Q2 2022 Civeo Corp Earnings Call
Greetings and welcome to City O Corporation second quarter 2022 earnings call.
This time, all participants are in listen only mode.
Brief question and answer session will follow the four formal presentation.
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Please note the conference is being recorded.
At this time I'll now turn the conference over to Regan Nielsen director of corporate development Investor Relations.
I'll begin.
Thank you and welcome to city in the second quarter 2022 earnings Conference call.
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'd like to caution listeners regarding forward looking statements to the extent that our remarks today contain anything 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 and uncertainties disclosed in our forms 10-K, 10-Q, and other SEC filings I will now turn the call over to Bradley.
Okay.
Thank you Megan and thank you all for joining us today.
Earnings call.
I'll start with key takeaways from the second quarter.
Brief summary of our second quarter, two performance after which Carolyn will provide financial and segment level review and I'll.
Conclude with our updated full year 2022 guidance.
And our regional assumptions that underlie the guidance then we'll open up the call for questions.
The key takeaways from our call today are we had a strong second quarter.
This year over year revenues up 20%.
And adjusted EBITDA of 15%, primarily driven by the increase.
In Canadian Lodge billed rooms, and increased Canadian mobile camp activity as well as an increase in Australia village is still true.
Second word performance, coupled with improving customer demand.
[noise] drove our upward revision to our full year guidance.
We continue to be encouraged by customer conversations and increasing customer activity and robust pipeline construction work, particularly in Canada.
And expect increased maintenance turnaround spending for the remainder of the year.
As a result, we are raising the upper end of our full year 2022, adjusted EBITA guidance, which I will detail later in the call.
Yes.
Our announcement earlier this month.
Your contract renewals or want to Sue Creek Lodge.
For a long term partner.
Oil resources limited reinforces our investment thesis that our services are necessary to support continued demand in Canadian oil Sands region for many years.
This morning, we're pleased to announce a five year integrated services contract.
With a new customer in South Australia with expected revenues of.
120 million Australia. This contract is a testament to the growth and diversification potential of our integrated services business as it encompasses a new customer a new state in Australia, and a new commodity.
From a capital perspective, we continue to deleverage our balance sheet in second quarter was definitely payments of $18 million positioning zumiez be opportunistic going forward regarding capital allocation.
The contract renewals and awards granted in the second quarter are consistent with <unk>.
Long term partners to maximize value.
<unk> operating environment, and a mutually beneficial way.
Overall, we're pleased with our second quarter results compared to our expectations.
Although we are encouraged by the current operating environment.
Committed to cotton.
Let me take a brief moment to provide a business update on the three segments.
Ananda revenues and adjusted EBITDA were slightly above our expectations increased year over year.
Driven by recovery in large build roofs and increased Canadian mobile camp activity.
We also experienced a significant sequential increase in adjusted EBITDA.
Due to an uptick in activity in the central wells in this area as a result of seasonal turnaround activity as well as a rebound from the slower start to the year and improved weather conditions, which lowered operating costs.
For Australia, our revenues and adjusted EBITDA were in line with our expectations.
Increasing year over year and relatively flat sequentially.
This was driven by increased year over year and sequential occupancy at our Cabos olive village due to recovery in demand with sequential improvement offset a weaker Australian dollar relative to the U S dollar.
Turning briefly to the U S revenues increased year over year due to increased drilling activity positively impacting our well site services business.
The offset by the sale of our West Permian launch, which we did in the fourth quarter.
Adjusted EBITDA decreased slightly year over year, primarily due to the sale of West Permian Lodge, partially offset by increased drilling activity.
Again impacted the well site services business.
With that I'll turn it over to Carol.
Thank you Bradley and thank you all for joining this morning.
Today, we reported total revenues in the second quarter.
85 million with GAAP net income of $9 5 million or <unk> 54 cents per diluted share.
During the second quarter, we generated adjusted EBITDA of $37 1 million operating cash flow of $21 7 million and free cash flow of $17 6 million.
And finally mentioned earlier the increase in adjusted EBITDA, we experienced in the second quarter of 2018.
And to the same period in 2021 was largely due to increased build brands in our Canadian lodges and increased Canadian mobile camp activity.
With increased Australian village Delta.
The quarter over quarter increase in operating cash flow and free cash flow.
Primarily due to the SEC.
Yeah.
Let's now turn to the second quarter results for <unk>.
I'll begin with a review of the Canadian segment performance compared to its performance senior again in second quarter of 2021.
Revenues from our Canadian segment were $109 million as compared to revenues of $83 3 million in the second quarter of 2021.
Adjusted EBITDA in Canada was $28 $7 million, an increase from $2018 6 million.
2021.
Results for the second quarter of 2020 team responds to impact in a weakened Canadian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA by $4 4 million and $1 2 million respectively.
On a constant currency basis, the increase in both revenues and adjusted EBITDA was largely driven by a 7% year over year increase in billed rent related to the recovery of oil prices and navigate the faster the COVID-19 pandemic.
Coupled with an increased level of activity.
During the second quarter billed rooms in our Canadian lodges totaled 771.
Which was up 7% year over year from 723000 in the second quarter of 2021 gave you the factors just discussed.
Daily room rate for the Canadian segment in U S.
Great.
A 7% year over year increase largely each client mix.
Turning to Australia during the second quarter, we reported revenues of $67 8 million up from $64 million in the second quarter of 2021.
Adjusted EBITDA was $15 5 million in line with the same period in 2021.
Results for the second quarter of 2020 to reflect the impact of a weakening Australian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA of $5 3 million and $1 <unk> million respectively.
On a constant currency basis. The increase results were driven by the increased L brands and daily room rates in our analysis.
Australia billed rooms in the quarter with 505008% from 466000 in the second quarter of 2021.
So again from a recovery of customer maintenance activity in our villages, resulting from a more muted impact of the China, Australia and China.
While the average daily rate for Australian villages in U S dollars was $77 in the second quarter down from $81 in the second quarter of 2021, and the increase was entirely driven by the weakening Australian dollar.
Moving to the U S revenues for the second quarter were $8 1 million as compared to $6 9 million in the second quarter of 2021.
The U S segment, adjusted EBITDA was $221000 in the second quarter down slightly from $290000 in the same period last year.
The decrease in adjusted EBITDA was primarily due to the fourth quarter 2021 sale until our last Permian lives largely offset by increased drilling activity, which positively impacted our well site services.
On a consolidated basis capital expenditures for the second quarter of 2020 and were $5 1 million compared to $33 2 million invested during the same period in 2021 capital expenditures in both periods were predominantly related to maintenance spending on our license intelligence.
Our total debt outstanding at June 30 of 2020 was the hangar $54 6 million.
The $23 3 million decrease since March 31st.
The decrease consisted of 18 million in debt payments from cash flow generated by the business.
Favorable foreign currency translation of $5 3 million.
As a result, our net leverage ratio for the quarter decreased to 1.18 times in the gene target from one four times as of March 31st 2020.
As of June 30th we had total liquidity of approximately $95 $3 million, which consisted of $90 5 million available under our revolving credit facilities and $4 8 million of cash on hand.
Bradley will now discuss our updated guidance for the full year 2019 finally thank.
Thank you Carolyn.
I'd like to discuss our updated full year 2022 guidance consolidated basis, including the underlying outlook for each of the regions as well as in line assumptions related to our guidance.
Based on our second quarter results and improving outlook for the remainder of the year, we are raising our full year revenue and EBITDA guidance.
$660 billion to $675 million of revenues and 95 million to $105 million of EBITDA adjusted EBITDA.
As previously announced we are raising our full year capital expenditure guidance.
And if your guidance to 24 million to $29 million with the increase related to capital spending tied to the lost Creek Lodge contract route.
Yeah.
Based on the increased EBITDA and Capex guidance I've just outlined.
Interest expense of $10 million for the full year 2022.
Minimal expected cash taxes are expected are expected free cash flow forecast.
He is in the range of 56 million to 71 million.
Modestly down.
The previous got free cash flow guidance of 60 to 72. This free cash flow range assumes the first half of 2022s working capital increased unwind in the second half of the year consistent with prior working capital crews.
The increase to our revenue and EBITDA guidance is primarily driven by recent customer conversations and contract awards in renewables related to maintenance and turnaround activity across our activity our Canadian lodges in Australia villages.
We're seeing our customers increase their maintenance plans for the year due to sustained commodity prices at very healthy levels.
Okay.
It seemed the largest uncertainty for our 2022 guidance continues to be the timing and duration of our Canadian mobile camp activity related to pipeline projects in British Columbia.
Regarding this matter, we have not changed our assumptions related to the demobilization of the three Canadian mobile camp.
Fourth quarter of 2022.
Should these projects extend into 2023, we can see our 2022 adjusted EBITDA improve anywhere from $3 million to $10 million.
I will now provide a regional outlets and corresponding underlying assumptions by region and Canada.
At the remainder of 2022, we are encouraged by our recent customer conversations surrounding increased demand for maintenance and turnaround related rooms through the summer and early fall.
We continue to expect an increase in Canadian oil sands.
Billed rooms from 'twenty to 'twenty, one levels in the third quarter of this year.
There is a risk that customer labor availability in the region could dampen our customers' ability to execute these larger turnarounds and we have baked in a portion of that risk into our guidance.
As I mentioned earlier, we are still forecasting the maturity of our Canadian mobile camp activity to wind down by the end of the year and.
We included the related demobilization costs in our fourth quarter, our full year and fourth quarter guidance.
Turning to Australia.
We've also seen encouraging signs of improvement in customer demand, albeit not at the same levels as our Canadian business.
Although net coal prices remain.
And very healthy levels.
Historically high levels.
Yeah.
The historic volatility in met coal pricing on easier weather and lingering.
China, Australia trade dispute continues to impact customer spending.
Alright prices remain in constructive levels and customer activity in Western Australia remains strong.
Well, we are seeing gradual progress as it pertains to COVID-19 related labor issues that we have.
They're just last year and into this year. It is a slow process and we expect labor shortages remain a factor.
Our integrated services business for the remainder of the year.
For our U S business, the oil and gas price environment is strong we expect to continue to benefit from increased drilling and completion activity in the U S. We expect our well site and offshore businesses to continue to improve throughout the rest of the year.
Okay.
I'll conclude our prepared comments I underscoring the key elements of our strategy as we navigate this extraordinary market climate.
We will continue to prioritize well being of our guests employees and communities.
Who manage our cost structure in accordance with occupancy outlook across each of the three regions.
We will continue to enhance our best in class hospitality offerings.
And we will allocate capital prudently to maximize free cash flow, while we continue to reduce debt and return capital to shareholders through our share repurchase program.
Lastly, we see opportunities to further our revenues versus taishan and free cash flow generation as organic and M&A opportunities arise.
Ross.
With that we're happy to take your questions.
Okay.
Thank you.
Now be conducting a question and answer session.
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One moment please poll for questions.
Thank you and our first question is from the line of Stephen <unk> with Stifel. Please proceed with your questions.
Thanks, and good morning.
Good morning.
So a couple of things one of the things that we're struggling with is sort of squaring what zinc.
Think about the third quarter should be a fairly solid quarter relative to where the second quarter is flushed out in our full year guidance I think it's probably related to the mobile camp <unk> can you talk a little bit about what.
The severity of that that you've kind of baked into your guidance.
Guidance in terms of this even though the cost guidance assumes $10 million of T. Mobile's U S demobilization costs in the fourth quarter.
In Canada.
And.
Does that have.
And that impacts the mobile camp revenue line as well right. So its cost as well as the revenue coming down.
Yeah, well, we'll lose yes, we do have them will lose risky revenues yes.
Can you quantify that at all the revenue impact.
Yeah.
Oh.
Well, so we've been running about 24.
Millions of quarter.
<unk> revenue.
The last.
Couple of quarters there'll be consistent in that range in the third quarter and then it drops to about $11 million in the fourth quarter.
Okay, Great that's very helpful.
The.
From a.
What I was.
I'm trying to get at so when we think about this going forward and we think about.
The stability of your Canadian operations write them and obviously, the big 12 year contract that you announced couple of weeks ago. So.
So to speak to that but can you talk about the.
The Canadian <unk>.
Logic village side and the visibility that you that you have at least for a I think a relatively large portion of that business going forward. That's one of the things we get asked a lot, but it seems like it's more stable than people think given the reserve life for the oil sands.
Right.
Obviously, the lawsuit contracts lots of that asset that was rolling from a 10 year contract now into a 12 year contract. So that's got some good visibility to it with take or pay minimums.
The Mcclelland Lodge is one that has been going year to year.
And so we're working with the client on the longer term option there.
We have the.
Yeah.
Core region, we've got two primary customers Syncrude Suncor.
Have an exclusivity agreement with suncor trends through 2027.
And then the Syncrude.
Work.
Currently working on an extension of that five year contract that's coming to us.
That is this year.
We're working with the clients negotiate a longer term solution there.
And so if we get all of that done.
And you know really the variability will be customers using rooms above their take or pay minimums and turnaround work during the second and third quarters, but it will be very firm now that the contract camp work.
Right now we have <unk>.
Nothing from our clients to indicate an extension into 2023.
That's more likely than not.
And so there's an upward bias to move those demob costs into 2023.
It's been.
Well documented.
Those pipeline projects are rather long.
Okay.
Great. Thanks, and then just one final one from me on the on the new contract in Southern Australia is that.
Is that related to the action business that you guys acquired and is that.
Pretty is that five year contract when do we start to see the impact of the revenue from that award.
In the third quarter.
And yes, it is the action business.
Alright, thank you.
The next question is from Lindsay.
Steve <unk> with Sidoti <unk> Company. Please proceed with your question.
Good morning, everyone I appreciate all the color on the call just wanted to ask about.
What you're seeing both on the labor availability, both in Canada and in Australia in terms of Canada, certainly it seems like we're heading into a much healthier turnaround season. This year Capex indicated it yet the concern was whether the word anyone talked a little bit about just the labor availability to get the workers up there.
How would you characterize turnaround activity this season versus pre COVID-19 levels and do you think it's still being impacted by labor availability.
Uh huh.
Thank you for the question definitely.
Labor availability continues to be an issue.
We had one customer in particular that was not able to source labor.
But others are having success.
So.
Some of them it appears to be labor rates. So.
Others are moving labor rates up and Theyre getting labor and others are trying to hold fast foods.
Proved to be more difficult.
For us we continue to struggle with getting labor.
We're we're short staffed both in Canada and Australia.
The team is working very hard to maintain service levels. When we don't have a full complement of employees.
Yes.
So in terms of Australia, and you had indicated you expected margin pressure this year, largely due to where youre going to find.
Yes.
The ability to fill positions given the visa restrictions have you seen that loosen enough now where margins can move back to.
Earlier levels and also how does that affect your ramping up staffing for the new contract.
Well, it's been a challenge on the latter question.
What we've been able to.
To mobilize and stepped that up.
I would say on our integrated services business, which is for that contract. We've had net additions to employment for the last five months in a row, we still have a lot of turnover.
But we're starting to make headway.
And so kudos to our HR and ops teams down there for.
For for achieving that.
Fighting fighting that battle, but it's moving in the right direction, we're starting to get some foreign chefs on visa is be able to come into the country and so we're making progress it's just not resolved.
So margins are moving in the right direction and are in Australia, and integrated services business, but theyre not to work with one of them ultimately.
Margins in our villages in Australia have been.
Relatively consistent we've probably lost 100 basis points from what we were hoping for maybe a 150 basis points on margins year to date.
I think given the environment.
That's a pretty.
Pretty good outcome.
Slowly.
And then on capital allocation, obviously, you have a little bit of additional capex now with this a long term contract, but still a capex right. It's very very subdued how are you thinking about you havent used a lot of the share repurchase how are you thinking about that or other opportunities.
Sure. So we were saving our dry powder on the share repurchase program for.
Potentially using our view.
Are you able to execute on the writer first refusal to buy shares from Hawaii.
One shareholder that didnt occur in the quarter.
And so we didn't get as much done in the same as we had hoped and it will have to step it up.
In the third quarter.
While still remaining ready to execute on the Rover should it come.
Yeah.
And as we have every expectation that we will continue to execute on the program.
Just we've run into some bumps along the way year to date, but we'll get it back after the third quarter.
Fair enough.
Thanks, so much for the commentary thanks.
Okay.
Thank you. The next question is a follow up from the line of Stephen <unk> with Stifel. Please proceed with your questions.
Thanks.
I have two more if you don't mind the first one around.
Your leverage ratio has obviously come down significantly over the last year plus.
Where do you where does it settle out where you decide I'm going to just stop buying back debt.
And if so and maybe a better question is what are the other options you might be looking at outside of clearly continuing to exercise on the share repurchase.
Well I would say we have reached the level is that fair.
Hum.
We continue to pay down its because of the other alternatives have not been available.
For capital allocation. So we'll continue to do that.
Save a lot of dry powder for Rover as.
The first use of capital beyond debt repayment.
But we'll be we're very comfortable levering back up for capital returns.
Should that opportunity presented itself, we should be able to execute Andre.
They are right now.
The discretionary capital that we're spending is in support of contracts. So while pursue contracts one theres a little bit of capital going into the new contract in South Australia.
Should we continue to win work and our integrated services business down there.
Will.
Those contracts typically have a modest amount of capital.
Okay.
Associated with them, we are in the process of.
Refurbishing.
And refreshing some of our Bowen basin rooms in Australia.
Right now we've been running near full capacity at Colorado, and so we've been rotating rooms out of service and bringing mothballed rooms into service. So there's by $6 million worth of capital in the guidance that's related to refreshing those rooms and bring them back online.
Part of that is due to demand and part of that.
Been very stingy on capital the last three three years as we were trying to get our debt under control.
And we need to put some more money into the rooms I expect it will be in this range of plus or minus $25 million of capital going forward with it.
With a more healthy.
For a program in place.
Okay.
Great. Thank you and then just one final one.
Obviously with inflationary pressures out there are you seeing much on the pricing side and you've clearly done a good job offsetting inflation and Delever and margin performance can you just talk a little bit about about those dynamics.
Well, we have some contractual protection in our multiyear contracts around inflation. This is obviously a very extreme situation.
To which we work with the client firstly work on scope.
So if there are items that better.
That kind of creates above scope, we bring those back in to reduce our costs.
Work with the client on scope to see if there ways that we can adjust the scope to reduce our costs.
I'll have to pass that through to them.
But generally speaking there's a there's an upward bias on pricing.
And in both of our major regions.
Great. Thank you.
Thank you at this time, we've reached the end of the question and answer session I'll turn the call back to Bradley Dodson for closing remarks.
Thank you Rob and thank you everyone for joining the call. Thank you Steven and Steve for your questions and we appreciate your interest in <unk>.
We will continue we look forward to speaking with you on the third quarter earnings call in about three months.
Our very own Hasnt been weekend.
Take care.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.