Civeo Corporation Faces Challenges but Maintains Long-Term Confidence Amidst Financial Adjustments

Civeo Corporation (NYSE: CVEO) has reported a negative free cash flow of ($13.5M) in the first quarter of 2025, a significant downturn from the $7.2M reported in the same period the previous year. This decline is attributed to a negative operating cash flow of ($8.4M) and capital expenditures totaling $5.3M. Despite these near-term financial challenges, the company has expressed unwavering confidence in its ability to generate long-term free cash flow, supported by its capital-light business model and a significant portion of revenue coming from recurring asset-light services.

In a strategic move to navigate through these financial headwinds, Civeo has increased its share repurchase authorization from 10% to 20% of its outstanding shares, with plans to utilize 100% of its free cash flow to fulfill this program. The company has already repurchased 153,000 shares for approximately $3.3M in the quarter and has decided to suspend its quarterly dividend to prioritize share buybacks and enhance financial flexibility. This decision comes as the company's net debt rose by $20.9M quarter-over-quarter to $59.0M, resulting in a net leverage ratio of 0.8x.

The first quarter results revealed revenues of $144.0M, adjusted EBITDA of $12.7M, and adjusted EPS of ($0.72), falling short of expectations. The underperformance was primarily due to weaknesses in pricing and billed rooms volume in the Canadian segment, despite strong performance in the Australian segment. The Canadian operations saw a 40.0% year-over-year decline in revenues to $40.4M and a drop in adjusted EBITDA to ($0.2M), prompting aggressive cost-cutting measures including a 25% reduction in headcount and the cold-shuttering of two lodges.

Conversely, the Australian segment demonstrated resilience with a 13% year-over-year revenue growth to $103.6M and stable adjusted EBITDA of $20.5M, driven by increased integrated services activity under a six-year, A$1.4B contract. The segment is also advancing its strategic expansion in the Bowen Basin, with the acquisition of four villages and associated take-or-pay contracts expected to close in the second quarter of 2025.

Civeo has revised its 2025 guidance, projecting revenues between $620M and $650M and adjusted EBITDA of $75M to $85M, with lowered capital expenditures to $20M–$25M. The guidance excludes any potential contributions from the pending Bowen Basin acquisition, which is anticipated to be accretive post-closure. Valuation analyses, including DCF and EV/EBITDA comparisons, suggest a valuation range that underscores the company's potential for recovery and growth despite current challenges.