Q4 2019 Earnings Call
Please standby.
Good day, ladies and gentlemen, and welcome to Surveil fourth quarter earnings.
Earnings call. Please note today's conference is being recorded at this time.
The conference over to Reagan Olson instructor corporate development in Investor Relations. Please go ahead Sir.
Thank you Mr. gets fourth quarter and for your 20, Nike Inc. earnings Conference call.
Today, our coal.
I'll be Dalton, Cvs, President and Chief Executive Officer and Charlie.
<unk> Senior Vice President Chief Financial Officer, and Treasurer.
The board, but again, we would like to caution what's your thoughts regarding forward looking statements to the extent that our remarks today contain information other than historical information.
No no we're relying on the safe harbor protections afforded by federal law.
Any such remarks should be read in the context of the many doctors that affect our business, including risks disclosed in our form 10-K, 10-Q, and other assets you filings I'll now turn the corner.
Thank you Reagan.
Joining us today, our fourth quarter earnings call.
I'll begin with if somebody were fourth quarter performance.
I will then provide a detailed financial segment level.
I'll be quick by offering some commentary on our three business segments in providing initial 2020 guidance before we moved the question answered portion of the goal.
The key checked wage war called today, our focus on execution to deliver free cash flow introduced.
For core in the fourth quarter, Richard generated adjusted EBITDA of 49.9.
Exceeding our expectations on a consolidated basis and reduced our total that like $44 million.
Full year, adjusted EBITDA and operating cash flow, both about 41% country, 7%, respectively compared to full year 20 team.
Due to strong lots of goods is year over year or Washington <unk>.
A couple with full year contribution from the North health acquisition in six months of contribution Colombia action acquisition.
Fourth quarter, adjusted EBITDA was better than expected and stronger year over year.
We're occupancy about Canada, Australia, what you see there are some tension in the prior year, coupled with strong performance from National business, and our Sitka Lodge generated robust EBITDA cash flow core.
Increased occupancy in our oil Sands block is an Australian Bowen basin villages was driven by continued strong turnaround and maintenance activity in both regions.
Important to note, which significantly reduced our leverage ratio under three times a year.
From three point block two times as of September Thirtyth 29 cheap.
Less than 50% of our full year 2019 gross profit stems from oil related activity.
Majority of that whatever related profits coming from Canadian oil sands.
Okay, well see as occupancy.
Eligible stable by multi year contracts and a customer resource like measured in decades.
Lastly, we expect to deliver free cash flow each one of approximately $60 million and continue to reduce our leverage for.
Will provide further details on initial outlook and the first quarter and full year guidance of units.
During the fourth quarter 29 gene studio generated revenues of $148.7 million.
30% increase for $114.5 million in fourth quarter of 28.
Adjusted EBITDA of 29.9 million versus 19.9 million in 2018.
Operating cash flows $41 million reported a net loss of $32 million compared to.
Loss of $14 million in fourth quarter 28.
Turning to our balance sheet.
<unk> operating free cash flow from our bid our business generated in the fourth quarter facilitated a redemption of $34 million in debt during the quarter, reducing our leverage ratio again.
On eight times from three one block two times in search ads on September Thirtyth between 19.
With that I'll turn the call over to Caroline Fourq each eldridge over.
Yes.
Thank you Bradley and thank you all for joining us this morning.
I'll begin with regard to you at the consolidated performance compared to the prior quarter before providing more detail on our three business segments.
Today, we reported total revenues in the fourth quarter at $148.7 million.
Net loss on a GAAP basis, a $32.1 million or 19 cents per share.
This compared to third quarter revenues to third quarter revenues of $148.2 million net income on a GAAP basis at born a half million dollars or two cents per share.
During the fourth quarter, we generated adjusted EBITDA of 29.9 million.
Operating cash flow at 41 million and free cash flow a $37.1 million.
This compares to third quarter adjusted EBITDA of 36.2 million operating cash flow of 23.6 million and free cash flow of $20.3 million.
Moving to our second or do you.
Revenue from our Canada segment was $89.7 million.
Which was a slight decrease compared to revenues $91.1 million in the third quarter 2019.
Adjusted EBITDA was $20.9 million.
<unk> decreased from $25 million in a third quarter 2019.
Revenues and adjusted EBITDA for the quarter were impacted by seasonal holiday downtime as well as the roll off of fall turnaround activity.
During the fourth quarter build whereas in our Canadian logic totaled 837000, which was down sequentially from 876000 in the third quarter due to the holiday slowdowns and turnaround activity I just mentioned.
Daily run rate for the Canadian segment in US dollars was $92 compared to $91 in the third quarter.
Turning to Australia during the fourth quarter, we recorded revenues of $48.9 million, which was up from $47.7 million in the third quarter due to continued improvement in our customers maintenance activity primarily into Bowen basin.
Adjusted EBITDA was $15.7 million down sequentially from 17.2 million.
Primarily due to a third quarter gain on sale she had a half million dollars related the sale of our quietly village.
Build runs in the quarter were 463000 up from 455000 in third quarter due to the aforementioned drivers.
The average daily rate for Australian villages was 72 U.S. dollars in the fourth quarter down slightly sequentially from $73, reflecting a weekend a weekend Australian dollar during the quarter.
Moving to the U.S. revenues for the fourth quarter, what 10 million, which were up 9.3 million in this part of the third quarter.
The U.S. segment saw and adjusted EBITDA loss of 0.2 million fourth quarter down something can you hear a point 3 million in the third quarter.
This decline was largely due to some new customer drilling and completion activity, which negatively impacted our wellsite services business, partially offset by lower margin offshore fabrication revenue.
On a consolidated basis capital expenditures were 4.4 to 4.3 million in the fourth quarter flat sequentially.
Our total debt outstanding on December 31st was $359.1 million, which was a 30 top $34.5 million decrease since September thirtyth.
The reduction resulted primarily from debt repayments of 41.9 million from cash flow generated by the business.
Partially offset by negative foreign currency translation movement of 7.4 million.
Bradley mentioned, our leverage ratio for the quarter decreased from 3.52 times as of September Thirtyth 29 team to 2.98 turns as at December 31st 2019.
And as of December 31st we had total liquidity of approximately 124.1 million, which consists of 120.8 million available under our revolving credit facility and 3.3 million of cash on hand.
Everything went towards the rest of year and into 2020, we're continuing to focus on generating free cash flow and reducing our aggregate leverage wall monitoring the capital markets the opportunity to term out our current that.
Rather will now provide some additional commentary on the performance of our three segments Bradley.
Hey, John.
Oh, just walk through our sequential performance I'd like to take a moment and highlight the province with made on a year over year basis due to the seasonality in both our Canadian and Australian businesses.
Our business in Canada. This year on it I know generating revenues just under $90 million, an adjusted EBITDA of $20.9 billion compared to $69.4 million of revenues of 11.3 $9 of EBITDA from the fourth quarter creepy.
The impressive year over year revenue increase in our business was driven by a 22% uplift in room nights related to robust turnaround activity in occupancy for LNG related work at our stick a lunch.
Our team has done a commendable job managing costs their supply chain to man joint fans customers experience, while maintaining strong profitability.
Turning to Australia or team delivered another outstanding for the fourth quarter upstream segment generated revenues of 48.9 billion.
Adjusted EBITDA of $50.7 million versus 29 revenues of $29.7 million and adjusted EBITDA of $11.8 million.
Fourth quarter community.
Strong customer maintenance activity in the Bowen basin and the contribution from the action catering acquisition drove that substantial year over year improvements in revenues and adjusted EBITDA.
Are you a business the U.S. continue to come to you didnt customer drawing a conclusion that spending during the fourth quarter 49 team.
And the roll off the contract is giving acres earlier in the year goes the additional year over year head.
You have segment generated revenues of $10 million, an adjusted EBITDA losses of $200000. The fourth quarter 2019, compared to revenues of $15.5 million, an adjusted EBITDA of $1.9 million.
Fourth quarter of 28.
We are encouraged by our strong fourth quarter and look to continue this positive momentum as we move into 2020.
I'll now provide initial commentary and guidance for the first quarter and full year 2020, before we move to Canada.
Assuming that issues like the Corona bylaws and climate change did not materially negatively impact local economies and therefore, the demand for commodities. The overall outlook for our business in 2020 remains constructive based on the growing contribution from allergy activity in Canada and steady turnaround work also.
Canada.
Coupled with continued improvement in Australia.
The primary headwinds, we envision in 2020 stem from U.S. oil and gas capital spending constraints.
I'll reiterate the strategic mandate, so remain our top priority engine 2020.
We will continue to execute to high customer service and cost control.
Capital discipline, focusing on maximizing free cash flow.
And you do not cash to reduce or leverage.
We will onto the capital markets for an opportunity to term out or debt to continue to look for ways to enhance our best in class service quality.
We will also continue to operate as responsible sentiment citizens and trusted partners in our communities and be responsive to our key stakeholders.
We believe these priorities presents a clear path to creating long term shareholder value.
Our business is off to a solid start and 2020. Despite some of the notable uncertainties in our core end markets.
In Australia, the macroeconomic environment and metals mining complex remains very constructive met coal prices are forecast to remain above $150 per metric ton sugar.
And as a result, our customer are generating healthy cash flows we expected maintenance activity remains strong as 2020 progresses.
Although weve not seen any customers green line in meaningful capital.
Growth projects in the mining space, we are tracking a few opportunities that could come to fruition in 24.
And we will remain watchful Brady indicators of softening mechel iron on demand from Asia.
In Canada, it's been a very good in January as customers accelerate some turnaround activity that typically were incurred later in here.
As such the seasonal cadence of revenue and EBITDA generation from our oil sands business like deviate someone from historical norms, but we'll keep you updated as 2020 progresses.
With our secure watch currently at relatively full occupancy levels or LNG related work should continue to be steady steady pace. This year.
The initial toy prognosis for the U.S. upstream long gas bidding Seguin industries heightened focus on capital efficiency in the recent drop in crude prices.
With the outlook in U.S. being considerably less constructive in or other regions are keen will be doesn't see on controlling costs and other berthing opportunities to generate occupancy that are less reliant on upstream buttons.
Accordingly, our focus will be on operating efficiently and capturing occupancy related to projects downstream from the welcome.
For the first quarter 2020.
Consolidated revenues of $139.5 million to $143.5 million.
And adjusted EBITDA.
Between 20 and $22 million.
For the full year 2020, we're projecting consolidated revenues of $560 million to $576 million and adjusted EBITDA.
On a $100 million $208 million.
When compared to our 2019 results off our full year 2020 guidance contemplates another strong year boxes in Canada, along with increased occupancy in Australia.
These are tempered by impacts of recent weakness in both the Canadian Australian dollars relative to the U.S. dollars as well as gains recognized in 2019 relating to $2.6 million.
Tom associated with insurance claim and $2.5 million.
Related to the gain on sale client.
Village that trailing mentioned earlier and it won't reoccur in 2020 [noise].
We have consistently we are reiterating our focus on generating free cash flow recent years I'm pleased to report that 49 keywords and seems consecutive year. The city of delivered free positive free cash flow for our shareholders.
In our view these results speak to the benefits our diversified end market exposure.
Which minimizes our reliance on any one region or commodity.
And our focus on beans responsible stewards of capital as we continue to look for ways to grow and enhance our business.
With the market focus on free cash flow, we'd like to go ahead and walk you through what we see as the free cash flows importantly.
Starting with the midpoint of our need for Fortytwenty, adjusted EBITDA guidance range of $104 million.
We anticipate cash interest expense of approximately $29.
We don't expect paying any cash taxes.
We are forecasting a 4 million dollar use of working capital.
And then using the midpoint of our full year capex guidance of $18 million to $22 million.
Ultimately arrive at free cash flow of approximately $60 million.
So this amount of free cash flow, we expect to reduce debt meaningfully.
From the initial starting total debt balance of $359 million. So we expect that to go down meaningfully in 20 point.
As we navigate.
Grow cross currents that 2020 may present.
We will stand by our commitment to generate cash reduce debt like capital prudently and continued focus on operational excellence and stakeholder engagement.
Finally, I'd like to take a moment to recognize our employees around the globe for their continued dedication professionalism.
Is there focus on safety and customer service on a daily basis that has made it will continue to make civeo successful.
On behalf the city a management team on board of Directors, Mike. Thank you all for all that you do.
Lastly, I'd like to thank Frank Steininger for.
It services, our CFO for the last six years.
His contributions to the company.
Been tremendous and welcome Carolyn under her new role as CFO.
With that well have to take questions.
Thank you and ladies and gentlemen, if he would like to ask a question. Please Sigma pressing star one on your telephone keypad, if it using its speakerphone. Please make sure unions function is turned off all your signal to reach our equipment again at a start one to ask a question I first question to enable come from Steven Carroll with Stifel.
[noise] Ah thanks, and good morning, everybody.
I'm going to Miss you Frank.
The.
One of things brothers.
Look at the business in aggregate.
There has been I think are pretty good level of consistency to the to the.
Grew EBITDA on the free cash flow.
As we look at 2020, and then obviously you provided some guidance when you sort of strip out some onetime items, that's flat to up a bit year over year.
Where where the puts and takes as we look at 2020 <unk> 'cause could you seem to have a pretty good level of confidence based on prior.
Prior guidance can you give them for your got into the beginning of the year last couple of years.
Where we where are you doing things move around as you go through 2020 that could be could be either positive or negative to expectations.
Thanks, Steven and let's start with Canada, we are.
We feel pretty good about the turnaround activity as we see it today, we'll have to see how that plays out.
We have deep customer relationships. So if the customers move forward with turnarounds, but we feel good will capture the occupancy it'll depend both on the magnitude and leave those turnarounds depending on how they compare against next year.
We feel better about them the likely be slightly lower than 29 team in aggregate, but relative to the way we felt let's say 90 or 120 days ago. It feels better it feels more constructive but it did back then.
We feel like the LNG activities going to be fairly good this year, but that are set to launch.
And then we'll have to see how.
The CTL pipeline moves for you've got some camps that will support that but obviously, it's been fairly public Vincent ways related to to those platforms.
In Australia, I would say there.
Right.
The atmosphere feels very good we've got a good activity starting off the year much better than we did last year.
And that's reflected in our guidance.
The people came back to work quicker than certainly saw in January February and point 19.
We certainly need that activity can you continue to strengthen.
And we'll see if any of the mining growth projects get Green, London, but at this point, whether that run projects get reminded or not.
We expect that are.
Occupancy in Australia will be up year over year.
We're facing a little bit of currency headwinds in Australia, I don't know I'm sure everyone has watched the currency movement of the Aussie dollars than probably week over the last 60 days now.
Rent some pieces that have said that seasonally the Australian dollar is weak in January February and intend to recover.
In Platinum March April May timeframe, if that happens then we should be back in a position will show good growth in Australia.
The U.S., it's going to be tough market, but the team has done a really good job of.
Maintaining customer relationship building new customer relationships.
So.
Our expectations, we can remain profitable U.S., it'll certainly be down with EBITDA perspective year over year, but at least the team has done a really good job of maintaining utilization in occupancy there. It's been a fairly good start to the year on the occupancy side at our West, Texas and North Dakota.
Okay.
So that's kind of where we feel like things are we'd like we like the performance that we have had a very strong ending 2019.
And as I mentioned in her prepared comments in to strip out the onetime items in the 19 numbers.
In the EBITDA in 2020 is flat to slightly up.
I would say that we've got more upside as we stand today in Australia that we do in Canada.
And that's consistent with where those commodities are.
Met coal prices are very constructive and that kind of 115, a ton range in our customer costs are in the $70 range, so they're making good free cash flow there.
We have to be mindful of what happened to the Asian economies.
And what happens to steel demand, because ultimately, though fall through to met coal.
As it relates to Canada.
Good good contracts in place so while oil prices have been.
Quite volatile and certainly have had a downward and here the last few days.
I'm not oil sands activity is much more resilient.
These oil price environment than let's say, a U.S. land activity.
So overall, we feel today pretty good about 2020.
We've tried to be very clear about what we're focused on which is executing and delivering profitability.
Using that to generate free cash flow and further reduce debt.
We feel like the strike we've made.
The last six was taking the a leverage ratio from over four times to under three times.
Pathway to reduce it even further in 2020 is has been makes us very good credit profile than we were six or nine months.
Great. Thanks.
Couple of things one I think I think you.
Took control of action I think towards mid 2001.
Can you give us just an update on all the problem of action and how that has gone so far because I think an increase your exposure.
Hi, Ken.
Oh, just kind of whats the status of that transaction and how is that integration now.
Sure.
So we acquired action that began in July of 2019, they provide integrated services to western Australian mining industry predominantly in iron ore customers, but also lithium and gold and other mining companies there.
To put in perspective, we do.
1.7 million room nights in our legacy business approximately they do 900000 room nights. So there's a substantial increase in our.
And our volumes there.
The.
The first six months were were very strong for action, we were expecting to do.
Closer to $2 million, even on the first six months being closer to four and those are in Australian dollar terms.
And I was a combination of new contract wins and expansion to existing contracts.
So so far it's it's played out well integration is largely complete on an operational basis will be going through the administrative integration here in the first quarter. This year predominantly kind of back office and finance function.
That we needed to get to handle on before we transitioned into the Civeo systems.
So overall has been very pleased with that we were targeting a.
That EBITDA multiple in the four times range four to five times range.
We expect based on budget it'll be at least less than three and maybe trending towards two times.
Great. Thank you and then just fine.
But your.
Target free cash when you're going to a leverage ratio.
My question, two and half times.
Is that I think it doesn't work.
Yes.
I don't know get completely the June at times, but we're certainly expecting to get under.
2.752, 0.7 times Levered with with the free cash flow.
Great. Thank you.
Just a reminder, ladies and gentlemen, if star one to ask a question at this time. Our next question will come from a Kurt Hallead with RBC.
Hey, good morning.
Good morning.
Hey, Frank Frank how funny retiring.
And then pleasure dealing with you.
So in terms of the.
Frankly in terms of the dynamics of potentially refinancing and.
Getting some longer term debt you know onto the balance sheet looks like you have a very strong story to tell to whenever a different banks here and free cash flow and your leverage ratio coming down.
How are the credit markets right now and they know it's been really tough in overall for energy so not naive to that but again given your free cash flow profile and the prospects of getting your leverage ratio you know to around 2.7 by the end of 40.1.
Like the things that you know the credit markets could be more more open for you than maybe some others. So first one for some color on that.
Sure.
Thanks Curt.
We do have a much better story today that we did a six or nine months ago Big we always felt comfortable that her business generated free cash flow. Just so happens beginning of last year, we needed to invest in our Sitka Lodge.
Some growth Capex in words capture that market and a support. The contrast, we had one there.
Free cash flow neutral in the first half of last year certainly the performance of the second half was demonstrably different in generated total of $50 million of free cash flow and 29 teams. We've got two good quarters that kind of remind everyone. A if that kind of lost sight of the fact that business really does generate good free cash flow and we've tried to outline.
Great and I Wouldnt 2020 looks like so as it relates to the capital markets. The goal is to be ready everything all of our advisors and what we can see the market is the windows for.
Refinancing or our short.
So we feel like we've got the story right place we've got.
Actual results demonstrate the free cash flow again.
We've got a good story on the forecast as well so it's a matter of getting these results out that helps a lot because the 10-K published and then looked to be ready to hit the capital markets when they open.
So that's the plan I mean now deal would be to as you mentioned the term out some of the debt.
A little further.
[noise] maturity beyond 2021.
And then via position, where we've got a little bit more permanent debt capital Dan.
Short run business again, maybe the next six months, it's all about execution in debt reduction.
Okay. That's great and then you know as you look out beyond say 2020, or 2021, and you look to term out there that you know or how do you think about managing the business through cycle from a leverage ratio standpoint, and then what do you think feasible to a thing in that context.
Well, that's a little bit of a moving target has historically, we've said one one of them half times levered as where we'd like to be ultimately we need to be responsive to what the investors are looking for you know I believe that's a little bit of a moving target.
We may need to move that range down, but I think ideally it would be let's say plus or minus one times levered at the right spot boards and we've got a pathway over the next 44 months that will get us pretty close to that.
Okay. That's a that's good color.
And just maybe on the on the dynamics related to Canadian markets, you've given some good color about what the.
You know dynamics look there, but is or is there anything that could be a incremental positive catalyst.
You know.
Whether it's more shipments by rail.
Yeah, that's obviously LNG projects looked like they are what they're going to be for now, but any any other I saw that tech was going to oh pull back on their investment on the heavy oil.
That makes up in Canada for environmental related fees, and so you know pluses minuses any any thoughts on those.
Sure that's a good question.
The let me tackle the upside downside first I would say that in our current guidance, we've been fairly conservative on or occupancy pick a launch in the back half of the year. There are some opportunities there where we can capture some what I would call secondary and tertiary occupancy he.
Subcontractor is ahead of the major firms there.
The major projects that that would add incremental occupancy the sick.
The work, we're going to do procedure will remain somewhat of a question Mark just because of the timing of putting those camps out as they still face.
That private slippage.
Delays in civil unrest that could impact that.
But I would say that are our guidance contemplates some conservatism there.
As it relates is disappointing to see that detect frontier projects wasn't going to move forward wasn't in our near term plans to be a contributor to our occupancy.
So it's disappointing from Ana.
The standpoint, it's a difficult to get the greenfield projects sanction.
In Canada.
If you take the silver lining on that that means that existing infrastructure and existing projects now have more value.
A greenfield projects cannot or having difficulty moving forward. So.
I think we're cautiously optimistic that portends that existing customers will have the opportunity to expand their projects.
Maybe only source of growth path for rather than a new greenfield projects. So I'm trying to look at that one more from a silver lining or last handful.
Okay, Great and then maybe one more if I can just in terms of pricing.
Dynamics, you know you kinda give your outlook are generally speaking but.
Yeah, you see any opportunities for us on pricing improvement or is it any more and more stable to you as we move throughout 2020.
Now, let's say in Canada pricing is in the oil sands is fairly stable.
We have to be responsive to our customers every time, we talked to them.
But I would say that generally that that conversation, it's pretty constructive right now.
Sick of provides.
Ah pricing opportunities there for sure.
I would say in Australia, there's certainly an upward bias to pricing.
That is broke the combination of actual price increases coupled with.
Customers willing to pay a modest premiums for greater flexibility.
And so that.
And on kind of on consolidated Australia bases that puts upward pressure on loan pricing as a whole.
On a cost side, there's going to be up there is upward pressure on food costs in Australia.
He has managed that primarily relate to supply chain disruptions related to the fired earlier. This year. Our team has done a good job thus far in January February managing through that.
Little disruption were impacted overall you know.
I would say labor costs in both markets, probably have a modest upward bias, but nothing that can't be manager.
Okay, that's great color. Thank you.
Thank you.
And just a final reminder, if I want to ask a question at this time.
It appears we have no further questions and Archeo at this time, Mr. Datsun I'd like to turn the conference back over to you for any additional or closing remarks.
Thank you.
In closing I'd, just like to point, everyone to the fact that despite all the uncertainty in global markets, All Civeo and our team members can do is focused on the things we can control.
I feel good about our contract positions, primarily in Canada, and Australia that will give us some stability in our earnings and revenues.
And with that we'll continue to focus on being.
Good stewards of our shareholders' capital by generating free cash flow and paying down debt.
For the time to after the first quarter.
Thank you.
Thank you and that doesn't put our conference for today. Thank you for your participation.
[music].