7 million (net of $0.2 million of taxes) to increase accumulated deficit in the accompanying unaudited consolidated balance sheet as of March 31, 2019. ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for certain leases. We elected the package of practical expedients, which among other things, allowed us to carry forward the historical lease identification and classification. In addition, we have elected the short-term lease recognition exemption for all leases that qualify. Accordingly, we did not recognize right-of-use assets or lease liabilities for leases with terms shorter than 12 months. Our evaluation process included reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the available practical expedients in order to determine the best implementation strategy. We determined that certain of our accommodation contracts with customers contain both a lease and non-lease or service component and in those instances concluded the service component was the predominant component. As a result, we elected the practical expedient under ASU 2018-11, which allows us to combine the lease and non-lease components of revenues for presentation purposes in accordance with Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (ASC 606). We also have identified certain arrangements with customers whereby we are a lessor for the rental of mobile camp assets primarily in our U.S segment. For arrangements where we are the lessor, the adoption of the new lease standard did not have a material impact on our financial statements as all of our leases are operating leases, which will result in straight-line recognition of rental revenue. Adoption of the new standard resulted in $21.3 million of operating lease right-of-use assets and $22.4 million of operating lease liabilities as of January 1, 2019. Please see Note 14 – Leases for further information. 


9

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


3.
REVENUE
 
The following table disaggregates our revenue by our three reportable segments: Canada, Australia and U.S., and major categories for the periods indicated (in thousands):

 
Three Months Ended
March 31,
 
2019
 
2018
Canada
 
 
 
Accommodation revenues
$
57,652

 
$
50,647

Mobile facility rental revenues
781

 
7,794

Food service and other services revenues
8,337

 
3,739

Manufacturing revenues

 
1,210

Total Canada revenues
66,770

 
63,390

 
 
 
 
Australia
 
 
 
Accommodation revenues
$
28,421

 
$
27,698

Food service and other services revenues

 
177

Total Australia revenues
28,421

 
27,875

 
 
 
 
United States
 
 
 
Accommodation revenues
$
4,924

 
$
3,166

Mobile facility rental revenues
6,597

 
3,577

Manufacturing revenues
1,795

 
3,464

Food service and other services revenues
43

 
32

Total United States revenues
13,359

 
10,239

 
 
 
 
Total revenues
$
108,550

 
$
101,504

 
As of March 31, 2019, for contracts that are greater than one year, the table below discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue (in thousands):

 
For the years ending December 31,
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Revenue expected to be recognized as of March 31, 2019
$
74,823

 
$
55,613

 
$
7,764

 
$
135

 
$
138,335


4.
FAIR VALUE MEASUREMENTS
 
Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.
 
As of March 31, 2019 and December 31, 2018, we believe the carrying value of our floating-rate debt outstanding under our term loans and revolving credit facilities approximates fair value because the terms include short-term interest rates and exclude penalties for prepayment. We estimated the fair value of our floating-rate term loan and revolving credit facilities using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for these loans.
 
During the first quarter of 2018, we wrote down certain long-lived assets to fair value. Our estimates of fair value required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. These assumptions with respect to future circumstances included future oil, coal and natural gas prices, anticipated spending by our customers, the cost of capital, and industry and/or local market conditions. Please see Note 6 – Impairment Charges for further information.
 

10

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


During the first and second quarter of 2018, we acquired certain assets and businesses and recorded them at fair value. Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the valuation are based on our best estimates of future sales, earnings and cash flows after considering factors such as general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long term business plans and recent operating performance. Please see Note 7 – Acquisitions for further information. 

5.
DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
 
Additional information regarding selected balance sheet accounts at March 31, 2019 and December 31, 2018 is presented below (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Accounts receivable, net:
 
 
 
Trade
$
48,089

 
$
48,875

Unbilled revenue
25,538

 
21,169

Other
135

 
555

Total accounts receivable
73,762

 
70,599

Allowance for doubtful accounts
(249
)
 
(376
)
Total accounts receivable, net
$
73,513

 
$
70,223


 
March 31, 2019
 
December 31, 2018
Inventories:
 
 
 
Finished goods and purchased products
$
2,350

 
$
2,461

Work in process
916

 
945

Raw materials
1,010

 
907

Total inventories
$
4,276

 
$
4,313

 
 
Estimated
Useful Life
(in years)
 
March 31, 2019
 
December 31, 2018
Property, plant and equipment, net:
 
 
 
 
 
 
 
 
 
Land
 
 
 
 
 
 
$
46,846

 
$
46,805

Accommodations assets
3
 
 
15
 
1,675,611

 
1,650,758

Buildings and leasehold improvements
7
 
 
20
 
25,496

 
25,168

Machinery and equipment
4
 
 
15
 
10,948

 
10,693

Office furniture and equipment
3
 
 
7
 
55,081

 
54,459

Vehicles
3
 
 
5
 
14,480

 
14,589

Construction in progress
 
 
 
 
 
 
14,415

 
7,119

Total property, plant and equipment
 
 
 
 
 
 
1,842,877

 
1,809,591

Accumulated depreciation
 
 
 
 
 
 
(1,191,958
)
 
(1,150,686
)
Total property, plant and equipment, net
 
 
 
 
 
 
$
650,919

 
$
658,905

 

11

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


 
March 31, 2019
 
December 31, 2018
Accrued liabilities:
 
 
 
Accrued compensation
$
10,040

 
$
13,545

Accrued taxes, other than income taxes
3,098

 
2,177

Accrued interest
16

 
5

Other
217

 
229

Total accrued liabilities
$
13,371

 
$
15,956

 
6.
IMPAIRMENT CHARGES
 
Quarter ended March 31, 2018. During the first quarter of 2018, we identified an indicator that certain long-lived assets used in the Canadian oil sands may be impaired due to market developments, including expected customer commitments, occurring in the first quarter of 2018. For purposes of our impairment assessment, we separated two lodges that were previously treated as a single asset group due to the lodges no longer being used together to generate joint cash flows. We assessed the carrying value of the asset group to determine if it continued to be recoverable based on estimated future cash flows.  Based on the assessment, the carrying value was determined to not be fully recoverable, and we proceeded to compare the estimated fair value of the asset group to its respective carrying value.  Accordingly, the value of a Canadian lodge was written down to its estimated fair value of zero. As a result of the analysis described above, we recorded an impairment expense of $28.7 million.

7.
ACQUISITIONS

Noralta
 
Description of Transaction.  On April 2, 2018, we acquired the equity of Noralta Lodge Ltd. (Noralta), located in Alberta, Canada.  The total consideration, which is subject to adjustment in accordance with the terms of the definitive agreement, included (i) C$207.7 million (or approximately US$161.2 million) in cash, subject to customary post-closing adjustments for working capital, indebtedness and transactions expenses, (ii) 32.8 million of our common shares, and (iii) 9,679 Class A Series 1 Preferred Shares (the Preferred Shares) with an initial liquidation preference of $96.8 million and initially convertible into 29.3 million of our common shares. As a result of the Noralta acquisition, we expanded our existing accommodations business in the Canadian oil sands market. We funded the cash consideration with cash on hand and borrowings under the Amended Credit Agreement (as defined in Note 10 - Debt).

During the first quarter of 2019, $2.1 million in cash was released to us from escrow to cover certain agreed upon indemnification claims.
 
The Noralta acquisition was accounted for in accordance with the acquisition method of accounting for business combinations and, accordingly, the results of operations of Noralta were reported in our financial statements as part of our Canadian reportable business segment beginning on April 2, 2018, the date of acquisition.


12

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


Purchase Price Allocation. The application of purchase accounting under ASC 805 requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at April 2, 2018, with amounts exceeding the fair values being recorded as goodwill. The allocation process requires an analysis of acquired fixed assets, contracts, and contingencies to identify and record the fair value of all assets acquired and liabilities assumed. During the three months ended March 31, 2019, we recorded insignificant measurement period adjustments related to amortizable intangible assets, goodwill and deferred taxes. Our allocation of the purchase price, which we finalized in the first quarter of 2019, to specific assets and liabilities is based, in part, upon outside appraisals using customary valuation procedures and techniques. The following table summarizes the fair values of the assets acquired and liabilities assumed at April 2, 2018 (in thousands): 

Cash and cash equivalents
$
24

Accounts receivable (1)
21,456

Inventories
839

Other current assets
4,266

Property, plant and equipment
129,424

Goodwill
123,569

Intangible assets
110,736

Total assets acquired
390,314

 
 
Accounts payable and accrued liabilities
15,023

Income taxes payable
1,038

Other current liabilities
2,027

Deferred income taxes
51,543

Other noncurrent liabilities
5,133

Total liabilities assumed
74,764

Net assets acquired
$
315,550


(1)
The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount. 

Transaction Costs. During the three months ended March 31, 2018, we recognized $1.0 million of costs in connection with the Noralta acquisition that are included in SG&A expenses.
 
Acadian Acres
 
On February 28, 2018, we acquired the assets of Lakeland, L.L.C. (Lakeland), located near Lake Charles, Louisiana, for total consideration of $28.0 million, composed of $23.5 million in cash and $4.5 million of our common shares. The asset purchase agreement also includes potential future earn-out payments through December 2020 of up to 1.2 million Civeo common shares, based upon satisfaction of certain future revenue targets. The acquisition included a 400 room lodge, 40 acres of land and related assets. We funded the cash consideration with cash on hand. Lakeland’s operations are reported as a new lodge location, Acadian Acres, in our U.S. reportable business segment.
 
This acquisition was accounted for as an asset acquisition based on the principles described in ASC 805, which provides a screen to determine when a set of transferred assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similarly identifiable assets, the set of transferred assets is not a business. Accordingly, we allocated the excess consideration over the fair value of the assets acquired to the acquired assets, pro rata, on the basis of relative fair values to increase the related assets acquired. 

8.
ASSETS HELD FOR SALE
 
During the fourth quarter of 2017, we made the decision to dispose of our modular construction and manufacturing plant near Edmonton, Alberta, Canada due to changing geographic and market needs. Accordingly, the facility met the criteria of held for sale. Its estimated fair value less the cost to sell exceeded its carrying value. Additionally, we have discontinued depreciation of the facility. The facility is part of our Canadian reportable business segment. 
 

13

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


Certain undeveloped land positions in the British Columbia LNG market in our Canadian segment previously met the criteria of held for sale. During the first quarter of 2019, we received $4.0 million in proceeds from the sale of four different land positions. The remaining assets are recorded at the estimated fair value less costs to sell of approximately $1.6 million.
 
In addition, as a result of the Noralta acquisition, Noralta’s corporate offices located on two adjacent property titles in Nisku, Alberta, Canada were closed. During the fourth quarter of 2018, we sold one property. The remaining property is recorded at the estimated fair value less costs to sell of approximately $1.8 million and was the same value used in the purchase price allocation.
 
The following table summarizes the carrying amount as of March 31, 2019 and December 31, 2018 of the major classes of assets from the modular construction and manufacturing plant, undeveloped land positions and Noralta’s corporate offices we classified as held for sale (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Assets held for sale:
 
 
 
Property, plant and equipment, net
$
8,058

 
$
10,297

Total assets held for sale
$
8,058

 
$
10,297


9.
EARNINGS PER SHARE
 
The calculation of earnings per share attributable to Civeo is presented below for the periods indicated (in thousands, except per share amounts):
 
 
Three Months Ended March 31,
 
2019
 
2018
Basic Loss per Share
 
 
 
Net loss attributable to Civeo common shareholders
$
(17,498
)
 
$
(55,457
)
Less: undistributed net income to participating securities

 

Net loss attributable to Civeo common shareholders - basic
$
(17,498
)
 
$
(55,457
)
 
 
 
 
Weighted average common shares outstanding - basic
165,330

 
131,631

 
 
 
 
Basic loss per share
$
(0.11
)
 
$
(0.42
)
 
 
 
 
Diluted Loss per Share
 
 
 
Net loss attributable to Civeo common shareholders - basic
$
(17,498
)
 
$
(55,457
)
Less: undistributed net income to participating securities

 

Net loss attributable to Civeo common shareholders - diluted
$
(17,498
)
 
$
(55,457
)
 
 
 
 
Weighted average common shares outstanding - basic
165,330

 
131,631

Effect of dilutive securities (1)

 

Weighted average common shares outstanding - diluted
165,330

 
131,631

 
 
 
 
Diluted loss per share
$
(0.11
)
 
$
(0.42
)
 
(1)
When an entity has a net loss from continuing operations, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized the basic shares outstanding amount to calculate both basic and diluted loss per share for the three months ended March 31, 2019 and 2018. In the three months ended March 31, 2019 and 2018, we excluded from the calculation 3.6 million and 2.8 million share based awards, respectively, since the effect would have been anti-dilutive. In the three months ended March 31, 2019, we excluded from the calculation the impact of converting the Preferred Shares into 28.0 million common shares, since the effect would have been anti-dilutive.

14

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


10.
DEBT
 
As of March 31, 2019 and December 31, 2018, long-term debt consisted of the following (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Canadian term loan, which matures on November 30, 2020; 3.125% of aggregate principal repayable per quarter; weighted average interest rate of 5.7% for the three-month period ended
March 31, 2019
$
244,477

 
$
247,910

 
 
 
 
U.S. revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 7.0% for the three-month period ended March 31, 2019


 

 
 
 
 
Canadian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 6.4% for the three-month period ended March 31, 2019

136,191

 
114,348

 
 
 
 
Australian revolving credit facility, which matures on November 30, 2020, weighted average interest rate of 5.5% for the three-month period ended March 31, 2019

2,838

 
16,918

 
383,506

 
379,176

Less: Unamortized debt issuance costs
2,597

 
2,939

Total debt
380,909

 
376,237

Less: Current portion of long-term debt, including unamortized debt issuance costs, net
34,068

 
33,329

Long-term debt, less current maturities
$
346,841

 
$
342,908

 
We did not have any capitalized interest to net against interest expense for the three months ended March 31, 2019 or 2018.
 
Amended Credit Agreement
 
As of March 31, 2019, our Credit Agreement, as then amended to date (the Amended Credit Agreement), provided for: (i) a $239.5 million revolving credit facility scheduled to mature on November 30, 2020, allocated as follows: (A) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $159.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $325.0 million term loan facility scheduled to mature on November 30, 2020 in favor of Civeo.
 
The maximum leverage ratio financial covenant is set forth in the tables below.

If a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a Maximum Leverage Ratio not to exceed the ratios set forth in the following table:
 
Period Ended
Maximum Leverage Ratio
March 31, 2019
4.75 : 1:00
June 30, 2019
4.50 : 1:00
September 30, 2019 & thereafter
4.00 : 1:00

15

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)



and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:


Period Ended
Maximum Leverage Ratio
March 31, 2019
4.75 : 1:00
June 30, 2019
4.50 : 1:00
September 30, 2019
4.00 : 1:00
December 31, 2019 & thereafter
3.50 : 1:00

U.S. dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement). Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate based on the Canadian Dollar Offered Rate plus a margin of 2.25% to 4.00%, or a Canadian Prime rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA. Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our total debt to consolidated EBITDA.
 
The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict: (i) indebtedness, liens and fundamental changes; (ii) asset sales; (iii) acquisitions of margin stock; (iv) specified acquisitions; (v) certain restrictive agreements; (vi) transactions with affiliates; and (vii) investments and other restricted payments, including dividends and other distributions. In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 4.75 to 1.0 (as of March 31, 2019).  As noted above, the permitted maximum leverage ratio changes over time.  Following a qualified offering of indebtedness with gross proceeds in excess of $150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0. Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement.  EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges.  We were in compliance with our covenants as of March 31, 2019.
 
Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries. As of March 31, 2019, we have nine lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $24.9 million to $110.6 million. As of March 31, 2019, we had outstanding letters of credit of $0.4 million under the U.S facility, $0.5 million under the Australian facility and $2.5 million under the Canadian facility. 

11.
INCOME TAXES
 
Our operations are conducted through various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which operations are conducted and income is earned.
 
We operate primarily in three jurisdictions, Canada, Australia and the U.S., where statutory tax rates range from 21% to 30%. Our effective tax rate will vary from period to period based on changes in earnings mix between these different jurisdictions.
 
We compute our quarterly taxes under the effective tax rate method by applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions.  Income taxes for any significant and unusual or extraordinary transactions are computed and recorded in the period in which the specific transaction occurs. As of

16

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


March 31, 2019, Australia was considered a loss jurisdictions for tax accounting purposes and has been removed from the annual effective tax rate computation for purposes of computing the interim tax provision.
 
Our income tax benefit for the three months ended March 31, 2019 totaled $4.5 million, or 20.8% of pretax loss, compared to a benefit of $0.7 million, or 1.2% of pretax loss, for the three months ended March 31, 2018.  The difference between the effective rate in 2019 and 2018 is due to the change in jurisdictions which are considered loss jurisdictions for tax accounting purposes.  For the three months ended March 31, 2018, Canada, Australia and the U.S. were considered loss jurisdictions, while for the three months ended March 31, 2019, only Australia was considered a loss jurisdiction.  Additionally, the effective tax rate in 2018 was impacted by discrete items totaling $1.0 million.

12.
COMMITMENTS AND CONTINGENCIES
 
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. 

13.
ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Our accumulated other comprehensive loss decreased $5.4 million from $371.2 million at December 31, 2018 to $365.9 million at March 31, 2019, as a result of foreign currency exchange rate fluctuations. Changes in other comprehensive loss during the first three months of 2019 were primarily driven by the Australian dollar and Canadian dollar increasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$0.3 billion and A$0.4 billion, respectively, at March 31, 2019. 

14.
LEASES

We have operating leases covering certain land locations and various office facilities and equipment in our three reportable business segments. Our leases have remaining lease terms of one year to nine years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 90 days.

The components of lease expense were $1.8 million and $1.3 million under operating leases during the three month periods ended March 31, 2019 and 2018, respectively. Included in the measurement of lease liabilities, we paid $1.7 million in cash related to operating leases during the three month periods ended March 31, 2019. Right-of-use assets obtained in exchange for new lease obligations related to operating leases during the three months ended March 31, 2019 were $1.7 million.

Supplemental balance sheet information related to leases were as follows (in thousands):

 
March 31, 2019
Operating leases
 
Operating lease right-of-use assets
$
22,225

 
 
Other current liabilities
$
4,890

Operating lease liabilities
18,529

Total operating lease liabilities
$
23,419

 
 
Weighted average remaining lease term
 
Operating leases
6.1 years

Weighted average discount rate
 
Operating leases
5.9
%


17

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


Maturities of operating lease liabilities at March 31, 2019, were as follows (in thousands):

For the years ending December 31,
 
2019
$
4,643

2020
5,558

2021
4,202

2022
3,129

2023
2,461

Thereafter
7,546

Total lease payments
27,539

Less imputed interest
4,120

Total
$
23,419


15.
SHARE BASED COMPENSATION
 
Certain key employees and non-employee directors participate in the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes our Board of Directors and the Compensation Committee of our Board of Directors to approve grants of options, awards of restricted shares, performance awards and dividend equivalents, awards of deferred shares, and share payments to our employees and non-employee directors. No more than 18.7 million Civeo common shares may be awarded under the Civeo Plan.
 
Outstanding Awards
 
Options. Compensation expense associated with options recognized in the three months ended March 31, 2019 and 2018 totaled zero and less than $0.1 million, respectively. There was no unrecognized compensation cost related to options.
 
Restricted Share / Deferred Share Awards. On February 25, 2019, we granted 1,334,189 restricted share awards and deferred share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2020.
 
Compensation expense associated with restricted share awards and deferred share awards recognized in the three months ended March 31, 2019 and 2018 totaled $1.4 million and $1.2 million, respectively. The total fair value of restricted share awards and deferred share awards that vested during the three months ended March 31, 2019 and 2018 was $3.5 million and $2.4 million, respectively.    
 
At March 31, 2019, unrecognized compensation cost related to restricted share awards and deferred share awards was $9.3 million, which is expected to be recognized over a weighted average period of 2.1 years.
 
Phantom Share Awards. On February 25, 2019, we granted 1,144,407 phantom share awards under the Civeo Plan, which vest in three equal annual installments beginning on February 25, 2020. We also granted 301,683 phantom share awards under the Canadian Long-Term Incentive Plan, which vest in three equal annual installments beginning on February 25, 2020.

During the three months ended March 31, 2019 and 2018, we recognized compensation expense associated with phantom shares totaling $3.1 million and $3.4 million, respectively. At March 31, 2019, unrecognized compensation cost related to phantom shares was $3.3 million, as remeasured at March 31, 2019, which is expected to be recognized over a weighted average period of 2.7 years.
 
Performance Awards. On February 25, 2019, we granted 1,194,210 performance awards under the Civeo Plan, which cliff vest in three years on February 25, 2022. These awards will be earned in amounts between 0% and 200% of the participant’s target performance share award, based on the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group that includes 17 other companies.  
 
During the three months ended March 31, 2019 and 2018, we recognized compensation expense associated with performance awards totaling $1.1 million and $1.0 million, respectively. The total fair value of performance share awards that vested during the three months ended March 31, 2019 was $10.1 million.


18

CIVEO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)


At March 31, 2019, unrecognized compensation cost related to performance shares was $8.3 million, which is expected to be recognized over a weighted average period of 2.3 years

16.
SEGMENT AND RELATED INFORMATION
 
In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canada, Australia and U.S., which represent our strategic focus on hospitality services.
 
Financial information by business segment for each of the three months ended March 31, 2019 and 2018 is summarized in the following table (in thousands):
 
 
Total
Revenues
 
Depreciation
and
amortization
 
Operating
income
(loss)
 
Capital
expenditures
 
 
Total assets
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
Canada
$
66,770

 
$
16,228

 
$
(11,595
)
 
$
7,064

 
$
825,100

Australia
28,421

 
9,757

 
(385
)
 
935

 
284,574

United States
13,359

 
3,066

 
(961
)
 
1,520

 
59,193

Corporate and eliminations

 
1,731

 
(4,952
)
 
160

 
(160,869
)
Total
$
108,550

 
$
30,782

 
$
(17,893
)
 
$
9,679

 
$
1,007,998

 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
Canada
$
63,390

 
$
16,511

 
$
(40,303
)
 
$
1,072

 
$
502,998

Australia
27,875

 
11,117

 
(3,166
)
 
595

 
338,239

United States
10,239

 
1,606

 
(3,264
)
 
869

 
57,954

Corporate and eliminations

 
1,530

 
(5,782
)
 
160

 
(92,220
)
Total
$
101,504

 
$
30,764

 
$
(52,515
)
 
$
2,696

 
$
806,971



19



Cautionary Statement Regarding Forward-Looking Statements
 
This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. The forward-looking statements in this report include, but are not limited to, the statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to our expectations about the macroeconomic environment and industry conditions, including factors expected to impact supply and demand, as well as our expectations about capital expenditures in 2019 and beliefs with respect to liquidity needs. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2018 and our subsequent SEC filings. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except to the extent required by applicable law.
 
In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.

Macroeconomic Environment
 
We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand dynamics and estimates of resource production. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to crude oil and metallurgical (met) coal.
 
In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure and recent actions by the Alberta provincial government to limit oil production from the province. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and limited capacity to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability.

During the first quarter of 2016, global oil prices dropped to their lowest levels in over ten years due to concerns over global oil demand, global crude inventory levels, worldwide economic growth and price cutting by major oil producing countries, such as Saudi Arabia. Increasing global supply, including increased U.S. shale oil production, also negatively impacted pricing. Although prices began to increase in 2016 and continued to increase through the third quarter of 2018, oil prices decreased again during the fourth quarter of 2018 but improved during the first quarter of 2019.


20



WCS prices in the first quarter of 2019 averaged $44.49 per barrel compared to a low of $20.26 in the first quarter of 2016 and a high of $49.93 in the second quarter of 2018. The WCS Differential decreased from $15.75 per barrel at the end of the fourth quarter of 2018 to $9.28 at the end of the first quarter 2019. On December 2, 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production. This curtailment resulted in a narrowing WCS Differential in December 2018, which ended the year at $15.75 per barrel, that has continued into the first quarter of 2019. As of April 22, 2019, the WTI price was $65.70 and the WCS price was $55.49, resulting in a WCS Differential of $10.21.
 
There remains a risk that prices for Canadian oil sands crude oil related products could deteriorate for an extended period of time, and the discount between WCS crude prices and WTI crude prices could widen. The depressed price levels through the first quarter of 2016 negatively impacted exploration, development, maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. Although we have seen an increase in oil prices since late 2016 through the first quarter of 2019, we are not expecting significant improvement in customer activity in the near-term, partially due to the volatility in the WCS Differential discussed above. The current outlook for expansionary projects in Canada is primarily related to proposed pipeline and in-situ oil sands projects. However, continued uncertainty and commodity price volatility and regulatory complications could cause our Canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets. Additionally, if oil prices decline, the resulting impact could negatively affect the value of our long-lived assets, including goodwill.

Our Sitka Lodge, within our Canadian business, supports the British Columbia liquefied natural gas (LNG) market and related pipeline projects. From a macroeconomic standpoint, global LNG imports set a record in 2018, reaching 308 million tonnes per annum, up from 284 million tonnes per annum in 2017, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. Accordingly, the current view is additional investment in LNG supply will be needed to meet the expected long-term LNG demand growth.

Currently, Western Canada does not have any operational LNG export facilities. However, on October 1, 2018, LNG Canada (LNGC), a large LNG export project proposed by a joint venture between Shell Canada Energy, an affiliate of Royal Dutch Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Korea Gas Corporation (5 percent) and Mitsubishi Corporation (15 percent), announced that a positive final investment decision (FID) had been reached on the proposed Kitimat liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility). With the project moving forward, British Columbia LNG activity and related pipeline projects could become a material driver of future activity for our Sitka Lodge, as well as for our mobile fleet assets, which are well suited for the related pipeline construction activity.

Our U.S. business supports oil shale drilling and completion activity and is primarily tied to WTI oil prices in the U.S. shale formations in West Texas, the mid Continent, the Bakken and the Rockies.  With the recovery in oil prices through the third quarter of 2018, coupled with ample capital availability for U.S. E&P companies, oil shale drilling and completion activity in the U.S. significantly increased in 2018.  The U.S. oil rig count has increased from its low of 316 rigs in May 2016 to over 1,050 during 2018, and currently 1,006 oil and gas rigs were active at the end of the first quarter of 2019.  Further, this activity in the U.S. increased oil production from an average of 9.3 million barrels per day in 2017 to an average of 10.8 million barrels per day in 2018 and 11.9 million barrels per day in January 2019. With the fall in WTI oil prices in the fourth quarter of 2018 and a call by investors for U.S. E&P companies to generate free cash flow, the U.S. rig count has drifted lower. As of April 18, 2019, there were 825 active oil rigs in the U.S. (as measured by Bakerhughes.com).  U.S. oil shale drilling and completion activity will continue to be dependent on sustained higher WTI oil prices, pipeline capacity and sufficient capital to support E&P drilling and completion plans.

In Australia, approximately 80% of our rooms are located in the Bowen Basin and primarily serve met coal mines in that region.  Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which increased by 3.8% during the two months ended February 28, 2019 compared to the two months ended February 28, 2018.  As of April 22, 2019, met coal spot prices were $204.00 per metric tonne. Current met coal pricing levels have not led our customers to approve many significant new projects.  We expect that customers will look for a period of sustained higher prices before the volume of new projects being approved increases.  Long-term demand for steel is expected to be driven by increased steel consumption per capita in developing economies, such as China and India, whose current consumption per capita is a fraction of developed countries. Our customers continue to actively implement cost, productivity and efficiency measures to further drive down their cost base.

21




Recent WTI crude, WCS crude and met coal pricing trends are as follows:
 
 
 
Average Price (1)
Quarter
ended
 
WTI
Crude
(per bbl)
 
WCS
Crude
(per bbl)
 
Hard
Coking Coal
(Met Coal)
(per tonne)
Second Quarter through 4/22/2019
 
$
63.85

 
$
54.61

 
$
210.00

3/31/2019
 
54.87

 
44.49

 
210.00

12/31/2018
 
59.32

 
25.66

 
187.00

9/30/2018
 
69.61

 
41.58

 
196.00

6/30/2018
 
67.97

 
49.93

 
196.00

3/31/2018
 
62.89

 
37.09

 
235.00

12/31/2017
 
55.28

 
38.65

 
192.00

9/30/2017
 
48.16

 
37.72

 
170.00

6/30/2017
 
48.11

 
38.20

 
193.50

3/31/2017
 
51.70

 
38.09

 
285.00

12/31/2016
 
49.16

 
34.34

 
200.00

9/30/2016
 
44.88

 
30.67

 
92.50

6/30/2016
 
45.53

 
32.84

 
84.00

3/31/2016
 
33.41

 
20.26

 
81.00

                          
(1)
Source: WTI crude prices are from U.S. Energy Information Administration (EIA), and WCS crude prices and Seaborne hard coking coal contract prices are from Bloomberg.

Overview
 
As noted above, demand for our hospitality services is primarily tied to the outlook for crude oil and met coal prices. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in Canada, Australia, the U.S. and other markets.
 
Our business is predominantly located in northern Alberta, Canada and Queensland, Australia, and we derive most of our business from natural resource companies who are developing and producing oil sands and met coal resources and, to a lesser extent, other hydrocarbon and mineral resources. More than 80% of our revenue is generated by our lodges and villages. Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.
 
Generally, our customers are making multi-billion dollar investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are dependent on those customers’ long-term views of commodity demand and prices.
 
During the period of low crude oil prices that extended through the first quarter of 2016, many of our customers in Canada curtailed their operations and spending, and most major oil sands mining operators began reducing their costs and limiting capital spending, thereby limiting the demand for hospitality services of the kind we provide.
 
In the last several years, however, several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets. Since the announcement by OPEC in late November 2016 to cut production quotas and the subsequent rise in spot oil prices and future oil price expectations, certain operators with steam-assisted gravity drainage operations in the Canadian oil sands increased capital spending in 2017. Despite construction at the Fort Hill Energy LP project ending in early 2018, Canadian oil sands capital spending in 2018 has been relatively flat, in the aggregate. OPEC announced additional production cuts in late 2018 in an effort to further support global oil prices. Also on December 2, 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production, which has helped increase WCS prices. Recent regulatory approvals of several major pipeline projects have the potential to both drive incremental demand for mobile accommodations assets and to improve take-away capacity for Canadian oil sands producers over the longer term. However, these projects have been delayed due to the lack of agreement between the Canadian federal government, which supports the pipeline projects, and the British Columbia provincial government. The Canadian federal

22



government recently acquired Kinder Morgan’s Trans Mountain Pipeline, emphasizing their support for this particular project. Additionally, we believe that the Keystone XL pipeline in the U.S., if constructed, would be a positive catalyst for Canadian oil sands producers, as it would bolster confidence in future take-away capacity from the region to U.S. Gulf Coast refineries.

In Australia, approximately 80% of our rooms are located in the Bowen Basin and primarily serve met coal mines in that region, where our customers continue to implement operational efficiency measures, in order to drive down their cost base. We believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable.

While we believe that these macroeconomic developments are positive for our customers and for the underlying demand for our hospitality services, we do not expect an immediate improvement in our business. Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve and integrating the recently acquired Noralta assets into our business.
 
We began the expansion of our room count in Kitimat, British Columbia during the second half of 2015 to support potential LNG projects on the west coast of British Columbia. We were awarded a contract with LNGC for the provision of open lodge rooms and associated services that ran through October 2017. To support this contract, we developed a new accommodations facility, Sitka Lodge, which includes private washrooms, recreational facilities and other amenities. This lodge currently has 754 rooms, with the potential to expand to serve future accommodations demand in the region.
 
As previously discussed, on October 1, 2018, LNGC's participants announced a positive FID on the Kitimat LNG Facility. With the project moving forward, British Columbia LNG activity and related pipeline projects could become a material driver of future activity for our Sitka Lodge, as well as for our mobile camp assets, which are well suited for the related pipeline construction activity. We previously announced contract awards for locations along the CGL pipeline project and room commitments for our Sitka Lodge. The actual timing of when revenue is realized from the CGL pipeline and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility.

Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income in Canada and Australia. These revenues and profits / losses are translated into U.S. dollars for U.S. GAAP financial reporting purposes. The following tables summarize the fluctuations in the exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar:
 
Three Months Ended
March 31,
 
2019
 
2018
 
Change
 
Percentage
Average Canadian dollar to U.S. dollar
$0.752
 
$0.791
 
(0.039)
 
(4.9)%
Average Australian dollar to U.S. dollar
$0.712
 
$0.786
 
(0.074)
 
(9.4)%

 
As of
 
March 31, 2019
 
December 31, 2018
 
Change
 
Percentage
Canadian dollar to U.S. dollar
$0.748
 
$0.733
 
0.015
 
2.1%
Australian dollar to U.S. dollar
$0.710
 
$0.705
 
0.005
 
0.7%
 
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.

We continue to monitor the global economy, the demand for crude oil and met coal and the resultant impact on the capital spending plans of our customers in order to plan our business activities. We currently expect that our 2019 capital expenditures, exclusive of any business acquisitions, will total approximately $40 million to $45 million, compared to 2018 capital expenditures of $17.1 million. Please see “Liquidity and Capital Resources below for further discussion of 2019 capital expenditures.

23



 
Results of Operations
 
Unless otherwise indicated, discussion of results for the three-month period ended March 31, 2019, is based on a comparison to the corresponding periods of 2018.
 
Results of Operations – Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
Change
 
 
 
 
 
 
 
($ in thousands)
Revenues
 
 
 
 
 
Canada
$
66,770

 
$
63,390

 
$
3,380

Australia
28,421

 
27,875

 
546

United States and other
13,359

 
10,239

 
3,120

Total revenues
108,550

 
101,504

 
7,046

Costs and expenses
 
 
 
 
 
Cost of sales and services
 

 
 

 
 

Canada
54,647

 
51,896

 
2,751

Australia
14,999

 
15,333

 
(334
)
United States and other
9,984

 
10,472

 
(488
)
Total cost of sales and services
79,630

 
77,701

 
1,929

Selling, general and administrative expenses
16,096

 
16,514

 
(418
)
Depreciation and amortization expense
30,782

 
30,764

 
18

Impairment expense

 
28,661

 
(28,661
)
Other operating expense (income)
(65
)
 
379

 
(444
)
Total costs and expenses
126,443

 
154,019

 
(27,576
)
Operating loss
(17,893
)
 
(52,515
)
 
34,622

 
 
 
 
 
 
Interest expense and income, net
(6,608
)
 
(5,764
)
 
(844
)
Other income
2,978

 
2,259

 
719

Loss before income taxes
(21,523
)
 
(56,020
)
 
34,497

Income tax benefit
4,484

 
685

 
3,799

Net loss
(17,039
)
 
(55,335
)
 
38,296

Less: Net income attributable to noncontrolling interest

 
122

 
(122
)
Net loss attributable to Civeo Corporation
(17,039
)
 
(55,457
)
 
38,418

Dividends attributable to preferred shares
459

 

 
459

Net loss attributable to Civeo common shareholders
$
(17,498
)
 
$
(55,457
)
 
$
37,959

 
We reported net loss attributable to Civeo for the quarter ended March 31, 2019 of $17.5 million, or $0.11 per diluted share. 

We reported net loss attributable to Civeo for the quarter ended March 31, 2018 of $55.5 million, or $0.42 per diluted share. As further discussed below, net loss for the first quarter of 2018 included (i) a $28.7 million pre-tax loss ($28.7 million after-tax, or $0.22 per diluted share) resulting from the impairment of fixed assets included in Impairment expense, and (ii) costs totaling $1.0 million ($1.0 million after-tax, or $0.01 per diluted share) incurred in connection with the Noralta acquisition, included in SG&A expense below.
 
Revenues. Consolidated revenues increased $7.0 million, or 7%, in the first quarter of 2019 compared to the first quarter of 2018. This increase was primarily due to increases in Canada due to the completion of the acquisition of Noralta Lodge Ltd. (Noralta) in the second quarter of 2018 and increased food service and other services revenue in the first quarter of 2019 compared to the first quarter of 2018. Additionally, higher activity levels in certain markets in Australia and the U.S. contributed to increased revenues. This was partially offset by weaker Canadian and Australian dollars relative to the U.S. dollar and lower mobile facility rental revenue in the first quarter of 2019 compared to the first quarter of 2018. Please see the discussion of segment results of operations below for further information.


24



Cost of Sales and Services. Our consolidated cost of sales increased $1.9 million, or 2%, in the first quarter of 2019 compared to the first quarter of 2018, primarily due to increases in Canada due to the Noralta acquisition in the second quarter of 2018 and increased food service and other services revenue in the first quarter of 2019 compared to the first quarter of 2018. This was partially offset by weaker Canadian and Australian dollars relative to the U.S. dollar and lower mobile facility rental activity in the first quarter of 2019 compared to the first quarter of 2018. Please see the discussion of segment results of operations below for further description.
 
Selling, General and Administrative Expenses. SG&A expense decreased $0.4 million, or 3%, in the first quarter of 2019 compared to the first quarter of 2018. This decrease was primarily due to lower professional fees.
 
Depreciation and Amortization Expense. Depreciation and amortization expense was flat in the first quarter of 2019 compared to the first quarter of 2018. Increases are due to additional property, plant and equipment acquired through recent acquisitions, as well as incremental intangible amortization expense related to our acquisitions, were almost entirely offset by reduced depreciation expense resulting from impairments recorded in 2018 and weaker Canadian and Australian dollars relative to the U.S. dollar in the first quarter of 2019 compared to the first quarter of 2018.

Impairment Expense. We recorded pre-tax impairment expense of $28.7 million in the first quarter of 2018 associated with long-lived assets in our Canadian segment. Please see Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
 
Operating Loss. Consolidated operating loss decreased $34.6 million, or 66%, in the first quarter of 2019 compared to the first quarter of 2018, primarily due to the impairment expense recorded in the first quarter of 2018 and increased activity levels in certain U.S. markets in the first quarter of 2019.
 
Interest Expense and Interest Income, net. Net interest expense increased by $0.8 million, or 15%, in the first quarter of 2019 compared to the first quarter of 2018, primarily related to higher revolving credit facility borrowings to fund the Noralta acquisition.

Other Income. Consolidated other income increased $0.7 million, or 32%, in the first quarter of 2019 compared to the first quarter of 2018, primarily due to $1.5 million of other income for proceeds received in the first quarter of 2019 from an insurance claim related to the closure of a lodge in 2018 for maintenance-related operational issues, partially offset by lower gain on sale of assets in the first quarter of 2019 compared to the first quarter of 2018.
 
Income Tax Benefit. Our income tax benefit for the three months ended March 31, 2019 totaled $4.5 million, or 20.8% of pretax loss, compared to a benefit of $0.7 million, or 1.2% of pretax loss, for the three months ended March 31, 2018.  The variance in the effective rate between 2019 and 2018 is due to the change in jurisdictions which are considered loss jurisdictions for tax accounting purposes.  For the three months ended March 31, 2018, Canada, Australia and the U.S. were considered loss jurisdictions, while for the three months ended March 31, 2019, only Australia was considered a loss jurisdiction.  Additionally, the effective tax rate in 2018 was impacted by discrete items totaling $1.0 million.
 
Other Comprehensive Income (Loss). Other comprehensive income increased $13.2 million in the first quarter of 2019 compared to the first quarter of 2018, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar increased 2% in the first quarter of 2019 compared to a 3% decrease in the first quarter of 2018. The Australian dollar exchange rate compared to the U.S. dollar increased 1% in the first quarter of 2019 compared to a 2% decrease in the first quarter of 2018.

25




Segment Results of Operations Canadian Segment
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
Change
Revenues ($ in thousands)
 
 
 
 
 
Accommodation revenue (1)
$
57,652

 
$
50,647

 
$
7,005

Mobile facility rental revenue (2)
781

 
7,794

 
(7,013
)
Food service and other services revenue (3)
8,337

 
3,739

 
4,598

Manufacturing revenue (4)

 
1,210

 
(1,210
)
Total revenues
$
66,770

 
$
63,390

 
$
3,380

 
 
 
 
 
 
Cost of sales and services ($ in thousands)
 
 
 
 
 
Accommodation cost
$
42,217

 
$
37,038

 
$
5,179

Mobile facility rental cost
649

 
7,404

 
(6,755
)
Food service and other services cost
8,236

 
3,218

 
5,018

Manufacturing cost
189

 
1,239

 
(1,050
)
Indirect other cost
3,356

 
2,997

 
359

Total cost of sales and services
$
54,647

 
$
51,896

 
$
2,751

 
 
 
 
 
 
Gross margin as a % of revenues
18.2
%
 
18.1
%
 
%
 
 
 
 
 
 
Average daily rate for lodges (5)
$
92

 
$
88

 
$
4

 
 
 
 
 
 
Total billed rooms for lodges (6)
625,992

 
572,888

 
53,104

 
 
 
 
 
 
Average Canadian dollar to U.S. dollar
$
0.752

 
$
0.791

 
$
(0.039
)
                          
(1)
Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2)
Includes revenues related to mobile camps for the periods presented.
(3)
Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented.
(4)
Includes revenues related to modular construction and manufacturing services for the periods presented.
(5)
Average daily rate is based on billed rooms and accommodation revenue.
(6)
Billed rooms represents total billed days for the periods presented.

Our Canadian segment reported revenues in the first quarter of 2019 that were $3.4 million, or 5%, higher than the first quarter of 2018. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 5% in the first quarter of 2019 compared to the first quarter of 2018 resulted in a $3.4 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 20% increase in accommodation revenues. This increase was driven by the Noralta acquisition in the second quarter of 2018 partially offset by lower room demand from major customers in the core oil sands lodges related to extended holiday downtime and the continued impact of provincially imposed oil production curtailments. Additionally, increased food services activity, due to a new food services project with an oilsands customer, was partially offset by reduced mobile facility rental revenue as 2018 included a pipeline related project.
 
Our Canadian segment cost of sales and services increased $2.8 million, or 5%, in the first quarter of 2019 compared to the first quarter of 2018. The weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 5% in the first quarter of 2019 compared to the first quarter of 2018 resulted in a $2.8 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rates, the increased cost of sales and services was driven by the Noralta acquisition in the second quarter of 2018 and increased food services activity, partially offset by reduced mobile facility rental cost of sales as 2018 included a pipeline related project.
 
Our Canadian segment gross margin as a percentage of revenues was 18% in the first quarter of 2019 and 2018. The margin was flat, with higher average daily rates for lodges being offset by reduced occupancy levels in certain lodges, impacting operating efficiencies at these lower levels. In addition, food services margins decreased due to lower rates in certain contracts, offset by a greater proportion of accommodation revenue, which generates higher margin percentages.


26




Segment Results of Operations Australian Segment
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
Change
Revenues ($ in thousands)
 
 
 
 
 
Accommodation revenue (1)
$
28,421

 
$
27,698

 
$
723

Food service and other services revenue (2)

 
$
177

 
$
(177
)
Total revenues
$
28,421

 
$
27,875

 
$
546

 
 
 
 
 
 
Cost of sales ($ in thousands)
 
 
 
 
 
Accommodation cost
$
14,397

 
$
14,506

 
$
(109
)
Food service and other services cost

 
163

 
(163
)
Indirect other cost
602

 
664

 
(62
)
Total cost of sales and services
$
14,999

 
$
15,333

 
$
(334
)
 
 
 
 
 
 
Gross margin as a % of revenues
47.2
%
 
45.0
%
 
2.2
%
 
 
 
 
 
 
Average daily rate for villages (3)
$
74

 
$
81

 
$
(7
)
 
 
 
 
 
 
Total billed rooms for villages (4)
382,581

 
341,579

 
41,002

 
 
 
 
 
 
Australian dollar to U.S. dollar
$
0.712

 
$
0.786

 
$
(0.074
)
                          
(1)
Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2)
Includes revenues related to food services and other services, including facilities management for the periods presented.
(3)
Average daily rate is based on billed rooms and accommodation revenue.
(4)
Billed rooms represents total billed days for the periods presented.

Our Australian segment reported revenues in the first quarter of 2019 that were $0.5 million, or 2%, higher than the first quarter of 2018. The weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 9% in the first quarter of 2019 compared to the first quarter of 2018 resulted in a $2.9 million period-over-period decrease in revenues and a $7 reduction in the average daily rate. Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced a 13% increase in revenues due to increased activity at our Bowen Basin villages partially offset by decreased activity at our Gunnedah Basin villages.
 
Our Australian segment cost of sales decreased $0.3 million, or 2%, in the first quarter of 2019 compared to the first quarter of 2018. The decrease was primarily driven by the weakening of the Australian dollar.
 
Our Australian segment gross margin as a percentage of revenues increased to 47% in the first quarter of 2019 from 45% in the first quarter of 2018. This was primarily driven by improved margins at our Bowen Basin villages as a result of increased occupancy.

Segment Results of Operations – U.S.
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
Change
Revenues ($ in thousands)
$
13,359

 
$
10,239

 
$
3,120

 
 
 
 
 
 
Cost of sales ($ in thousands)
$
9,984

 
$
10,472

 
$
(488
)
 
 
 
 
 
 
Gross margin as a % of revenues
25.3
%
 
(2.3
)%
 
27.5
%
 
Our U.S. segment reported revenues in the first quarter of 2019 that were $3.1 million, or 30%, higher than the first quarter of 2018.  The increase was primarily due to greater U.S. drilling and completion activity in the Bakken, Rockies, mid Continent and Texas markets benefiting our lodge and wellsite businesses and a full quarter of operations from our Acadian

27



Acres Lodge, which we acquired in late February 2018. These increases were partially offset by lower revenues from our offshore business resulting from lower project activity.
 
Our U.S. cost of sales decreased $0.5 million, or 5%, in the first quarter of 2019 compared to the first quarter of 2018. The decrease was driven by reduced activity in our offshore business partially offset by higher cost of sales in the lodge and wellsite businesses related to greater activity.

Our U.S. segment gross margin as a percentage of revenues increased from (2)% in the first quarter of 2018 to 25% in the first quarter of 2019 primarily due to greater U.S. drilling and completion activity in the Bakken, Rockies, mid Continent and Texas markets benefiting our lodge and wellsite businesses and a full quarter of operations from our Acadian Acres Lodge, which we acquired in late February 2018.

Liquidity and Capital Resources
 
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions and pay dividends. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under the Amended Credit Agreement (as defined below) and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.

The following table summarizes our consolidated liquidity position as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
December 31, 2018
Lender commitments (1)
$
239,500

 
$
239,500

Reductions in availability (2)
(39,111
)
 
(14,469
)
Borrowings against revolving credit capacity
(139,029
)
 
(131,266
)
Outstanding letters of credit
(3,374
)
 
(3,445
)
Unused availability
57,986

 
90,320

Cash and cash equivalents
7,992

 
12,372

Total available liquidity
$
65,978

 
$
102,692

                         
(1)
We also have a A$2.0 million bank guarantee facility. We had bank guarantees of A$0.7 million and A$0.7 million under this facility outstanding as of March 31, 2019 and December 31, 2018, respectively.
(2)
As of March 31, 2019, $39.1 million of our borrowing capacity under the Amended Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Amended Credit Agreement. As of December 31, 2018, $14.5 million of our borrowing capacity under the Amended Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Amended Credit Agreement.

Cash totaling $6.3 million was provided by operations during the three months ended March 31, 2019, compared to $2.8 million provided by operations during the three months ended March 31, 2018. Net cash used by changes in operating assets and liabilities was $3.3 million during the three months ended March 31, 2019 and 2018.

Cash was used in investing activities during the three months ended March 31, 2019 in the amount of $3.7 million, compared to cash used in investing activities during the three months ended March 31, 2018 in the amount of $23.6 million.  The decrease in cash used in investing activities was primarily due to $23.8 million to fund the Acadian Acres asset acquisition in the first quarter of 2018.  Capital expenditures totaled $9.7 million and $2.7 million during the three months ended March 31, 2019 and 2018, respectively.  The increase in capital expenditures in the three months ended March 31, 2019 was related primarily to the expansion of the Sitka Lodge. Capital expenditures in the three months ended March 31, 2018 consisted primarily of routine maintenance capital expenditures.
 
We expect our capital expenditures for 2019, exclusive of any business acquisitions, to be in the range of $40 million to $45 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts. Whether planned expenditures will actually be spent in 2019 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Amended Credit

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Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue depending on the economic environment in our industry and the availability of transactions at prices deemed to be attractive to us.
 
Net cash of $7.5 million was used by financing activities during the three months ended March 31, 2019 primarily due to net borrowings under our revolving credit facilities of $5.4 million, partially offset by repayments of term loan borrowings of $8.6 million and $4.3 million used to settle tax obligations on vested shares under our share based compensation plans. Net cash of $31.0 million was provided by financing activities during the three months ended March 31, 2018, primarily due to net borrowings under our revolving credit facilities of $35.6 million, partially offset by repayments of term loan borrowings of $4.1 million. Cash borrowed of $30.3 million under the Credit Agreement in the first quarter of 2018 was used to fund the Noralta acquisition, which closed on April 2, 2018.
 
The following table summarizes the changes in debt outstanding during the three months ended March 31, 2019 (in thousands):
 
 
Canada
 
Australia
 
U.S.
 
Total
Balance at December 31, 2018
$
362,258

 
$
16,918

 
$

 
$
379,176

Borrowings under revolving credit facilities
80,324

 

 

 
80,324

Repayments of borrowings under revolving credit facilities
(60,724
)
 
(14,204
)
 

 
(74,928
)
Repayments of term loans
(8,608
)
 

 

 
(8,608
)
Translation
7,418

 
124

 

 
7,542

Balance at March 31, 2019
$
380,668

 
$
2,838

 
$

 
$
383,506

 
We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months. If our plans or assumptions change, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders. In addition, in some cases, we may incur costs to acquire land and/or construct assets without securing a customer contract or prior to finalization of an accommodations contract with a customer. If the contract is not obtained or the underlying investment decision is delayed, the resulting impact could result in an impairment of the related investment.

Amended Credit Agreement

As of March 31, 2019, our Credit Agreement, as then amended to date (the Amended Credit Agreement), provided for: (i) a $239.5 million revolving credit facility scheduled to mature on November 30, 2020, allocated as follows: (A) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $159.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers; and (C) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a $325.0 million term loan facility scheduled to mature on November 30, 2020 in favor of Civeo.
 

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The maximum leverage ratio financial covenant is set forth in the tables below.

If a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a Maximum Leverage Ratio not to exceed the ratios set forth in the following table:
 
Period Ended
Maximum Leverage Ratio
March 31, 2019
4.75 : 1:00
June 30, 2019
4.50 : 1:00
September 30, 2019 & thereafter
4.00 : 1:00

and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:

Period Ended
Maximum Leverage Ratio
March 31, 2019
4.75 : 1:00
June 30, 2019
4.50 : 1:00
September 30, 2019
4.00 : 1:00
December 31, 2019 & thereafter