Q3 2020 Civeo Corp Earnings Call
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[music].
Good day and welcome to the Big corporations third quarter earnings call Today's conference is being recorded.
At this time I would like to turn the conference over to Regan Nielsen director of corporate development and Investor Relations. Please go ahead.
Thank you and welcome to <unk> third quarter 2020 earnings Conference call.
Today, our call will be led by Bradley Dodson, <unk>, President and Chief Executive Officer, and Carolyn stone to be as senior Vice President Chief Financial Officer and Treasurer.
Before we begin we would like to caution listeners regarding forward looking statements.
To the extent that 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 read in the context of the many factors that affect our business, including risks disclosed in our form 10-K, 10-Q and other SEC filings.
I will now turn call over to grab it.
Thank you Reagan and thank you all for joining US today, our third quarter earnings call. We hope that you have your loved ones are staying healthy and safe.
The format for todays call is that I'll provide a brief summary of our performance for the third quarter and a business update as we navigate the lingering uncertainties associated with the COVID-19 pandemic and commodity price volatility.
Terrible parallel will then provide a financial statement and affect financial and segment level review and I'll conclude with some just a directional commentary on our expectations for the fourth quarter.
And guidance before we move into the question and answer portion of the call.
I'll start by emphasizing that civeo, the safety and well being of our employees guests and contractors is always our top priority.
Our team continues to be vigilant and following our safety protocols, which aim to mitigate the risk of the virus spread it.
Let's start off with some key takeaways for the call today, the business continued to consistently generate cash which is facilitating an accelerated debt reduction for civeo.
In the third quarter, Civeo delivered 38 or $36 million of adjusted EBITDA of $34.4 million of free cash flow and we reduced total debt by $27 million to 272.5 million.
These results were flat sequential improvements in revenues and EBITDA in the third quarter 2020, compared to the third second quarter 2020, primarily due to sequentially higher build room nights in both Canada and Australia.
Our leverage ratio declined to 2.16 times as of September Thirtyth 2000, 22.34 times at the end of the second quarter.
Delevering the balance sheet remains our top financial priority.
We had a successful quarter commercially today, we announced that we had secured for contract renewals in Australia with total expected revenues under the contracts of $135 million Australian over their two year terms to provide hospitality services through our action catering business in Western Australia.
Also during the quarter our team successfully completed the amendment and 18 month extension to our credit agreement.
The revised agreement, which governs all the Companys outstanding debt affords the company additional time to pursue our financial objectives of focusing on free cash flow generation and debt reduction, while we explore longer term debt capital solutions.
Let me take a moment to provide an update.
Costs, our three segments.
In Canada, we delivered to personally improved results, despite continuing oil price volatility.
This reduction is related to the pandemic and customer customer budgetary constraints.
Turnaround activity and build rooms recovered from the second quarter lows and our mobile camp business benefited from a termination payment related to a camp on the CGM pipeline.
Although occupancy and revenues remained significantly lower on a year over year basis.
We also received $3.6 million of other income related to proceeds from Canada emergency wage subsidy program or Cws.
Our teams execution commitment to safety and vigilant cost management produced adjusted EBITDA in Canada, 41.3 million, which was meaningfully up for the second quarter basis second quarter on a recurring basis.
Australian business has improved throughout 2020 and that continued in the third quarter.
Adjusted EBITDA grew both on a year over year and sequential basis due to steady customer activity.
Higher occupancy with only modest disruption from the Pembina.
We are encouraged by the actual performance in the third quarter as well as the aforementioned contract renewals.
Turning to the U.S. conditions in our us business continue to be continue to be extraordinarily challenging.
MP drilling and completion activity remains very subdued in the wake of the COVID-19 endemic and the oil market dislocations.
Our focus remains on cost control operational and our operational efficiency Aston signs of a sustained recovery.
As we have discussed on earlier calls this year, we're in the process of closing, our northern Wellsite services, Brett branches, and selling or transporting underutilized assets more attractive southern basis.
We are continuing to address the impact of Hurricane Lora and Hurricane Delta two Arcadian acres lies in Lake Charles Louisiana, but we expect the financial impact will be minimal minimal.
At studio, we rely on a consistent strategy to navigate the market volatility that is beyond our control our priorities are to keep our employees and guests as safe as possible.
Maximize free cash flow generation continue to reduce debt to enhance our financial flexibility and reduce cost without compromising service quality.
With that I'll turn it over to Cameron.
Thank you Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the third quarter at $142.9 million net income on a GAAP basis of 6.5 million or three cents per diluted share.
During the third quarter, we generated adjusted EBITDA of 36 million.
Operating cash flow of 35.4 million in free cash flow of $34.4 million.
Our third quarter 2020, adjusted EBITDA was largely in line with the same period in 2019 increase.
Increased occupancy in our Australian bound based intelligence and 3.6 million at better income related to pricing from the fee that the last program.
Were offset by decreased L brands in our Canadian margins during the period.
Let's now turn to the third quarter results for our three segments.
I'll begin with a review of the Canadian segment performance compared to that performance here again in the third quarter of 2019.
Revenue from our Canadian segment was $71.8 million.
As compared to revenue of $91.1 million in the third quarter of 2019.
Adjusted EBITDA in Canada with $21.3 million a.
A decrease from $25 million in the third quarter of 2019.
The negative impact on revenues and adjusted EBITDA was largely caused by a meaningful reduction in delgrande related to Kevin Knight team as well as lower oil prices.
Adjusted EBITDA in the quarter for our Canadian segment included 3.6 million related to pricing.
You bet.
During the third quarter sales brands in our Canadian lodges totaled 508000, 9000, which was down 42% year over year from 876000 in the third quarter of 2019.
Due in large part to the decline in oil prices and the effects of the COVID-19 came down right.
Especially in the oil sands lodges, which negatively impacted the base level occupancy as well as turnaround activity year over year.
Our daily room rate for the Canadian segment in U.S. dollars was 96.
Right lease with a 5% year over year increase.
Turning to Australia during the quarter, we recorded revenues of $64.7 million.
From $47.7 million in the third quarter of 2019.
Adjusted EBITDA was $21.5 million.
From $17.2 million during the same period of last year.
These results, including a 30% period over period topline increase on a constant currency basis.
Were driven by increased activity in our action catering business.
And increased occupancy at our bound based intelligence.
Our U.S.T. results further reflect the impact of the strengthening the Australian dollar relative to the U.S. dollar.
Which increased revenues in the quarter by 2.8 million and adjusted EBITDA that here at 0.9 land.
Sales around within the quarter in Australia, what 514000.
From 455000 than the third quarter of last year and also at from 500 in 2000 in the second quarter of 2020.
Here again, and the continued improvement in metallurgical coal activity across the bound basin.
The average daily rate for Australian villages in the U.S. dollars to 77 in the third quarter up from $73 in 2019.
Moving to the U.S. revenues for the third quarter were $66.4 million as compared to $9.3 million in the third quarter of 2019.
The U.S. segment saw a negative adjusted EBITDA of $1.5 million in third quarter.
Down from adjusted EBITDA at <unk> point Threemillion during the same period last year.
These year over year declines were primarily due to broadly lower drilling and completion activity.
Coupled with continued lower occupancy in the U.S. logic due to lower oil prices and the impact. It has had 19 came down.
On a consolidated basis capital expenditures were $2.4 million in the third quarter down from $4.3 million in the third quarter of 2019 due predominantly to the completion of the Sitka Lodge expansion last year.
Our total debt outstanding on September 30, It was 272.5 million, a 27 million decrease and Shane Thirtya did.
The decrease consisted of 33.4 million and payments during the quarter from Pete free cash flow generated by our business.
Partially offset by an unfavorable foreign currency translation impact of $6.4 million.
Our debt level also represents an $87 million decrease since December 31st of last year.
Insisting at 75.6 million in debt payment made during the first nine months of the year as well as a favorable FX translation impact of $10.9 million.
Our leverage ratio for the quarter decreased to 2.16 times as of September Thirtyth from 2.34 times as of June Thirtyth.
And as of September Thirtyth, we had total liquidity of approximately $85.6 million, which consisted of 78.7 million available under our revolving credit facility.
As long as 6.9 million of cash on hand.
But lately, we recently announced the completion of an amendment, an 18 month extension to our credit agreement.
In addition to the extension of the maturity date of our total debt outstanding by 18 months.
To May 30 at the 2023. This amendment decreases our total revolving commitment to $167.3 million, which is a level more consistent with our currently expected me.
And will reduce the amount of undrawn commitment fees paid to our lenders.
The amendment also increased interest rate spread above base rate by approximately 100 basis points above prior spreads.
Brian will now provide some closing commentary and discuss our outlet for the remainder of 2020 and into 2021 Bradley.
Thank you Carolyn.
Following our performance in this quarter the third quarter of 2020, we are raising our full year 2020, adjusted EBITDA guidance to a range of $100 million to $105 million we.
We expect full year 2020 revenues.
Between $515 million and cover and $20 million.
Along with that we have also adjusted our Capex guidance as we now expect to spend less than the previously disclosed $15 million full year Capex guidance.
Moving to the segments.
In Canada turnaround activity is winding down coming into the fourth quarter, and we expect to see normal seasonal holiday downtime, which will lead to lower occupancy revenues and EBITDA sequentially in fourth quarter 2020.
However, we are encouraged by these issues that are gradually recovering.
Independent of the seasonal factors and we expect results to improve in 2021.
As an example for the Fort Hills project is in the process of increasing production back to up to two trains by the end of the year after throttling back production during the second quarter and into the third quarter.
The updated full year EBITDA guide include any Egypt, Cws proceeds for the fourth quarter of 2020 should they occur.
The outlook for Australian business for the fourth quarter and beyond is constructed both commodity market fundamentals continue to justify guarded optimism for Australian segment in the fourth quarter and going into 2021.
Iron ore prices remain near six year highs due to lingering supply disruptions globally, specifically out of Brazil.
The near term outlook the coal market remains remains generally constructive attract based trade policy.
He is a near term variable, which we're monitoring very closely.
Earlier, this month, China announced the suspension of purchases of Australian coal imports due to souring political relations.
However, we believe the durable effect of trade tensions will largely be confined to the coal market.
China is still heavily dependent on Australia to supply high quality met coal due to domestic production limitations we.
We've not experienced any impact to our business today, but we are watching this situation again closer.
Taking all these factors into consideration the overall prognosis for Australia segment absent holiday downtime in Q4 is still very disruptive customers are performing above their take or pay minimums and we anticipated that.
Continuation of that trend into next year on Haiti healthy maintenance activity and relatively strong mining cash flows.
[noise] prognosis for the remainder of 2000 Twentys in our USA segment remains challenging.
On M.T. customers are focused on cost containment liability management capital efficiency and consolidation by necessity until.
Until oil prices are sustainably above $50 a barrel, we do not anticipate a meaningful rebound in occupancy to see revenues for EBITDA.
The recent trend of consolidation amongst producers is a positive sign but we will continue to run the business based on market realities with a focus on cost control operational efficiencies, while we wait for a sustained recovery.
Oh, sorry, I reiterate the elements of our playbook, which we have continued to fall during these extraordinary times [noise].
Our mandate remains that we will prioritize the safety and well being of our guests employees and vendors.
We'll manage our cost structure accordance with the outlook across all three regions.
We will continue to enhance our best in class hospitality offerings.
We will allocate capital prudently to maximize free cash flow generation, while we continue to reduce debt.
Before we open it up for questions I want to take a moment to thank our employees around the globe for their efforts and 20 point.
You have repeatedly exceeded.
Our expectations with your dedication selflessness and unyielding professionalism under persistently challenging circumstances on behalf of the entire Civeo management team and our board of directors. We thank you for all that you do.
Now, we'll be happy to take questions.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're using speakerphone. Please make sure. Your mute function is turned off for like a signal to reach our equipment again press star one to ask a question or Pos system until everyone an opportunity to signal for questions.
And we will go first to given how at Stifel.
Thanks, Good morning, everybody.
Hi, Joe.
So if we could if we could start if you don't mind needs. The at the bridge to the fourth quarter. It sounds like you.
Youre basing the commentary that.
Sequential changes will move more driven by Canada.
Coming off a very high level than Australia, and I think I think the fourth quarter guidance, you like 15, and a half to 20 and a half a million and EBITDA.
Is that is that the right way to think about it.
Got it.
That's right.
There were a couple items.
In the third quarter that are not currently in the guidance or the forecast for the fourth quarter.
First of all we had as we mentioned a little over $3 million of CDW S proceeds in the third quarter, which are not in the forecast for the fourth quarter.
We also had the contract termination payment.
As it related to see GL, which is not anticipated to to continue into.
The fourth quarter, and then we'll have normal holiday downtime, which we're.
I'm trying to be conservative because in this environment, we're not certain how our customers will we'll react as they move into the holiday given that dependent so.
As we look at it.
I think the fourth quarter on an operational basis will be modestly better than the second quarter, probably 10% better on a room nights basis within where we're looking at.
A number that on a year over year basis in the fourth quarter is going to be considerably down. That's that's largely driven by the oil sands activity and the fact that last fourth quarter. We had a really strong turnaround activity that went from third quarter into fourth quarter, which was not anticipated.
Thus far in the fourth quarter the numbers it stayed fairly consistent with the exit rate from the third quarter, but you're right candidate is going to be the most significant driver on a quarter over quarter basis.
And just just to clarify that 10% would definitely from Twoq is that a comedian cannot work.
Companywide comment.
That was a candidate comment as it related to room nights.
Okay. Thank you.
For a net of 403000 room nights sorry.
Sorry, 409000 room nights in the second quarter of this year, we're expecting that to be up plus.
Plus or minus 10%.
Okay great.
The the other question I had just.
From a bigger picture perspective, you you mentioned some positives.
Okay.
Across the across the different geographies as you look at 2021 and equally action comp.
Contract renewals when you think about bridging 2021, 2020 without without obviously, giving us any.
So the guidance so much Bush walk is what should we think about as good as the puts and takes in 2021 versus 2020 and I understand why not.
When I.
Volatile macro environment right now.
Sure well, we're still going through the budgeting process.
And that's that's not complete and we have not shown that to the board yet. So these will be preliminary comments any to change but as of right now I'll go region by region in Canada, We do expect 2021 or build room nights to be better a year over year, we're thinking probably 15% in total.
Maybe you could get to 20%.
That'll translate into on an apples to apples basis, because Canada has benefited from in a handful of positive one time items in 2020, a that the apples to apples results in Canada should be modestly better 2020 to 2021 again, there's there is approximately anyway.
Canada this year, there's about 17.
Million dollars of one time items between the C.E.W.S. b.
The reps and warranty payments.
And some gains on sale. So if you back that out of the results. Then you know on out for 2020, which has been beneficial enough and obviously helped us from a cash flow perspective, this year and allowed us to pay down additional debt.
But as we look into 2021 are you back those items out of this year and we should see some modest improvement.
In Australia, and I think before I leave Canada. That's the big question as it is generally and you don't have line of sight on this quite yet, but we're working on is how big the turnaround activity is in Q2 in Q3 of next year.
It was proof previously anticipated the 2021 was going to be a relatively strong turnaround year, but in this environment, it's really hard to tell until we get closer.
But we'll certainly give additional color to the extent we have it on the fourth quarter earnings call.
As it relates to Australia, I think the trends will continue we expect the Bowen basin to continue to be strong.
Again, there are we have been benefiting from this year and for some time, our customers are exceeding their take or pay minimums.
I expect that we will be budgeting for that trend to continue but it's not it's not fully contracted and not a certainty.
Action I think we'll continue to be strong year over year. The contract renewals is a huge win for the team.
As they continue to build that business and look to expand it. So they got Australia will be modestly up.
The U.S.
You can tell me what your rig count assumption is in completion activities assumption is but we're not assuming a significant improvement until very late into 2021 at this point.
The cost reduction efforts that the team has put in place. This year should help benefit in 2021 over 2020, so I expect that well.
But the the EBITDA for the U.S. business will be a will be better year over year corporate should be about the same so.
Backing out the one time items. This year, we should see modest on an apples to apples basis modestly better a year next year.
Okay, Great no. That's that's all very helpful detailed rundown and then just one final one for me on the cash flow side. I mean, you continue to generate positive free cash flow I imagine your capex requirements next year, we're going to continue to be fairly low single test generation should continue to be strong and will continue to.
Target reducing debt.
Hi, <unk>.
Yeah, I mean, we're still working through the budgeting process I would I would expect that we'll actually budget.
Higher Capex next year, just for conservatism and then obviously the team has consistently done a good job of managing that prudently.
We'll also have modestly higher capex in Australia next year as we reactivate some rooms, you Bowen basin that had been mothballed not.
Not huge numbers, but if I had to guess for next year.
Opex will be in the $20 million range, plus or minus there just isn't an initial assessment.
Okay. Thank you.
And our next question from Craig Hallum of RBC.
Hey, good morning.
Good morning.
Finally, just wanted the follow up just make sure I'm understanding you know how you're kind of trying to help us map out you know the the bridge from 20 2021, I think you referenced that there are about $17 million of one time items, specifically in Canada.
So if you take a look at the 100 to 105 million of EBITDA.
That you're expecting to post or 2020.
You would suggest that we subtracted 17 from that and then think about 2021.
Off of more like 80 to 85 million EBITDA.
EBITDA range and I understand all the way you left out there yeah, yeah. The apples that's exactly right Kurt I mean, I think that the number for this year and on a clean basis without the one time items is probably 90 million plus or minus from the midpoint of the guidance range.
This is Karen pointed out to me. This is the seventies more like 12.
I'm, sorry, I misspoke, because we don't have the the rep and warranty payment in there. So it's about 12 million of onetime items in Canada that are in the adjusted EBITDA numbers that you see that we grant this year and so.
The midpoint of guidance is one or two so take out about flow. So the clean number for this year is about 90 and so based on the comments you just made we expect the oh that our outlook for now.
Flat to up from there.
Okay. Great that helps can you can you give a little are you kind of referenced some potential risk dynamics related decision tree.
Let's see related disputes between Australia, and China I'm, just wondering if you can kind of dig into that a little bit more.
And well give us some insight on how you guys are wesco sales for that.
Well as you as I said there has been some China's has.
Put up a prohibition on on Australian coal imports, we've not seen that we've seen that impact the met coal spot prices here over the short term.
But this is something that over the last let's say 18 to 24 months, there's been a handful of trade related Dustups, if you will between China and Australia.
They remain very important trading partners to each other and so at this point, it's it's something to keep our eye on that by.
By no means if the meet.
No reason to push a panic button, all and we've not seen any operational or planning changes by our customers.
Okay Fair.
Fair enough and then.
You know just as a follow up to the earlier commentary about they look at your EBITDA generation.
Capex in get to sales.
Minimum of around 70 million of free cash I guess pending tax cash taxes that there's going to be any there are some other dynamics right. So looks like could be about 70 million of free cash flow and employee quite a lot of that.
Fairway to think about it.
Well, Oh, we work off of kind of like a 90 to 95 number.
Were.
Good about let's call. It 15 million 14 to 15 million of interest expense.
And then the 20 million of Capex I think working capital it could go either way, let's just call that a push for right now and then taxes in 2021 should be minimal. So that's the kind of free cash flow the simple free cash flow now.
Okay. That's great I appreciate you walking through that process for all their album, Okay. That's it for me. Thanks.
You bet. Thank you.
And as a reminder, you make a star one on your telephone keypad. If you do have a question at this time that is star one for any questions.
And we will go to a follow up from Kevin.
Oh. Please go ahead.
Thank you.
Well, one or two more things, where they feel might [laughter].
I believe from what.
Well the last couple of quarters.
Action deal has gone extremely well since since you closed it.
When I think about actually next year, and I think about sort of what you've laid out when you acquired it how is that going to get on and you talked about the contract renewals, but how how is your success been sort of expanding that business either.
Sure.
In the same area or into other parts of Australia.
And then a handful of things one the.
We've had a key customers not only give us additional locations to serve.
We've also seen.
Increased occupancy at the.
At the locations we were already serving so it's a combination of those contract wins between closing and today and then our customers being very active.
At the locations that we serve.
So yeah the the.
The payback on it.
Yeah.
Kind of acquisition consideration versus you guys, probably about 18 months on that deal maybe a little less.
Through the end of a through the end of this year and we expect the results to continue to be good going into next year. So now what we need to do it.
As a start taking that capability that experience that we gained a.
That reputation that the action team has built over a long time and started to win new work and that will be the focus as we go into 2021. The renewals as you can tell by the contract value were material. So the team's primary focus this year continue to be two primary focuses country.
We need a fishing.
Integration of the business.
And that that includes safety human resources and operations.
Amidst of not being able to travel to to Western Australia, because the state is closed.
Two outside Travelers', and then the contract renewals and so now we'll pivot in 2021 to two winning new work.
Great. Thank you and then just another quick one is.
Any update on on how.
The Canadian LNG project is progressing.
Well, we're serving the.
The LNG, Canada project through our Sitka Lodge in Kitimat, as well as our mobile camp business for the coastal Gaslink pipeline.
We're continuing to serve because while we did have one of those camps and there was a change in the way they had planned to house their pipeline and port pipeline construction employees or they decide to go to live out allowance instead of a instead of another canton so.
That was just pointing to have the kind of the cancellation of one. Let's contrast, we're still working on to others and those are going well going along fine.
That said I would say that right now occupancy is roughly in line with what our expectations were coming into the year in the back half of this year.
And.
Again, we're still in the process of budgeting that we expect to have similar occupancy levels going into next year.
A question on or coastal guy or for the LNG project is whether they decide to green light trains three and four and should that happen, we should that would be a boost to the longer term occupancy outlook for sick it.
As well as some additional potential mobile camp work as they work on compressor station.
Okay. Thank goodness, but from our standpoint, it's going along as fast as planned.
Okay, great. Thank you and then.
Just just one more and I know you.
So where were worth.
Well, we're in a tough macro environment, but given the free cash generation you laid out in response to current question I mean, the basic engineering half your Mark free cash next year potentially and I know you're focused on.
During the balance sheet, but her husband any thoughts for what kind of buying back stock.
Oh and work.
What well do you consider your how do you how do you think about that decision.
Well I think you know the business does have a very strong free cash flow profile.
We have been burning through the debt as fast as we can and paying it off as fast as we can because we knew we need to get the not only to the leverage ratio, but then the absolute amount of debt down.
Longer term, but.
Board and management are having those discussions as to the capital allocation, but in the near term I think we continue to need to the number one priority is to continue to to or to pay down debt.
But the free cash flow in my opinion, the free cash flow profile is compelling.
And when a when we're in a better leverage position returning money to the shareholders makes a ton of sense was that cash flow.
I personally don't think we're there yet but that that question a share buyback is one that.
We will consider what the board are considering for.
Great. Thank you.
And no other questions in the queue at this time I'd now like to turn the call back Bradley Dodson for any additional or closing comment.
Thank you Judy Thank you all for joining us on the call today.
And we were we were please giving them to the macro economic environment with a third quarter results and I think the the trends that are improving particularly in Canada, and Australia should contain absence the seasonality in the fourth quarter should.
Should continue into 2021, and we look forward to speaking to you in February on the fourth quarter call.
And so this concludes today's call. Thank.
Thank you for your participation you may now disconnect.
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