Q2 2020 Civeo Corp Earnings Call
Good day and welcome to the Civeo Corporation second quarter 2020 earnings call.
Today's conference is being recorded.
I would like to turn the conference over to Regan Nielsen Senior director of corporate development Investor Relations. Please go ahead Sir.
Thank you and welcome to studio second quarter 2020 earnings Conference call.
Today, our call will be led by Bradley Dodson, Cdis, President and Chief Executive Officer journalists.
<unk> Senior Vice President and Chief Financial Officer and Treasurer.
Before we begin you'd like to caution listeners regarding forward looking statements to the extent that our remarks today.
Other than historical information.
Please note that were lying on the safe harbor protections afforded by federal law.
Any such remarks should be right in the context of that many factors that affect our business, including risks disclosed in our form 10-K, 10-Q, and other LPG bottlenecks I'll now turn the call over to Brian.
Thank you Reagan and thank you all for joining us today or second quarter earnings call.
We certainly hope that you and your loved ones are staying safe and healthy.
The format for todays call will be briefly review second quarter performance before updating you on what we see in our business today and provide an outlook for the balance of the here.
Let me start by saying that Civeo safety and helping our employees do you have seen contractors, who is our top priority.
As we continue to monitor the virus in Canada, Australia, and the U.S., we're continuing to adhere to the policies and procedures that are designed to ensure.
The health and safety of everyone in our locations.
For me in country, we remain in continuous dialogue with all key stakeholders.
For the duration of the pen dinner and extend our propound gratitude to our employees guests customers and vendors for their continued vigilance as we work together through this difficult time.
Yes sure. She can you take away from our call today first.
His resiliency and diversification of our business, our second quarter results demonstrate the resiliency of our business model and the benefits of our diversified exposure multiple geographies in multiple end markets.
[noise], although our second quarter performance benefited from a few onetime items.
Outstanding Canadian segments, both performed much better than we initially expected and particularly in light of the market environment.
Definitely are safe operations, and our business model delivered terrific differentiated financial results in this market.
These differentiated financial report results support our financial targets, which has not changed drive free cash flow and reduce our debt.
We generated 25 million of free cash flow in second quarter and reduced our total debt outstanding about 15.
We also reduced leverage ratio to 2.34 times as of June Thirtyth down from 2.54 times at March 31st.
And importantly, we expect to remain in compliance with the financial covenants for the rest of year in going into 2021.
We also expect renamed free cash flow positive for the remainder of 2020 and our full year guidance will demonstrate those.
I'll now provide a brief summary of our performance for the quarter.
This update as we continue to contend with the Cobot Nike and then again crosscurrents in the global commodities market.
Karen will then provide a financial and segment level review now conclude with some directional commentary on our expectations for the third core.
Talking about the guidance for the full year, where new into question and answer portion call.
Our team performed exceedingly well.
Her rapidly evolving circumstances during second quarter Civeo second quarter results were punctuated by 44% year over year increase in Australia.
Segment's adjusted EBITDA and some recovery in our Canadian occupancy during a drop of course.
Consolidated basis, we generated revenues of $114.7 million.
Adjusted EBITDA of 20.1 million and 25.1 million to free cash flow.
Turning to a balance sheet arbitration again declined to three 2.3 times and maintaining a healthy balance sheet and liquidity profile will continue to be our top priority, but 2020 as we execute on strategic objectives.
Let me take a moment to provide a business debate across the segments.
Our business in Canada produced encouraging second quarter results, given the oil and gas price volatility.
Disruptions operations from the Pembina, both of which drove room nights down meaningfully from our first quarter levels.
LNG activity at our Sitka Lodge began to ramp up towards the end of the second quarter. It was better than we anticipated we have seen some turnaround activity beginning late in the second quarter in our oil sands locations.
That's Carol Carolyn will discuss in more detail momentarily acute you Canadian adjusted EBITDA benefited for $7.8 million a onetime items.
Still markedly outperformed our expectations.
We had at the end of the first quarter on an operational level.
In Australia, the market fundamentals have and remarkably resilient.
Pandemic has been minimally disruptive to occupancy in customer spending.
Metallurgical coal prices appear to be stabilizing and 100 $120 per metric ton.
And our customer occupancy levels in the Bowen basin continue to be strong.
Iron ore prices have performed extremely well underpinned by global supply disruptions, which more than offset transitory demand deferral.
Our action catering team continued to deliver outstanding results in second quarter as we execute on recently on recent contract awards tied to hire more activity.
Conditions aren't U.S. business continue to be extraordinarily challenging due to the collapsing in p. drilling and completion spending.
Our <unk> West Permian and Kildair lodges, along with her Wellsite services business I've been particularly hard hit hard.
In recent months.
As we mentioned on our last earnings call. We've confronted these reality is by closing consolidating facilities to control costs, particularly in the northern U.S. bases.
Our playbook for today's unpredictable environment, it's consistent with the approach this enabled us to successfully navigate challenging conditions in the past.
Our priorities are to keep our employees and guest safe.
Last month free cash flow generation reduce debt because their financial flexibility and reduce costs without compromising service quality.
With that I'll turn it over to Karen.
Thank you Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the second quarter of $114.7 million.
Net income on a GAAP basis of 6.1 million.
Or three cents per diluted share.
Net income includes 4.7 million net income associated with the settlement type of representations and warranties claim related to the morale taxation.
During the second quarter, we generated adjusted EBITDA of 28.1 million operating cash flow of 24.5 million.
Free cash flow 25.1 million.
Let's now turn to the second quarter results for our through segment I'll begin would there be it the Canadian segment performance compared to the point, that's a year ago in second quarter 2019.
Revenue from our Canadian segment was $53 million as compared to revenues and $78.1 million into second quarter 20, not cheap.
Adjusted EBITDA in Canada with $15.3 million.
<unk> decreased from 16.3 million in the second quarter 2019.
Revenues and adjusted EBITDA for the quarter, well, both negatively impacted by a year over year decreasing build plans related to reduced customer activity due to the decline in oil prices and the pivot 19 pandemic.
Adjusted EBITDA was also impacted by cousin 19 related increases in operating costs.
$1.9 million in the second quarter this year.
However, the effect of these items on adjusted EBITDA was needed by 6.2 million of other income related to proceeds from the Canada emergency wage sets.
Let's see Debbie.
As well over 1.7 million dollar gain from the sale of the portion of our assets and our handle watch.
During the second quarter, Bill Burns and our Canadian lodges totaled 410000 down year over year from 740000.
The same quarter last year.
This decline was related to significantly lower customer activity.
Discussed earlier gate to the decline in oil prices and the effects of the Kevin Knight Champions.
Our daily run rate for the Canadian segment, you X dollars was $96 up 8% year over year.
Turning to Australia.
During the second quarter, we recorded revenues of 57.1 billion up from $31 million in second quarter of 20 Nike.
Adjusted EBITDA was 18.8 million.
Also up from 13 million during the same carried a 20 that team.
These results, which represent a 96% year every year topline increase on a constant currency basis.
Positively impacted by the acquisition of action catering.
Well it increased occupancy in our Bowen basin colleges.
While slightly offset by approximately 600000 of Mexico. The 19 operating cost in the second quarter and the weakening let the Australian dollar relative to that style.
The old friends in the quarter were 500 in 2000.
21% from 416000 in the second quarter of 29 team.
Largely due to continued improvement in met coal activity across the foundation.
The average daily rate for Australian villages, U.S. dollar decreased $70 and the second quarter.
From $74 in the same quarter last year.
As a result for the weekend Australian dollar.
Moving to U.S. revenues for the second quarter were 4.6 million as compared to 13.1 million in the second quarter 2019.
The U.S. segment saw negative adjusted EBITDA of 1.4 million in the second quarter down kind of adjusted EBITDA of 2.6 million during the same period last year.
These year over year declines were primarily due to broadly lower drilling and completion activity.
Each lower oil prices as was the impact of the 'cause it might seem kinda.
Turning to capital expenditure on a consolidated basis capital expenditures were $1.2 million in second quarter down from 11, and a half million dollars in the second quarter 29 team.
For the completion of our Sitka Lodge expansion in 2019.
Our total debt outstanding on June Thirtyth with 299.5 million.
Which was 14 15.3 million lower than March 31st style.
The decrease consisted of 28 million in debt payments during the quarter from cash flow generated by the business, but partially offset by an unfavorable foreign currency translation impact at $12.7 million.
As Brad mentioned, our leverage ratio was reduced to 2.34 times as of June Thirtyth compared to 2.54 times as of March 31st.
And as of June Thirtyth 2020, we had total liquidity of approximately $866.2 million, which consists of 158.9 million available under our revolving credit facility.
And 7.3 million a cash on hand.
Due to the positive outcome of our second quarter results as well with changes in our forecast for the second half the 2020.
We believe that we will remain in compliance with our leverage ratio covenant in our credit agreement without the need to obtain covenant light as previously discussed in our first quarter 2020 form 10-Q.
Bradley will now provide some color commentary and discuss our outlook for the remainder of the year along with reinstated guidance.
Bradley.
Thank you Karen.
Well go through each and segments and then I'll summarize what we're thinking about for the full year of 2020.
In Canada the outlook.
Their main remainder of 2020 is stabilizing.
Although customers continued to limit their employee head count.
Two essential personnel, we aren't just anticipating modestly higher occupancy.
In the third quarter from second quarter levels.
Third quarter, it started off with improved occupancy in Canada due to oil sands turnaround activity.
Occupancy at our Sitka Lodge.
There's also a source of modest sequential improvement in the third quarter as room nights should be up relative to the second quarter.
That's it because occupancy it will be subject to social distancing and related headcount constraints.
All the bugs should translate into a roughly 10% increase.
In occupancy in the third quarter from second.
Regarding the the CE that the Canadian emergency wage subsidy program.
The government to Canada recently indicated that it's concede supported this program through the end of year. We currently expect to apply in the third and fourth quarters of 2020.
And when should qualify and expect to receive some subsidies and checking happier.
However, we do not include any of the forecasted proceeds from CDW U.S. and our full year guidance.
But due to the Cws proceeds and the gain on sale in Q2, we are currently estimating sequentially reduced EBITDA in the Canadian business in the third quarter Despite increased children's.
The outlook for the Australian business and their inquiries very constructive.
Economic and supply chain impacts to steel production recede in China, and India demand for she is the Lauren metallurgical coal imports should recover modestly as 2020.
Grasses.
Honor of supply disruption due to worsening pandemic in Brazil should benefit Australia, with a healthy price environment and strong customer activity still paid our export volumes.
We did experience strong occupancy overperformance beyond customer take or pay minimum second quarter.
And does not guaranteed to continue in second half.
As of this we're currently expecting modestly lower build rooms in the third quarter of 2020 relative to the second quarter.
Well I've set the any large customer projects to kick off in 2020, we continue to crack potential greenfield growth projects as we look into 2021 in Australia.
The prognosis for the rain or 2020, or you know segment is very challenging oil prices have stabilized well above that in Q2 lows, but the U.S.U.M.T. sectors continue widespread financial distress and demands from investors for heightened capital austerity.
For we're not expecting a recovery in our U.S. business.
In the second half as we noted on the first quarter call. Our team has grown accustomed to dealing with skewing customer spending in the U.S. business and our focus will continue to be on controlling costs and adjusting our footprint match activity.
Despite the continued economic disruptions across key end markets. We feel we're now in a position to again provide full year 2020 revenue and EBITDA guidance.
We expect our full year 2020 revenues to be in the range of 476 million to 486 million and adjusted EBITDA in the range of 80 million to 85 million.
In addition, we're maintaining our full year 2020 capital expenditure guidance of approximately $50 million.
We will provide further updates on these figures during our third quarter earnings call and please note that this guidance is based on our expectations as of today and assumes no material changes in the current macroeconomic environment falling commodity prices.
Well, what commodity demand levels, while conditions related to the coated 19 tend to me and the responses there too.
Our plan to navigate this extraordinary and rapidly changing environment. It's a consistently applied the strategic playbook that has gotten us through periods of uncertainty in the past.
So that end our mandate remains as follows.
We prioritize the safety and well being of our guests employees and vendors.
We will manage our cost structure accordingly, as we look at an evolving occupancy outlook.
We'll continue to enhance our best in class hospitality offerings.
I'll take capital prudently to maximize free cash flow generation and reduce debt.
Before we proceed to the United section I'd like to call out extraordinary efforts of our global team of employees and Sylvia.
You responded to an unprecedented set of challenges in recent months.
Selflessness devotion and unwavering professionalism.
Our solid financial results in the second quarter under exceptional circumstances Olin. So part of the story work that you put it in behind the scenes to keep our customers. It's all employees and contractors stays healthy uncomfortable what's amazing.
On behalf of the entire city, a management team and the board of directors. Thank you for all that you do.
With that perhaps take questions.
Ladies and gentlemen, if you wish to ask a question at this time, keeping with my personal star one I'm your telephone keypad.
Please ensure the mute function on your telephone switched off to allow your signaled to reach our equipment again that is star one.
Our first question today comes from Stephen Gengaro of Stifel. Please go ahead.
Yeah, Thanks, and good morning, everybody.
The going so well I look at me the guidance you gave for the second half a year on the golf side. Its you know clearly better than where I think we were and where the consensus wise. After after it really good second quarter, but the second half looks better.
When you look at the second half and I think about free cash flow generation.
What are the puts and takes and how does working capital how do you think working capital back from the second half for the year.
[noise] Oh, we should remain as I mentioned, we should remain free cash flow positive.
We could have some working capital shift kind of Q to Q3.
Particularly around we have our insurance renewals for the entire program, but passionately financial and property and we also have property tax payments that are due primarily in Canada.
So there maybe some use of working or what he thought to be a a cash outflow in the third floor I'd say on balance it might be a slight outflow in the second half of its less than $5 million I would say in total.
Okay. Thank you and then you.
In a better spot here, obviously from it from an EBITDA perspective.
Well leverage ratio has come down a bit.
When you are having conversations now with the banks and they're going to treat either.
You need any amendments does that hasn't changed a conversation or does it was talking about their extensions or are we doing the bank agreements going forward.
Telling you want to talk about.
Sure. Thanks, Bradley Steven Mall as you can imagine.
And you alluded to despite the fact that we don't think we need covenant relief, we don't intend to see covenant relief. That's quite we do have a maturity coming up then on November 2021, so well be working with our bank group over the next few months to address that maturity and.
I'm not sure that it changes the conversation and significantly over the fact that hopefully that's better for all of us, but oh I'm looking at having lower leverage a little the current terminal plus the potential any potential extension so atlanta their support a bank.
Great and.
So I expect them to support us.
As we enter into those discussions and over the course in the next few months.
Okay. Thank you and I, just add to that that that Karen and her team or in as you can imagine this uncertain me in a lot of conversations with the banks I was just not necessarily weekly, but I'm very often and so our our lenders have seen the progression of the fourq.
So obviously, we're moving into right direction.
Being free cash flow positive is differentiating amongst many oilfield service credits or that they have in their portfolio.
Continue to reduce aggregate leverage is also positive so they're fully informed them fully aware of that Oh bar situation and generally our story is has played out a better than we initially expected and and.
The cash flow generation profile the business I think is obviously important to to the winners.
Okay. Thank you.
Again that this star one if you'd like to ask a question.
Our next question comes from Kurt Hallead of RBC [laughter].
Hey, good morning.
Good morning.
On the guidance or Brad, we just want to get a little bit more clarity on it you know in your.
And your rough range on the guided she said that the EBITDA numbers do not include any additional.
Yeah benefit from the Canadian a dynamic Canadian Ah, yes benefit dynamic.
In the second quarter, you know your EBITDA adjusted EBITDA number did include a as you mentioned over $7 million those kind of onetime items I guess my frame of reference here as we look at the full year EBITDA does that 80 80 plus million dollars of EBITDA include that onetime benefit in the second quarter.
It does so we reported 20.3 million of adjusted EBITDA in Q1, and then you're right. We had 28.1 of adjusted EBITDA in the second quarter. So that 48.4 would be the first half number that would go into the 80 to 85.
Full year.
Okay and then it would appear in either is gonna be substantial drop off in Canadian EBITDA in the back half a year or probably having a one last thing 5 million a quarter or the kind of keep you in a range by 85 million. So I just wanted to try to kind of make sure it's understanding the progression correctly.
Okay, well so in the Canadian EBITDA in the in the second quarter, we had the seven plus let's call it 8 million.
Onetime items. So if you take those out or 15.3, we did about $8 million EBITDA.
In Canada, and the in the second floor and operational level and well that's a that's exceeded.
Significantly higher than what we were thinking 90 days ago.
So what happened in second quarter occupancy at the Sitka Lodge was materially better than we were anticipating and as we've talked about a little bit im not prepared comments, we saw the turnaround activity start to kick in and in June primarily.
And that will continue into.
The third quarter, so and puts it in the guidance for Canada.
Is essentially flat EBITDA from there.
For the rest of the year, both third quarter, and ER and fourth quarter.
So I don't think that's herculean in terms of you know about an assumption.
There are parts and opportunities and you mentioned should gets Mr. He got Ws proceeds so the reported adjusted EBITDA will be should be better.
And should we see opportunity, particularly on the turnarounds or extend longer we could have some upside there.
I think five is too low.
Okay. Thanks, I appreciate that additional info.
I just want I think so you mentioned that you expect me free cash flow positive during the course of the second half a year.
So just want to make sure I heard you expect still just spend a capital spending about 15 million on a full year basis.
That's right, we've got a handful of progress, particularly.
In Australia, and or as we see occupancy can do to stay strong there or that will need to put some some money to work there, but that's the biggest piece of it will have a little bit of capex in the second half or Canada as it relates to the coastal gaslink pipeline and our little can't work that we're doing to support that.
Gotcha and gateway for that cash flow continue to reduce debt.
That's right.
[noise], we need to continue to move the aggregate leverage lower and ER and continue to to de lever to company.
Great I appreciate that color. Thank you.
Thank you.
Our next question comes from Stephen Gengaro of Stifel.
Thanks, just two quick follow ups warrants.
On the Australian side, I know, Australia has clearly had a.
Good trend into second quarter as well can you get which I think just any more details on how that plays out and the back half a year.
It seems like just from the break out in the personally except the action.
Acquisition.
All right showed a really nice improvement in second quarter could you add some color.
Sure.
I was very pleased with it on the base business in terms of the room nights in Australia in our village is there I was very pleased with with the performance there.
We're being conservative in our second half guidance for Australia.
Had.
A couple of things happen, we had oh customers, taking more rooms above and beyond the take or pay minimums. We also had in conjunction with that last build that unused rooms were assuming that it has they tried to control availability a there.
And so we're being conservative in terms of our margins for for the second half from Australia, a think that there could be upside on that but I think if or when things is you could see margins come in a little bit if the rins are occupied.
So.
Rick Australia is doing very well one risk that continue to watch the pandemic impact in Australia.
There is not on the same scale, that's what we're seeing another country, particularly the U.S., Texas on its own.
And so we need to see the the Kogan impact continued to be minimal we've not had any reported cases that any of our locations there a knock on wood.
And that can really impact or occupancy if they were seeing an outbreak there I think to the government has done a very good job and be containing things I don't think that's likely but certainly as a risk.
The profitability that business in the second half.
Actually it's done exceedingly well again this is a catering business we bought in July of last year.
With predominant operations in Western Australia, serving iron ore markets there.
We've seen customer occupancy still above our initial expectations in the first half we expect that to continue in second half for team has done a very good job in both winning new work and renewing contracts. So our expectations for that business, our double what we budgeted for the year.
And the team has done a very good job, it's largely on volume and contract awards.
Great. That's helpful color. Thank you.
Oh, sorry, no further questions at this time I would like to hand, the call back tested out some for any additional they're closing remarks.
Thank you Kevin.
Thank you all for joining the call today.
I Hope you all remain stay safe and healthy as we continue to work for this as a country in the globe and we'll look forward to speaking to you on the third quarter call.
Ladies and gentlemen that concludes today's conference call. Thank you for participating in and out of disconnect.
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