Q3 2021 Civeo Corp Earnings Call
Greetings and welcome to the city of third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Regan Nielsen Senior director of corporate development and Investor Relations. Please go ahead.
Thank you and welcome to <unk> third 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'll now turn the call over to Bradley.
Thank you Reagan and thank you all for joining us today on our third quarter earnings call.
Today's for today's call I'll provide a brief summary of our performance for the quarter Carolyn Stone. Our CFO will then provide a financial and segment level review and I'll conclude with our commentary on our expectations for the balance of the year and moving into next year before we move to the question and answer portion of the call.
At a high level, we are seeing encouraging signs related to COVID-19, as the Delta wave has begun to retreat.
Canada and the pace of vaccinations in Australia has improved significantly.
As always we are thankful to our operations team, who continue to be vigilant and following our safety protocols, which aim to mitigate the risk of the virus spreading.
In the third quarter, we made significant progress towards our financial objectives.
Maintaining our commitment to free cash flow generation and leverage reduction.
To this end during the quarter, we replaced and refinanced all of our debt and extended its maturity out to September 2025.
And also announced the board's authorization of a share repurchase program for up to 5% of the total common shares outstanding.
Encouraged by these accomplishments and continued but continued uncertainty related to the pandemic pandemic and its after effects as well as continued geopolitical uncertainties led us to remain conservative in our approach to value creation cash generation and debt reduction.
The key takeaways from our call today are.
Our business is reliably generating free cash flow. Despite the uncertainty of the difficult operating environment that we're currently in.
In the third quarter severe delivered $31 million of free cash flow and made debt repayments of $25 million.
As a result, our net leverage ratio was reduced to 186 times as of September 32021 down from 198 times as of June 32021.
As I mentioned earlier, we replaced and refinanced our entire credit agreement during the quarter with a four year tenor providing for more flexibility for our business.
To be clear our primary focus remains to continue.
To generate free cash flow and reduce debt.
But this new agreement has.
Giving us additional flexibility.
And we will remain open to other capital allocation priorities as they materialize such as our recently announced share repurchase program.
We are encouraged by the improvements in commodity prices recently, namely crude oil and metallurgical coal, but we do not expect to see an outsized impact from these shifts during the near term as our customers remain focused on capital discipline.
And their capital decisions typically flat.
Lag fluctuations in commodity prices.
Again, our focus is on positive free cash flow generation leverage reduction and those remain top of mind and we expect to deliver on both fronts through the end of the year.
Now, let me take a moment to provide a business update on our three segments.
In Canada turnaround activity in the Oilsands region continued through the majority of the third quarter, albeit as usual at lower levels than seen in the second quarter.
Due to customer project scheduling and there struggle to.
Get labor.
However, we did see a sequential increase in mobile camp activity in the quarter as pipeline construction activity picked up.
Yeah.
In our Australia business continued to face challenges due to continuing impact of the COVID-19 travel restrictions driving higher labor costs, particularly impacting our western Australia integrated services business as.
As well as lingering uncertainty related to the China, Australia trade dispute impacting the Bowen basin.
Sequentially, we saw a modest uptick in billed rooms in the Bowen basin, but this was offset by an increased cost in our integrated services business.
Turning to the U S. Our U S largest continue to perform well in the third quarter sequential increase in occupancy.
<unk> of our large business was partially offset by sequentially lower offshore work.
And in second quarter of this year, we leased out the entirety of our west Perm launch to a third party under the contract.
With that brief overview I'll turn it over to Carolyn for some more detail as Carol Thanks, Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the third quarter of $155 1 million with net income on a GAAP basis of <unk> 1 million or zero cents per diluted share.
During the third quarter, we generated adjusted EBITDA of $26 2 million operating cash flow of $33 9 million and free cash flow of $31 million.
The decrease in revenues and adjusted EBITDA experienced in the third quarter of 2021 as compared to the same period in 2020 was largely due to increased labor costs and lower customer maintenance activity in our Australian business.
Along with the end of the city as qualification for Canadian <unk>.
Separately pricing.
Additionally, SG&A in the quarter or was that year after year.
You in part to higher share based compensation expense, resulting from a relative increase in our stock price during the third quarter of 2021 compared to the third quarter of 2020.
Partially offsetting these impacts was an increase in build brands in the Canadian oil sands projects and an increase in Canadian mobile camp activity.
Let's now turn to the third quarter result factory segment.
Revenue from our Canadian segment was $84 1 million.
An increase compared to revenue of $71 8 million in the third quarter of 2020.
Adjusted EBITDA in Canada was $19 8 million, which was a decrease from $21 3 million in the third quarter of 2020.
Results from the third quarter of 2021 reflects the impact of a strengthening Canadian dollar relative to the U S dollar.
Increased revenues and adjusted EBITDA by $4 4 million and $1 million respectively.
On a constant currency basis, the revenue improvement was largely due to an increase in the amount of Dell brands as well as increased activity in Canadian level camps.
The year over year decline in adjusted EBITDA was largely attributable to the aforementioned $3 6 million of proceeds related to see AWS, which were received in the third quarter of 2020.
During the third quarter billed rooms in our Canadian lodges totaled 613000.
Which was an increase of 21% year every year from 508000 in the third quarter of 2020.
Our daily room rate for the Canadian segment in U S dollars with $98.
Up slightly from $96 in the third quarter of 2020.
Turning to Australia during the third quarter, we recorded revenues of $65 1 million Euro <unk> 4 million from $64 7 million in the third quarter of 2020.
Adjusted EBITDA was $14 8 million a decrease from $21 5 million during the same period of 2020.
Results from the third quarter of 2021 reflects the impact of the strengthened Australia dollar routes in the U S dollar.
Which increased revenues and adjusted EBITDA at $1 6 million and <unk> 3 million respectively.
The decrease in adjusted EBITDA was largely driven by a significant increase in labor costs in Australia due to COVID-19 related travel restrictions.
Coupled with last customer maintenance and capital project related occupancy in the Bowen basin.
Due to uncertainty around the China, Australia trade disputes.
Sales rooms in the quarter were 491000 down from 514000 in the third quarter of 2020.
Largely influenced by the aforementioned hesitancy Bowen basin customers to invest in maintenance and other capital projects.
Our daily room rate for the Australian segment in U S dollars was $78 up slightly from 77 in the third quarter of 2020.
Which increase was driven by the impact of the strengthened Australia dollar.
Moving to the U S revenues for the third quarter were $5 9 million as compared to $6 $4 million in the third quarter of 2020.
The U S segment generated adjusted EBITDA of negative <unk> 5 million in the third quarter.
Up from adjusted EBITDA of negative $1 5 million during the same period last year.
These year over year increases were primarily due to increased occupancy in our U S launches.
On a consolidated basis capital expenditures were $3 4 million in the third quarter up from $2 4 million in the third quarter of 2020.
Our total debt outstanding on September 32021 was $195 2 million or 31 6 million decrease since June 30 of this year.
The decrease consisted of $25 1 million in debt payments from the strong cash flow generated by our business as well as a favorable foreign currency translation of $6 5 million.
During the quarter, we also replaced and refinanced our debt agreements.
Extending the maturity of all of our debt to September 2025, which allows us more financial flexibility to execute on our strategic plan.
Furthermore, our covenants are now tied to net debt, which represents debt reduced by cash on hand as opposed to total debt.
But that said our net leverage ratio for the quarter decreased to 186 times as of September 30th.
Net leverage at 198 times as of June 30th.
Yes.
As of September 32021, we had total liquidity of approximately $78 2 million consisting of $73 3 million available under our revolving credit facilities and $4 9 million of cash on hand.
Bradley will now provide some closing commentary and discuss our outlook as we look into the remainder of 2021 and into 2020 to Bradley.
Thank you Carolyn.
Based on our improving outlook for the remainder of the year, we are raising the lower end of our existing full year 2021 revenue and adjusted EBITDA guidance.
To a range of $570 million.
To $580 million for revenues and $95 million to a 100 million for EBITDA.
We are maintaining our full year 2021.
Capital expenditure guidance at a range of $15 million to $20 million.
Due to the strong free cash flow in the third quarter and a more positive outlook for the fourth quarter, we are raising our full year free cash flow guidance.
Based on the EBITDA and Capex guidance just given.
And expected interest expense of $15 million for 2021 notes.
No expected cash taxes, and roughly $10 million in proceeds from asset sales, we are raising our expectations for 2021 free cash flow to a range of $70 million to $80 million.
I will now provide regional outlook for our business segments and corresponding market assumptions.
For the remainder of 2021 and our Canadian segment, we expect it to remain steady with positive trends in the oil market.
As is the case every year, we are expecting to see a modest decrease in billed rooms sequentially in most of our lodges in the fourth quarter related to holiday downtime.
This is typical seasonality.
Should be partially offset by some recently awarded winter project work in the southern launches and expected strong mobile camp activity through the end of this year and that activity should continue into 2022.
As we look into 2022, while we are encouraged by the recent uplift in oil prices, we know that our customers need to be convinced of longer term stability in commodity prices COVID-19 dynamics and the broader economy before materially increasing their capital investments.
While activity in our largest should remain steady 2022 mobile camp activity will be negatively impacted by completion of pipeline construction projects throughout the year as well as the related demobilization costs.
We will continue to monitor the market dynamics as we work through our 2022 budgeting process and we'll provide more detailed outlook and our 2021 year end conference call in February.
In Australia, we expect the subdued customer spending and increased labor costs to continue for the remainder of the year and into 2022.
Due to the ongoing geopolitical uncertainty and the COVID-19 travel restrictions affecting the met coal and iron ore markets.
While we are encouraged by the significant increase in metallurgical coal prices in the back half of this year.
We view this price movement is transitory and believe prices will begin to come down to more reasonable levels as we enter into 2022.
Due to the volatility in met coal prices and the lingering China, Australia trade dispute we are not currently expecting any material increase in our book.
But when based on customer activity for 2022.
Well there has been strong improvement in vaccination rates in Australia. It seems that the COVID-19 related labor restrictions will continue into 2022.
And we don't expect labor supply issues to be resolved next year.
We still view our increased labor cost is temporary but unfortunately assumes this issue will take longer to work through than we initially anticipated.
As is the case in Canada. There is a lot of fluidity in the market dynamics right now supporting our business, we will provide a more detailed outlook.
February 2022 conference call.
In the U S segment, and we are starting to see signs of gradual recovery related to the recent uplift in oil prices, but the rig count continues to lag commodity price movements as public producers are still prioritizing living within free cash flow versus drilling.
Going forward into 2022, we continue to be focused on cost management, and gaining market share where possible.
Okay.
Looking forward to the end of the year and into 2022, we will continue to focus on the key elements of our strategy, which remains unchanged.
Yeah.
We will prioritize the safety and wellbeing of our guests employees and vendors.
We'll manage our cost structure in accordance with the market outlooks across each region. We will 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 reduce debt and opportunistically return capital to shareholders.
Before we proceed to the question and answer portion of the call I want to once again recognize the unyielding dedication of our teams around the world.
Your commitment to keep you on guests safe.
Comfortable and healthy is the foundation of our business and we thank you for all that you do.
With that we'll be happy to take questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Steven <unk>.
Eric.
Jim Gero with Stifel. Please proceed with your question.
Thanks, Good morning, everybody.
Good morning, Steven.
So.
Just maybe to build a little bit on your commentary.
For 2022.
When we think about what's gone on in Australia, where there's obviously a lot of moving pieces and you hit on a few of them what are some of the things.
That we should be watchful for that would kind of give you more confidence in.
Sort of an improvement in the Australia and markets next year.
Great question.
Generally speaking what we're seeing both in Australia and more broadly in North America as well is that while commodity prices have recovered customers are reticent to change their spending plans based on.
The short term medium term commodity price outlooks and so I think we'll have to look for in both markets as announcements from the customer base around their capital spending plans.
For next year obviously.
We haven't seen any of those yet, particularly in North America, but you know.
Until we see their spending increase it's hard to see how we're going to see increased occupancy.
Great. Thanks, and then.
You painted a picture for this year of.
$70 million to $80 million in free cash flow.
I mean, you've done you've generated a lot of cash and pay down debt over the last couple of years and you announced this share repurchase program.
When we think about the return of capital to shareholders.
Yes.
Should we think about that evolving as we go forward I mean, if you keep if you keep generating the types of cash that you did this year.
Youre going to Youre going to exhaust your share repurchase program pretty quickly I would think is there are there are there plans to.
To increase that level at some point or there's some mechanics around the size of it and how it how it works in Canada, but is there a plan to increase it and are you thinking about other ways to return cash to shareholders.
So youre right under our normal course issuer bid in Canada, we are limited to up to 5% repurchasing up to 5% of the common shares outstanding during the 12 month period.
There are no current plans to expand it beyond that but should the board and management decided to do so we would need to flip that into a substantial issuer bid, which is not impossible by any means but would take additional work. So we're pleased with our progress thus far on the share repurchase program.
It was established in September so we didn't get as much.
We purchased in the third quarter as we would've liked.
But we'll continue to look at it as we go through the fourth quarter and into 2022.
Right now the <unk>.
Focus on in terms of returning capital to shareholders is the repurchase plan. There are no. Other means that are being currently contemplated.
Great and then and then.
One final when you.
When you when you look at and this may be a longer term question, but when you look at what's going on in the global gas markets and obviously your presence on the.
West Coast of Canada in Kitimat.
Yeah.
Whats the whats the opportunities there over the.
The next 123 years, I mean, I guess, we're waiting on maybe another try and get an FID, but is there anything.
Any insights you have as it.
As it pertains to the opportunity on the West Coast to Canada.
Well, we're watching the same thing that everyone else is which is whether or not the <unk>.
LNG, Canada project, we will prove trains three and four.
That would be beneficial as you mentioned to our Sitka location as well as to pipeline construction camp activity.
Right now for 2021, the biggest impact.
On our BC operations has been the BC help order.
Reducing.
The head count allowable at industrial projects, which impacted LNG C as well as the associated pipelines that has been.
Relieved here in the third quarter. So we're back to occupancy levels that we anticipated coming into the year at Sitka, we expect those occupancy levels to continue into next year.
The pipeline construction activity in our camps related to that with.
It was strong in the third quarter, we expect to be strong again in the fourth quarter and into 2022 and it'll be a matter of how those projects progressed and whether or not there is a lengthening of the construction.
Excuse me construction time period, which will allow our camps to operate longer.
Great. Thank.
Thank you.
Thank you.
Our next question comes from Steve.
<unk> with Sidoti <unk> Company. Please proceed with your question.
Hi, good morning proudly Carolyn.
When we think about the the remaining labor challenges and costs in Australia. So I think of what Youre seeing positive that gets you to go to the higher end of your EBITDA guidance range and move up your cash flow projections for the year.
It's really largely not related to Australia.
It's largely related to the Canadian.
Business, both in the third quarter and are in higher expectations in the fourth quarter.
And a lot of that has to do with.
In the third quarter it was sitka occupancy in pipeline construction camp.
Activity in that that trend will continue into the fourth quarter.
Is what youre seeing in terms of that's a nice move into mobile camps in Canada is that them catching up on last time during COVID-19 and trying to get things.
Back on schedule in terms of wrapping that up.
There's a little bit of that but this was largely expected kind of coming in I think it's.
What changed from let's say, what we were thinking in terms of pipeline construction activity six or nine months ago is just the.
Some scope changes for the project the camps that we're working on so we're seeing a larger number of people.
That we need to house and a longer duration.
And so.
That is that could be considered.
Our kind of catch up but in reality the cancer going in on the timeline and expected from the beginning.
Uh huh.
And when I think about obviously you benefited from some much better turnaround activity than then.
Covid year, but where would you say, even though Canadian oil sands production may be back to pre COVID-19 levels.
Would you characterize turnaround activity this year.
Versus pre Covid years.
So in rough numbers we.
We did about let's call it 50% to 60000 room nights of turnaround activity last year. So thats. The COVID-19 impact. This year, we should do somewhere around 150 to 175000 room nights related to turnaround activity.
In a more in a healthier year. So to your question on pre Covid year, it would be closer to 300 to 400000 room nights. So.
Still well is that due to COVID-19 restrict restrictions versus new projects or I mean can you characterize what sort of picks that back up to that level. It's not just.
Preceding Covid risks right, you still need to see new projects.
Yes.
It's the same point that we mentioned earlier, which is whether it's our oil sands customers are Australia and customers. Many of them have made their spending plans earlier in the year or last year based on commodity prices that had a very different.
But we're very we're much lower than where we are today and we're not seeing the higher current commodity prices changing their spending habits and so this was roughly in line with our turnaround activity expected for the year slightly better, but certainly not reflective of a.
Of an $80 that ATI.
<unk> right.
I think the other issue as we've mentioned in the past is while it was certainly more acute in Australia, Canada is suffering from the same issues in terms of lower labor availability and labor mobility.
As different provinces put in place different protocols as it relates to travel into and out of the provinces. Once that returns back to normal that should help alleviate some of the labor restrictions that we face.
Also impacting our customers.
Gotcha.
And what what's what's the key to getting greater labor available ability into that Australia market now and what are you seeing in terms of government policies do you see any.
Easing yet.
So it's going to certainly the vaccination rates that have occurred in the third quarter in Australia.
Nothing short of remarkable in my opinion.
They've surpassed in terms of first dose and fully vaccinated percentages of the population they've passed the U S.
Sure.
And so to answer your question, we need to see the international borders open.
Without restriction.
You need to see labor.
Labor.
Temporary and kind of migrant labor starts to come back into the country.
And the travel restrictions between different states and within Australia to be eliminated.
In order to see that really improve.
I think I read somewhere that Theyre short about 400000.
Temporary laborers that will come in from outside the country.
That's just that's just a material number.
For that labor based in Australia.
And particularly acute in western Australia.
Yes.
Very helpful.
Just last quick question just for from a month for a modeling question in terms of how youre thinking about timing of debt repayments and any thoughts on that.
Okay.
Well we have.
Scheduled amortization payments under our term loan.
Canadian every quarter.
So and then generally speaking.
We have free cash flow over and above that and the quarter I would say the majority of that is going to be applied to pay down debt as well.
Okay. Thanks, everyone.
Absolutely.
And any working capital fluctuate right.
Working capital and or currency as long as current orange fluctuations in currency lately.
Okay. Thanks, so much.
Thank you.
Our next question comes from Stephen <unk> with Stifel. Please proceed with your question.
Thanks.
Just a follow up.
As I was thinking broadly about what you sort of laid out for 2022 and I know you may or may not want to comment on this but I figured I'd ask it do you think.
Give or take a starting point of sort of flat EBITDA year over year is a reasonable place to be thinking about this.
It is it will depend on the factors that.
That we laid out it'll it'll depend on Canadian turnaround activity that could be upside it will depend on the duration of pipeline construction activity and how long are cancer needed to be in place.
Should that extend into 2023 that would obviously be helpful.
Because we won't have to face the demobilization costs next year there'll be pushed into 2023.
And then Australia.
Right now as we look out it doesn't look like spending is going to increase if we see Australia.
Activity increase.
Spending increase we should see that improvement.
<unk>.
The team has been working feverishly to address the labor issue in Australia.
To the prior question that the government has eased the visa.
Requirements and so that should help bring in additional labor specifically related to hospitality.
So that should be helpful, but I think kind of flat year over year is a good starting point, we still need to go through the heavy lifting on our budgeting process. So we'll certainly give more color on the next call.
We will certainly have better visibility as it relates to.
All three are three or four of those factors in February.
Great. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Bradley Dodson for closing remarks.
Thank you Maria.
Thank you everyone for joining us on the call. We appreciate your interest in supportive of severe and we look forward to speaking to you on the next earnings conference call.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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