Civeo Corporation Maintains Strong Free Cash Flow Despite Canadian Segment Challenges

Civeo Corporation continues to generate substantial free cash flow despite facing headwinds in its Canadian operations, reporting $68.4 million in free cash flow for fiscal year 2024. The company has provided free cash flow guidance between $30 million to $40 million for 2025, reflecting confidence in its financial stability and operational efficiency. Stonegate Capital Partners maintains coverage on the company, highlighting Civeo's disciplined capital allocation strategy and robust balance sheet as key strengths positioning the company for long-term value creation.

The company's quarterly results revealed mixed performance across different segments. Civeo reported revenue of $151.0 million, adjusted EBITDA of $11.4 million, and adjusted EPS of ($1.10) for the quarter. These figures fell short of consensus estimates, primarily driven by weakness in both pricing and billed rooms volume in the Canadian segment. However, the Australian segment demonstrated robust performance, helping to offset some of the Canadian challenges. The company's commitment to shareholder returns remained strong, with $29.6 million worth of shares repurchased in FY24, including $5.6 million in the fourth quarter alone.

Civeo's Canadian segment experienced significant challenges, with revenues declining 44% year-over-year and adjusted EBITDA falling to ($4.7 million). This performance was driven by a 42% reduction in billed rooms following the sale of McClelland Lake Lodge and lower occupancy at Sitka Lodge. Economic and political uncertainty has pressured customers in the region, leading to reduced capital expenditure spending. In response to these challenges, Civeo has announced restructuring efforts including a $3 million one-time charge expected in the first quarter of 2025, reducing headcount by 25%, and cold-closing select lodges. Despite these difficulties, the company successfully renewed a major oil sands contract through June 2027, providing some stability in the challenging environment.

The Australian segment continues to be a strong performer for Civeo, with fourth quarter 2024 revenues surging 23% year-over-year and adjusted EBITDA increasing to $22.2 million. The segment's performance will be further bolstered by a six-year, A$1.4 billion integrated services contract renewal covering 11 total villages. Civeo executed a strategic acquisition in the Bowen Basin, purchasing four villages with 1,340 rooms and securing long-term contracts with major metallurgical coal producers. The acquisition, valued at approximately $67 million, is expected to contribute annualized revenue and EBITDA of approximately $32 million and $17 million respectively upon closing, expected in the second quarter of 2025. Management anticipates immediate cash flow accretion from this transaction, further solidifying Civeo's growth trajectory in the region.

Civeo announced its 2025 guidance with revenue projected to range from $630 million to $660 million and adjusted EBITDA between $80 million and $90 million. The company reduced its net debt by $24.1 million year-over-year, achieving a net leverage ratio of 0.5x as of fiscal year 2024. Additionally, Civeo maintained its quarterly dividend of $0.25 per share, reflecting a 4.5% dividend yield. Stonegate Capital Partners' valuation analysis using both discounted cash flow and EV/EBITDA comparison methods produces valuation ranges of $28.77 to $31.92 and $32.28 to $35.74 respectively, indicating potential upside from current trading levels.