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On July 28th, Civeo reported a 2Q17 loss of $14.8 million, or ($0.11)/share, compared to a $11.5 million loss, or ($0.11)/share a year ago. Adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, of $18.6 million, declined 31% from $26.9 million a year ago. Free cash flow was a positive $3 million, although it was down from $19.2 million a year ago. The full release can be viewed here.
Revenues of $92.0 million declined 14% from a year ago. Revenues were about 7% above analysts’ consensus estimate of $85.9 million and earnings were 8% ahead of the ($0.12) consensus. Management raised their full-year 2017 revenue guidance by 4% to $358 million (mid-point), and raised their full-year Ebitda guidance by about 2% to $64 million.
Civeo’s turnaround depends largely on higher revenues from more drilling activity (tied to oil prices). While results beat expectations and guidance was raised, CVEO shares fell about 7% on the day. The drop appears to be due to overly optimistic expectations and an implied reduction in 4Q17 Ebitda guidance. We care little about near-term expectations, as this likely is short-term traders making a play. Management raised their 3Q guide by more than they raised the full-year guide, obviously implying a lower 4Q guide. On the conference call, the company spoke about some uncertainly in the fourth quarter, but overall the company is seeing some better activity, so this reason seems to us a bit specious.
Canadian revenues were down 25% from a year ago, driven by a 17% decline in average daily rates and 3% fewer rented rooms. Australian revenues were up 4% from a year ago on average daily rates that were 5% higher and basically an unchanged number of rented rooms. In the United States, revenues (about 6% of total company revenues) were up 138% as drilling activity was stronger.
Debt increased by $4 million in the quarter, but this was entirely due to an $8 million negative impact of the rising Canadian dollar relative to the U.S. dollar, as the company repaid $4 million in debt.
Overall, our outlook is essentially unchanged. Civeo continues to adjust to the deep downturn and there are new signs of higher drilling and mining activity in Civeo’s markets. However, meaningful improvements won’t happen immediately. We continue to rate CVEO shares a BUY up to 4.