Q2 2021 Civeo Corp Earnings Call
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Good day and welcome E V O Corporation second quarter 2021 earnings call. Today's conference is being recorded at this time I'll turn the conference over to Mr. Reagan Nielsen Senior director corporate.
And then on Investor Relations. Please go ahead Sir.
Thank you and welcome to <unk> second quarter 2021 earnings conference call today, our call will be led by Bradley Dodson, <unk>, President and Chief Executive Officer, and Carolyn Stone <unk> 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 the call over to Bradley.
Thank you Ryan and thank you all for joining us today on our second quarter earnings call.
For today's call I'll provide a brief summary of our performance for the second quarter. Karen will then provide some color on a consolidated and.
Financials, I'll conclude with some directional on commentary on our expectations for the remainder of the year before we move into the question and answer portion of the call.
We continue to focus on safety and wellbeing of our guests and employees. We saw an increase in COVID-19 cases in Canada.
On the second quarter and an increase in COVID-19 cases in July in Australia.
Our operational protocols continue to help stem the spread of the virus effectively.
Financially our focus is to generate free cash flow and reduce leverage on.
Operationally, our focus is on maintaining our high.
Level of service standards.
And capturing market share in a turbulent market environment.
The key takeaways from our call today.
Despite a strong third wave of COVID-19 in Canada.
And a lingering China, Australia trade dispute.
Our business.
Continuing to generate cash which.
Which we allocated to debt reduction.
In the second quarter severe reported $32.2 billion of EBITDA $13.7 million of free cash flow and we paid we repaid $14.4 million of debt.
We continued to reduce our leverage ratio to 2.0 times at March 31.2021.
From a.
2.1 times.
I'm, sorry, we will reduce the leverage ratio to 2 times at June 30 from 2.1 times at March 31.
We are increasing our free cash flow guidance for the full year, which I'll describe after Carolyn.
And we.
View labor supply issues and subdued customer activity in Australia as transitory problems as we expect to have those resolved by the end of 2021.
In the second quarter severe delivered $32.2 million of adjusted EBITDA, $13.7 million of free cash flow and reduce debt by $11 million to $2.26.8 million.
These results reflect sequential improvement in revenues and EBITDA in the second quarter compared to the first quarter.
Largely due to higher.
Billed rooms in Canada.
In line with our continued push to Delever, our balance sheet, our leverage ratio declined to 2.0 times at June 30 from 2.1 times at the end of the first quarter.
Diving into the segments in Canada, we saw sequential improvement.
As <unk>.
The result of increased activity.
<unk> on our core Oilsands region as well as sequentially increased occupancy at our Sitka Lodge at the COVID-19 health orders in British Colombia began to be lifted towards the end of the second quarter.
Our year over year on.
Performance in Canada was relatively flat.
With the.
Increased oilsands activity offsetting the impact of several 1 time items realized.
In the quarter a year ago.
Which as you may remember included proceeds from the Canadian emergency wage subsidy as well as a gain on sale from.
Sales some of our assets at the end day launch.
Our performance in Australia improved sequentially, but was down compared to a year ago due to increased labor costs related to the COVID-19 travel restrictions in the country as well as lower billed rooms in the Bowen basin, driven by the ongoing China, Australia trade disputes.
In the U S drilling and completion.
Terry continues be near historic lows.
While on the activity has improved year over year and it remains a challenging environment.
For <unk> business, we saw modest performance improvement largely due to increased fabrication activity in our offshore division.
Increased contribution from our West Permian.
Depletion on.
Despite a wide array of.
<unk>.
Achieve moderate sequential and year over year improvement.
With that brief.
Brief overview I'll turn it over to Carolyn for some more detail.
Thanks, Bradley and thank you all for joining us this morning.
Today.
<unk> reported total revenues in the second quarter of $154.2 million with a net loss on a GAAP basis.
<unk> 5 million or <unk> <unk> per diluted share.
As Brad just mentioned during the second quarter, we generated adjusted EBITDA of $32.2 million.
Day, we on cash flow of $16.5 million and free cash flow of $13.7 million.
The increase in revenues and adjusted EBITDA experienced in the second quarter of 'twenty, 1 as compared to the same period last year.
Largely due to an increase in billed rooms in the oil sands lodges and Canadian mobile camp activity.
Results from the second quarter of 'twenty..1 were also favorably impacted by strength in the Canadian dollar and Australian dollar relative to U S. Dollar.
Let's now turn to the second quarter results for our 3 segments.
I will begin with a review of the Canadian segment performance compared to the performance a year ago in the second quarter of 2020.
Operating revenue from our Canadian segment was $83.3 million as compared to revenue of $53 million in the second quarter of 2020.
Adjusted EBITDA in Canada was $22.6 million, an increase from $15.3 million in the second quarter of last year.
Results from the second quarter reflect.
After the strength in Canadian dollar relative to the U S dollar, which increased revenues and adjusted EBITDA by $9.6 million and $2.7 million respectively.
The remaining increase in revenues and adjusted EBITDA was largely driven by increased <unk> in the oil sands lodges coupled with.
The impact mobile camp activity.
These factors were partially offset by decreased spill Ram build rooms at our Sitka Lodge due to British Columbia Health Order protocol affecting the vast majority of the quarter.
Adjusted EBITDA in the second quarter of 2021 for our Canadian segment included zero.
Increased $7 million related to proceeds from the CE Ws program compared to $6.2 million in the second quarter of 2020.
During the second quarter of this share billed rooms in our Canadian lodges totaled 723000, which was up 76% year over year from 410.
10000 last year.
The increase was driven by the recovery of oil prices as well as lessened impact from COVID-19, and the continued normalization of customer activity.
Our daily room rate for the Canadian segment in U S dollars was $96, which is flat year over year.
Turning to Australia during the second quarter, we reported revenues of $64 million up from $57.1 million in the second quarter of 2020.
Adjusted EBITDA was $15.4 million, representing a $3.4 million decreased from $18.8 million during the same period of 2020.
Results from the second quarter of 2021 reflects the impact of a strength in Australian dollar relative to the U S dollar, which increased revenues and adjusted EBITDA by $9.4 million and $2.3 million respectively.
The resulting decrease in EBITDA was driven by a lower village occupancy on the Bowen basin.
As well as higher labor costs, and the integrated services business.
Billed rooms in the quarter were 466000 down from 502000 in the second quarter of 2020.
Also impacted by lower customer activity in the Bowen.
The average daily rate for Australia.
Intelligent in the U S dollar was $81 this quarter up from $70 in 2020. This.
This increase was driven by the impact of the strengthened Australian dollar.
Moving to the U S revenues for the second quarter was $6.9 million as compared to $4.6 million in the second quarter of 2000.
The U S segment generated adjusted EBITDA of <unk> 3 million.
From an adjusted EBITDA loss of $1.4 million during the same period last year.
The year over year increases were primarily due to increased fabrication activity in our offshore division coupled with higher occupancy in our U S logic.
Australia on a consolidated basis capital expenditures were $3.2 million. This year in the second quarter up from $1.2 million in the second quarter of last year.
Our total debt outstanding on June 32021 was $226.8 million, which represents an $11.2 million.
Decrease since March 31.
The decrease is made up of $14.4 million in debt payments from cash flow generated by our business, partially offset by an unfavorable foreign currency translation of $3.2 million.
Our leverage ratio for the quarter is now down to 2.0 times.
As of June 30, compared to 2.1 times as of March 31.
And as of June 30, we had total liquidity of approximately $116.5 million, which consists of $112.1 million available under our revolving credit facilities as well as $4.4 million of cash on hand.
Bradley will now provide some closing commentary and discuss our outlook for the remainder of the year and our full year guidance Bradley.
Thank you Carolyn.
Based on on our outlook moving into the second half of the year, we're maintaining our previous revenue and adjusted EBITDA guidance for the full year 2021 at a range of.
<unk> hundred 55 million to $850 million for revenues and 90 to 100 billion.
For adjusted EBITDA.
With regard to Capex guidance, we are lowering our full year 2021 capital expenditure guidance to a range of $15 million to $20 million.
5 based on the EBITDA and Capex guidance, just outlines expected interest expense of $15 million.
No expected cash taxes, and roughly $5 million of cash inflow from working capital.
We are raising our expectations for 2021 free cash flow to a range of 60 million to 75 million.
I will now provide the regional outlooks for our business with corresponding market assumptions.
In Canada, we expect turnaround activity to begin to tail off as we progress through the third quarter.
We are encouraged by the decline in COVID-19 cases in Canada and hope this trend allows our customers to.
Due to normalized operations.
The British Columbia Health order, which temporarily limited occupancy at all industrial project projects on the costs in the province, including our Sitka Lodge.
Lifted late in the second quarter.
Now on that that order has been lifted we've seen an uplift in on occupancy.
Continue as our customer works to catch up on their project timeline.
These expectations are in line with the EBITDA guidance that we are maintained from last quarter.
In Australia, we anticipate that the prolonged travel restrictions related to the COVID-19 pandemic will continue to pressure our performance.
The region with increased labor costs anticipated to be a factor that we can continue that will continue to impact our margins.
The outlook for metallurgical coal markets in Australia for 2021 has continued to be impacted by the Chinese trade policy.
Increased interest.
<unk> in Australia on met coal outside of China has built some of the negative impacts.
We expect a supportive commodity price environment to remain for the rest of the year with met coal currently trading above $200 per ton.
While net coal prices are much healthier levels than we had last provided.
Interest and an EBITDA guidance, we've chosen not to increase our expectations from the back half of the year.
Australia and segment our customers could continue.
Continue to be hesitant to increase activity in light of the lingering China, Australia trade disputes our current guidance does not assume a material improvement.
Revpar degradation in the Australian and Chinese trade dispute, nor does it assume a material improvement or.
Or degradation and labor costs.
Our U S segment has improved throughout the first half of the year.
Still a tough environment.
In the second half of the year, we continue to focus on cost management and gaining market share across.
Across the U S business where possible.
Looking forward, we remain focused on the key elements of our strategic playbook, which are as follows.
We will prioritize the safety and wellbeing of our guests employees and customers.
We will manage our cost structure accordingly to the outlook across each of the 3.
3 regions.
We continue to enhance our best in class hospitality offerings.
And we will allocate capital prudently to maximize free cash flow generation, while we continue to prioritize debt reduction.
As we proceed to Q&A I would like to recognize the on yield.
And dedication of our employees around the world.
Amendment to keeping guest safe comfortable on healthy is the foundation of what makes video studio.
And so I. Thank you for that.
With that we're happy to take questions.
Thank you.
Wish to ask a question.
Cigna by pressing star 1 on the telephone keypad.
You use a speaker phone. Please make sure your mute function is turned off again price star 1 for a question when it falls from just 1 moment.
Our first question.
Comes from Steve <unk>.
From Sidoti. Please go ahead.
Good morning, everyone.
I wanted to follow up on your last comments about the met coal markets, we need to see where prices are as you talk to your customers in Australia.
What do you think will drive activity.
Price right now.
It's a good question.
Right now I think certainty.
We'll drive.
Customer spending.
<unk>.
The markets have rebalanced the flows of excluded net.
Coal seem to be moving to.
Different markets than historically.
They have been.
Our customers are certainly making.
A lot of a.
A lot of profit and free cash flow at these levels.
But in terms of green lighting.
Either maintenance spending.
Sure.
It isn't expansionary spending.
I think we need more certainty in the market.
So as of right now, we're not really expecting while we will see modest improvements our guidance assumes modest improvements in.
And occupancy Q2 to Q3 and quite frankly Q3.
Q4.
We're still not at levels that we were expecting coming into the year.
Okay.
And then on on the Australian side.
Is it reasonable to think that turnaround activity should be a lot happier given that probably a lot.
It was a lot lighter during the COVID-19 year and is that what you're what.
<unk>.
What youre seeing.
Well.
In Canada, Yes, yes, we've seen much better turnaround activity.
Yeah.
Second quarter was in line with expectations.
Despite the fact that we.
We had 1 customer push some of their activity from Q2 to Q3.
But it appears that that activity will come through.
But turnaround activity in Canada is clearly much improved year over year.
For the full year, we're still expecting Canadian billed rooms.
Approximately 2.
Or do you think of $3 million billed rooms, a little over that.
Paired to $2.1 million built build rooms last year.
On that.
That improvement is both operational as well as better turnaround activity year over year.
Going into.
Into the third quarter, we've seen better occupancy.
From most of the second quarter, we average about 5000 Canadian guests a day and now we're averaging a little bit over 6000. So.
They are improving.
But certainly not to where we were pre pandemic.
Okay Alright.
2 point, if I could just get 1 more in you noted lower Capex now expected.
You're down to 2 times leverage it sounds like a reasonable free cash flow. This year any other thoughts on uses of cash given that leverage is probably down to an area you're comfortable with.
It's.
Getting there I think for our business.
Our target is to get to 1.5 times levered that being said to your point.
Yes.
Capital allocation decisions have a little bit more freedom now.
And.
We will be assessing whether or not a <unk>.
Share repurchase program is.
As is prudent.
But that is on on the to do list for Q3.
Great. Thanks, so much appreciate the time.
Thank you I appreciate the call.
As a reminder, and a star 1 for our questions.
We will now take our next question from Jakob equipment from Stifel. Please go ahead.
Hey, good morning, everyone.
Looking at <unk> over the next 1 to 2 years can you talk about key potential growth driver for the overall business.
Sure.
I will go region by region.
In Canada.
There's still some recovery just.
<unk>.
We expect 2 presuming that the pandemic starts to get behind us.
There is a recovery too.
Near pre pandemic levels, although we're not expecting at least on our internal forecast.
A recovery in Q4.
Fully 2 accretive pandemic levels.
<unk>.
And Thats based on some projects that our customers are going to need to do and thats going to drive some occupancy for us as well as the benefits from.
The pipeline work, which will really start to impact us in the second half of this year as we are supporting the coastal gasoline pipeline as well as the Trans mountain pipeline.
Line and those mobile camp.
Assets are in place and starting in the third quarter of 2 turns from money.
In Australia.
Sure.
With steel prices are at near all time highs are all time highs with met coal and.
Iron ore it vary quite frankly levels that are not necessary to drive.
<unk>.
Our forecasted.
Occupancy.
We can handle our forecast occupancy actually expects lower prices than where we are right now.
So.
2.
To your question I think once customers start to feel comfortable with the outlook.
There is a.
There is a pent up demand here in terms of occupancy in our Bowen basin locations.
They are potential growth projects by our customers that could drive further.
Occupancy and if we can open up the borders are taken over from orders.
In Australia.
On to help alleviate the labor issues that would improve our margins.
Western Australia.
Beyond that.
There are a handful of.
The earliest we'd like to do organically.
We'd like to expand our NAV.
<unk> services business.
And continue to capture market share there I think we've got an interesting.
Value proposition to the customer in terms of our service delivery and execution.
And we'd like to build on that.
That's great. Thank you so much I have 1 more follow up if you don't mind.
Of course.
So in.
Australia, how are you managing COVID-19 issues personnel issues on cost inflation, and how has that impacted margin.
So in terms of Covid.
Bid.
Knock on wood, we have not had a positive case at any of our villages.
To date.
The protocols that we globally put in place have worked successfully.
We continue to work with our customers to ensure that we're keeping.
Keeping their people safe and their operations going.
But that being said for the better part of the last 18 months.
The travel there've been effectively travel restrictions inside the country, which have limited movement of personnel and labor.
We've seen some margin impact and our Bowen basin locations because of higher labor costs.
But where we've really felt it is on our western Australian operations, where labor availability is difficult and we've been having to rely on on temp labor, which is both more.
Sales and less productive.
Okay.
So we're managing it the guidance for 2021.
While last last time, we spoke with you all on our first quarter call, we were expecting that the labor issue.
Would be largely resolved by the second half of the year where effects.
Expand assuming that anymore.
We backed off of that we're assuming we're going to have higher labor costs in western Australia from the balance of the year as well as in the Bowen basin, although it's less of an impact there.
We do as I mentioned in my earlier comments, we do expect that occupancy.
Actively continue to sequentially improve throughout the year.
Just not getting to where we had expected coming into the year because of the.
Chinese Australian labor dispute.
Great great. Thank you so much.
It appears there are no further questions at this time.
Well. Thank you all for joining us on this protocol, we hope you and your families are all safe and.
On healthy and we look forward to speaking to you on the third critical.
Yes.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
Yes.
Sure.
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