Q1 2020 Earnings Call
Please standby we're about to begin.
Good day and welcome to the Civeo Corporation first quarter 2020 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Reagan Nielsen Director corporate development and Investor Relations.
Please go ahead Sir.
Thank you and Ultimate Studios first quarter 2020 earnings conference call.
Today, I'll call, but I'd be dropping city, as president and Chief Executive Officer in parallel.
Should be a senior vice President Chief Financial Officer and Treasurer.
Before we begin to caution listeners regarding forward looking statements.
The extended our remarks today contain information other than historical information. Please note that we're relying on the safe harbor protections afforded by federal law.
Any such remarks should be right in the context of the many factors that affect our business.
Including risks disclosed.
Form 10-K, 10-Q, and other FCC filings.
I'll now turn called exactly.
Thank you Reagan and thank you all for joining us today on her first quarter earnings call.
Your families are staying safe and healthy.
You know how can that be the world's change in recent weeks compared to 19 pandemic simultaneous equation.
Oil markets over the last time to discussing our first quarter point <unk> results in favor of updating you on we are seeing in our business today and our plans navigating the current environment.
Let's start by saying that city safety and well being of our employees.
And contractors is always our top priority.
Accordingly.
Over the last several months because the Nike Pembina kids of all we've been working in close consultation with medical professionals government health authorities third party experts and our customers to implement enhanced safety measures that older facilities.
Prices Master plan, which we successfully used during that werent bars of 2016 cents lives and fine.
Just quickly and effectively put in place protocols to manage the situation.
We remain in continuous dialogue with stakeholders during the duration of the pandemic.
We extend our profound gradually into our employees gas customers and vendors for their continued vigilance as we work through this together very difficult.
Hi, like you take wage went todays call.
As follows.
Our first and foremost important priority since its launch this time.
Got to health well being of our employees I guess.
Despite the economic disruption subdued activity in March in North America compete still deliver improved year over year financial and operational results for the first quarter placed one.
[laughter] <unk> leverage to 2.54 times after March 31st 2020 from 2.98 times.
In 2019.
That doesn't mean or 2020, well bring reduced EBITDA, that's a significant drop in oil prices has impacted our oil sands lodge occupancy and overall activity in U.S.. However, we believe the company's diversified geographic and commodity end markets.
Coupled with a relentless focus on positive free cash flow generation will help us manage through this period of uncertainty.
We are focusing on bankers within our control as we navigate the challenges ahead, including previously announced cost containment initiatives.
As we announced by before keep an eye business update.
On or 2020 guns.
Lastly, we expect to remain free cash flow positive in 2020 and continue to pay down debt.
Now for some overall comments on on the business.
I'll provide a brief summary of our performance for the quarter no business update as we contend with until that Nike pandemic isn't dislocations in the global commodity markets.
Alan will then provide a financial and segment level review.
Some directional commentary on our expectations for the second quarter before we move into the questions are answered portion of the call.
Our team has performed admirably under rapidly evolving circumstances during the quarter.
First quarter results were punctuated by significant reduction or leverage ratio on year over year occupancy gains both in Canada, and Australia, despite significantly weaker Canadian activity and more.
Generated revenues of $138.8 million, an adjusted EBITDA of $20.3 million.
And $18.3 million, a free cash flow drain the first quarter. Please.
Great your balance sheet leverage ratio declined 2.4 times at the end of the first quarter 2.98 times at the end of year 20 Nike.
Maintaining a healthy balance sheet and liquidity profile will continue to be among the top priorities in 2020 as we confront the challenges ahead.
Let me take a moment to provide a business update on all three segments.
Our business in Canada is continuing headwinds related to and then an exceedingly difficult oil price environment.
Most customers are limiting their employee and contractor headcounts to central personnel, only resulting in reduced occupancy in Canada.
No work continues and on the oil sands and LNG projects. There are customers are proceeding or the notes its slower pace. The first two wants to be here.
Moving to Australia, 'cause it and commodity price related disruptions to our business what is far less pronounced and we've seen in Canada.
Park in large part what constructive underlying fundamentals for metallurgical coal and iron ore and there are well right now.
Occupancy.
It was better than expected in the first quarter has remained relatively boy.
And we are pleased to report that since the beginning of 2023 years that award for contracts.
Three.
Freed western Australian mining pest worse action catering business.
Its contract terms very for one to three years and have anticipated aggregate revenues totaling.
$36 million Australia.
Since were 2023.
The environment, our U.S. business is far more challenging than we expected going into 2020 are you happy customers are facing an unprecedented period of oil demand destruction.
Global economic recession calls my cousin 19 against the backdrop of a highly contentious open plus lines.
The industry's collective response in the U.S. has been meaningfully reduced has led to moving a meaningfully reduced drilling and completion capital spending activity.
You're going to levels across our U.S. onshore portfolio have declined from already subdued levels and this is compelled us to temporarily shut or certain lodges nucor's consolidating our wells like district locations.
As we navigate this difficult months certain environment, our priorities are to keep our employees and guess assays.
Let's see if it's possible maximize our free capital generation deserve our financial flexibility and reduce our cost without compromising our service quality.
With that I'll turn it over Carol.
Thank you Bradley and thank you all for joining a warning.
Today, we reported total revenues in the first quarter of $138.8 million with a net loss on a GAAP basis $746.5 million or 87 cents per share.
The net loss included a goodwill impairment charge of $93.6 million in our Canadian reporting units as well with asset impairment charges totaling $38.1 million in Canada and $12.4 million in the USA.
During the first quarter, we generated adjusted EBITDA of $20.3 million operating cash flow of $20.8 million and free cash flow at $18.3 million.
Turning to the first quarter results for our three segments.
I'll begin with her would be or the Canadian segment performance compared to the performance a year ago and the first quarter of 29 team.
Revenue from our Canadian segment was $79.3 million as compared to revenues of 66.8 million in the first quarter at 29 team.
Adjusted EBITDA in Canada was 11.4 million and increased from 10.2 million in the first quarter 2019.
Revenues and adjusted EBITDA for the quarter, what those impacted positively by year over year build one spot.
During the quarter Doble arms in our Canadian lodges totaled 708000, which was up 13% year over year from 626000 in first quarter 2019.
This was due to increased build ones from our expanded Sitka Lodge Burbank LNG activity in British Columbia.
In June as well as increased false claims activity in January and February.
Partially offset by the decline in Canadian occupancy in March.
Our daily run rate for the Canadian segment, U.S. dollars was $92 essentially unchanged year over year.
Turning to Australia during the first quarter, we recorded revenues of $49.1 million up from 28.4 million in Q1 2019.
Adjusted EBITDA was 16.2 million up from 9.9 million during the same period 2019.
These results were positively impacted by the acquisition of action catering in July last year.
As well as increased village occupancy, partially offset by a weekend Australian dollar.
Build runs in the quarter worth 472000 up for 383000 in the first quarter 2019.
Due to continued improvement and met coal activity across the foundation.
The average daily rate prostrate intelligence and U.S. dollar to $69 in the first quarter down from $74 year over year, primarily due to the weekend Australian dollar.
Moving to the U.S. rather needs for the first quarter were 10.3 million as compared to 13.4 million in the first quarter of 2019.
The U.S. segment adjusted EBITDA was $400000 in the first quarter down from adjusted EBITDA of 2.8 million during the same period last year.
These year over year declines were primarily due to block broadly lower drilling and completion activity coupled with the expiration of arcadian acre contract in June 2019.
On a consolidated basis capital expenditures were 2.7 million in the first quarter down from $9.7 million into first quarter of 29 team.
The two expenditures related to the Sitka Lodge expansion last year.
Our total debt outstanding on March 31st 2020 was $314.9 million, which represents a 44.2 million decrease since December 31st 2019.
The decrease consisted of 14.2 million in debt payments during the quarter.
On Threeq free cash flow generated by business.
As well as a favorable foreign currency translation impact of $30 million.
As Bradley mentioned, our library, our leverage ratio for the quarter was reduced to 2.4 times as of March 31st.
From 2.98 times as of December 31st 2019.
And as of March 31st we had total liquidity of approximately $849.6 million, which consists of 544 million available under our revolving credit facility and 5.6 million a cash on hand.
He has historically low oil price level and that was okay impact on North American operations.
It is likely that we will not remain in compliance with our leverage ratio, particularly beginning with the period ending December 31st 2020, what I'm asking some leverage ratio under our credit agreement.
Due to 3.5 to one.
In order to avoid violating the cabinet, we intend to pursue it and I'm not sure credit agreement to increase that maximum leverage ratio for several quarters.
We believe it is probable that we'll be able to obtain an amendment to our credit agreement or alternative solutions, such as a waiver or a place that financing. However, we can't give no assurance that won't be able to obtain such none that labor or a placement financing on favorable terms or at all.
Despite the economic disruptions, we are facing we will continue to maintain the financial discipline that it seems to be difficult environments in the past.
As we disclosed in our April 14th business update we have already implemented several cost containment initiatives, including salary in total compensation reduction of between 10 and 20% for the board of directors, our executive leadership team as well as other senior management.
Headcount reductions in North America, 25% have been made in the last few weeks and an approximate 25% Catchmark 2020 capital spending program has been implemented.
We expect to incur cost of between one and a half to $2 million in the second quarter related to these head count reductions.
Bradley will now provide some closing commentary and discuss our outlook for the remainder of the year Bradley.
Greg Garland.
Indicated the night before kids business update to do in taxes, because ignite and doing it was severe downward pressure on oil prices have begun to negatively impact our financial performance, primarily in Canada to a lesser degree the U.S.
You can rapidly rapidly evolving market environment.
So on our previously announced 2020 revenue EBITDA guidance or lowering our full year 2020 capital spending for gardens, approximately $15 million.
Moving to the segments in Canada, Oilsands region has been negatively affected as customers began to announce reduced capital spending in operating budgets in late March.
Illustrate this at the beginning of March 24, they were serving about 8600 guests per day in Canada.
By the end of March were serving roughly 3000 Boes per day.
Although we continue to host the central personnel interlocutors occupancy decline markedly in recent weeks, we're not anticipating recovery in oil sands occupancy for the rest of year.
We need to open our largest were approximately 1100 evacuees food worried.
What is this week, we continue to work collaboratively with local officials to assist the community its recovery efforts.
In Canada, our LNG directed works should be more resilient and this year.
Our Canadian portfolio.
Well the LNG, Canada related workforce is also go onto a single personnel, we expect the activity in personnel levels to normalize in the second half of 2020 doesn't impact of the code at 19% crude.
Moving to Australia severe business has been remarkably resilient recent weeks, which is a trend we expect to continue in the second quarter.
The diversification of our portfolio across different geographic in commodity markets is a key element of Citi Your strategy.
And although the global oil markets or income world metals and mining customers are staying active in Australia.
However, it is difficult.
It's difficult environment, we anticipate our customers to delay any growth projects until 2021.
Metallurgical coal and iron ore prices remaining relatively strong in the emerging agent Asian economies are slowly coming back online.
From the worst of the Corona outbreak, we're cautiously optimistic about 2020 2020 outlook for our Australian business.
Yeah I lived in our U.S. businesses.
Considerably less constructed.
Got it has been well documented U.S. independent N P industry is continuing with the meaningful financial distress.
Physical onshore storage.
Well, you drew prices kind of Unthinkably gone well into negative territory times dozens of companies across non-GAAP supply chain already immersed in financial restructurings.
Challenges stemming from needs conditions that are well beyond our control or not unusual for I guess business in recent years.
Although the drug eluting connectivity across the major.
Tight oil plays has been volatile in the wake up between 15 downturn. Our team has made significant strides reduced fixed costs hocky capital efficiently and relocate assets into more active regions.
During the second quarter, you initiatives, along with further cost reduction should mitigate the negative impact from the dramatic reduction in upstream spending.
These are extraordinary times for our team will apply the lessons learned from prior downturns to navigate the challenges ahead.
At this will continue to be on matters over which we can control in our key priorities worried as follows.
We prioritize the safety and well being of our employees guest and vendors.
Manage our cost structure and why did the current awesome job one.
Okay capital prudently nationalized free cash flow generation financial flexibility.
With that those are the end of our prepared comments were happy to take questions.
Thank you the question and answer session will be conducted electronically if he would like to ask a question. Please press star.
Followed by the digit one if you are using the speakerphone. Please make sure. Your mute function is turned off to a volume signal to reach our equipment.
Once again star one and we'll pause for just a moment.
And we'll take our first question from Kurt Hallead with RBC.
Hey, good morning, everyone hope your respective families safe and well.
Thank you Kurt.
Brett Bradley.
Appreciate the color commentary and kinda reticence to provide any sort of.
You know a specific levels of specific guidance given the uncertainty that play a major I'd just.
Hi, excuse me to give us some directional contracts.
You know maybe start off on the on the Canadian front as you mentioned.
No significant drop off in residency during the course or somebody in the March in for where we kind of art today no recovery. So we can kinda give it a sense of the magnitude of that they know and when do you expect to be a little bit more resilient, so when you're going to.
Put them into a a you know chicken big bag and kinda for almost to the table you know what what kind of overall kinda directional decline and Canadian revenue could we expect you know maybe as we get into the second quarter and and then if you can you give us some general sense again, just broadly Directionally you know whether an.
The second quarter could could mark the local for the full year for Canada.
Yeah, that'd be very helpful. Thanks.
Sure happy to do that her.
As we outlined prepared comments.
Fancy.
In Canada went from about eight 600 yesterday in early March to close to 3000, we and a little bit below.
April it's bounced back up as we're taking care of evacuation important Murray I don't think that that's going to last very long as we mentioned and you highlighted in your question in Canada, We do you expect it.
LNG, Canada project will start to ramp back up in the second half.
Tax you initially planned levels that were in our original guidance.
But at this point.
Our current forecast, we're not assuming that oil sands occupancy improves from where we are today.
Maybe a little bit, but probably not materially.
I'm sort of put that in perspective in total Canada last year had about 3.1 million room nights.
I expect that numbers can be younger accumulate agreements in total that's booked oil sands LNG and LNG related.
So that will that will produce materially lower revenues and EBITDA out of Canada and that quite frankly.
The crux of.
The difference between our originally.
Our original guidance, which was about $100 million in and we're not giving guidance today, Oh Wow Wow.
Yes.
Second significantly lower even though you're here.
Being said.
The other major assumption in our outlook right now is that Australian occupancy remains.
Levels that it is today not expecting a any sort of hockey stick increasing occupancy in Australia, but we are expecting it to stay at current levels Uh huh.
We'll see that change then that means that will be a downside floors or the U.S. team has done an admirable job.
Oh, a multiyear period, but certainly in the last 60 to 90 days.
In addressing their cost structure and so while it's not material to us it they've done a very good job and mitigating what would otherwise be a.
Significantly negative.
Market for us as we see rig count quality.
To close to historic levels as of last week and expected to go to historically low levels in the future.
And completion activity in the U.S. Yoo.
Effectively comfortable hall.
So that.
That's kind of the picture we have today I would say that.
Upside for us would be.
Likely if it were overly conservative or pessimistic around Canada.
I've seen a couple operators.
Who are starting to look at bringing forward their turnaround and maintenance work in the oil Sands region.
Imperial has publicly announced it and we're working with several other customers who are contemplating that that would not be <unk> in our guidance numbers.
The commentary I just good so.
That's a picture that we have today and.
To answer any follow on questions.
That's great color I really appreciate filtered up Pico.
Follow up question would be on on the leverage ratio.
Reshaped the other candour south.
Rich that tripping that come before quarters. This year I do know that you have enough for us.
Adjustments bike adjustments that are related to EBITDA and I, just just kind of curious as to.
What that level of adjustments might be yeah for the maybe on a full year basis or you know what are the rest of the you're.
Kind of like though tell you do our baseline EBITDA calculation and I know that sometimes because we don't always kind of capture what that was a what those additional adjustments also any color on that'd be helpful.
Sure sure card I'll take that with respect to our bank adjusted EBITDA. The most significant adjustment is for non cash stock based compensation.
So it's approximately <unk> million dollars a year, but we add that to the back to reported adjusted EBITDA to get to bank EBITDA.
There was and there isn't a jeffs member acquisitions, where we pro forma and the historical set for currently we're performing and the action EBITDA and parents prior to own elegant and that obviously one once it gets a third quarter, they're no longer will be that adjustment because.
Well that included the results for full year and Uh Huh.
Dissolved.
So that really because topic Congress double blind.
I appreciate that detail and then on on the stock based comp so despite.
The recent events.
Stock price dynamics and everything else, that's a pretty good stock based costs are pretty static number.
Oh, well work, where we've not issued any shares this year so that all be.
Grants there that are still amortizing.
It is as we disclosed in the process easier on the board is not taking any shares there they've reduced their confidence in their taking all are confident cash.
And Ah I don't expect on a Billboard basis at least for the rest of 2020 that we'll see any shares issued so long winded way of saying, yes. It will start to go down, but I don't think it'll go down.
The true equal where it is right now for the next 12 months, you'll start to see the impact is not issuing any shares in 2020 I'm going in kind of 2021 2022.
Okay, great. Thanks for that appreciate it.
And next summer to Stephen Gengaro with Stifel.
Oh, Thanks, good morning, everybody OCO debt as well.
Oh, Thank you Stephen good morning.
Sure.
In fall of two to coach question.
You guys have it history over the years, you're thinking of managing.
Lower occupancy levels pretty well maintaining.
Positive EBITDA contribution so rover.
The quarter since you guys are spot on world seems to be before then.
Well I think about the margin degradation.
What looks like a second quarter room, count, which was down 50% of CAD or more.
He can you say you did that positive in Canada to Q.
It is about variable cost to get there or.
Oh sure because people don't I, just built in a general sense.
I think Canada second quarter, we close to breakeven plus or minus that will be after.
Coded related costs and Ah so.
Restructuring costs, but I think in total right now in Canada, it's plus or minus breakeven.
The U.S. will be slightly negative in Australia, probably to the two biggest variables are holding on occupancy went to what the currency is gonna do thus far they've been a kind of our bedrock to keep us keep us going.
Thank you.
You mentioned.
The Australian room count being.
Pretty stable from these current levels.
As it currently at around where the.
First quarter wars or has it been a drop off since you know score.
It stayed relatively consistent they're certainly from time to time soon customer specific issues.
That will influence dates, but generally speaking Australia feels like it's in line with our expectations.
In April.
Right and then just.
So once and then for now.
And we can drill to try and going really well, we all Walt Whitman trailing EBITDA perspective, which I know, it's tough to when we when I when I talked about.
The model and.
EBITDA contribution.
You are kept asking about 15 years and about 25, maybe a little bit less so that's about 40. So if you do your 60 million EBITDA, you're gonna be has a 20 million to cash flow positive plus.
Some working capital.
If we get about that like how should we think about working capital.
Oh, that's that's spot on a hot Caroline after I'd give you some overview comments to confirmed the numbers, but that feels right. Capex is 15, a interest expenses declined 25, plus or minus.
And.
That's 40.
And working capital should move in our favor.
During the second quarter presuming that yeah.
Baseline assumption is that does not have some recovery in Canada, all LNG related in the second half a year, but in total I expect about 14 $15 million work with cash flow coming from.
A working capital.
Specifically in the second quarter.
Yeah, I mean, any corrections are just and hope that was spot on.
All right great. Okay. Thank you.
Thank you see them.
And as a reminder, at star one if he would like to ask a question.
And we'll hear follow what kind of Stephen.
And girl with Stifel.
Thanks, Phil just that dot com, so well what <unk>.
Actually acquisition.
Yeah, Hi, soon we got very well since you guys just closure.
I'll, let Sheila can you give us what you're seeing their children I know, it's tough market right now, but probably the expectation for that business over over the next we'll sort of three to six quarters in house evolving and how the deals got.
Sure.
So we closed the action.
Industrial catering business in July 2019.
Just as a backdrop for the balance Oh.
People on the call.
Action provides a.
Management service integrated services to customer owned.
In Western Australia predominantly serving.
Arnold customers, but also serving goal lithium and ER and other customers there.
It's a service only business or a lower margin business, but as a business, which isn't growing significantly.
Since we've we've acquired it.
We had we had four nice renewals contract renewals as mentioned in her prepared comments were all action related there were three wins in one renewal we're working very closely closely as our customers on a couple of material renewals that will happen in July of 2020.
But I would say in general.
EBITDA coming out of action is.
The about double.
Triple what were initially anticipated.
Out of the business.
We've seen.
Business continued to grow in iron ore prices are holding in there quite nicely there in the $80 range and that's where they started the year. We're shirt. The two major qualities that we serve in Australia or iron ore with action and met coal with our legacy business.
And does that go into steel manufacturing and so.
We're very very watching very closely the global steel demand and how things are coming back, but thus far experience. It stayed.
Relatively buoyant and Ah in Australia. So.
We're optimistic that continues reversed a year.
Right. Thank you.
And that will conclude today's question and answer session. At this time I'd like to turn the call over to Mr. Bradley Dodson for any additional for closing remarks.
[noise] Oh, thank you everyone for joining us today. These are a incredible time to have to manage through I do want to say thank you to arching as you can imagine Raul deal with lot of anxiety rough frontline workers operation.
I've seen the protocols that are sick and team have put in place to keep people say, that's a minute mitigate the impact of the code nine teen virus and all locations because then unbelievable.
And I can't possibly take the though.
Thank you to our global office staff working for home for closer to launch it hasn't been easy, but you've got an incredible job <unk> finance team to close the quarter are completely Vermont environment that was incredible and so thank you everyone and we'll get through this together.
And that will conclude today's call. We thank you for your participation.
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Hello.
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