Q3 2022 Civeo Corp Earnings Call
Greetings and welcome to female Corporation third quarter, 2022 earnings call.
At this time all participants are now we spend only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is my pleasure to introduce your host Regan Nielsen Senior director.
That said sort of action. Thank you Mr. Yates you may begin.
Thank you and welcome to <unk> third quarter of 2022 earnings Conference call.
Our call will be led by Bradley Dodson, video's, 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.
To the extent that our remarks today contain anything other than the.
Other than historical information. Please note that we're relying on the safe harbor protections afforded by federal law.
Such remarks should be read in the context of the many factors that affect our business.
Risks and uncertainties disclosed in our forms 10-K, 10-Q, and other SEC filings I will now turn the call over to Bradley.
Thank you, Brian and thank you all for joining us today on our third quarter earnings call.
Start with the key takeaways for the third quarter, and then give a brief summary of our third quarter 2022 performance after which Caroline will provide financial and segment level review and I'll.
Clearly with our updated full year 2022 guidance and our regional assumptions underlying that guidance I will also provide preliminary comments regarding our 2023 outlook.
And then we will open the call for questions.
Key takeaways from our call, our strong third quarter and year over year revenues.
19% and adjusted EBITDA of 34% driven by increased activity across all three geographic segments.
Our occupancy related to pipeline construction is expected to continue into 2023, which will result in continued Canadian mobile camp activity.
Through the end of 2022 and into 2023.
This development will push our demobilization costs of those cash into 2023.
The strong third quarter performance, coupled with the deferral of a handful of people organizations from 2022 into 2023 drove the increase to our full year guidance, which I will detail later in the call.
We generated $38 6 million of free cash flow in the quarter, which led to significant milestone of us reducing our net leverage to below 1.0 times.
We're committed to investors that we would prioritize deleveraging and this achievement, but none have been possible without the efforts.
Tire CTO team over the last few years.
Our continued debt reduction and provides us with flexibility to both weather the current market volatility.
And further evaluate opportunities to deploy capital.
Lastly, after repurchasing approximately 715000 shares since September 2021, including 275000 shares in the third quarter of 2022.
We announced that.
Our board of directors has renewed its share repurchase authorization for Citi as repurchase up to 5% of its total common shares outstanding over the next 12 months.
Okay.
Let me take a moment to provide a business update across the three segments.
In Canada, our revenues and adjusted EBITDA increased year over year, driven by an increase in lodge occupancy as well as increased Canadian mobile camp activity.
We experienced.
A sequential decrease in revenues and adjusted EBITDA.
Typical seasonal wind down in the third quarter of turnaround activity.
In Australia, our revenues and adjusted EBITDA were in line with our expectations, increasing year over year and sequentially.
This was primarily driven by increased year over year and sequential integrated services activity.
The recently announced contract awards, starting in the third quarter.
Increased occupancy to several Bowen basin villages also contributed to our strong.
Third quarter performance.
Turning briefly to the U S revenues and adjusted EBITDA increased year over year due to increased activity positively impacting our well site and offshore businesses.
Actually offset by the sale of our west permanent launch, which we did in fourth quarter of last year.
In September we sold our wealth business, while the business was improving with increase in drilling activity in the U S where unfortunately, we are unable to create scale in the business. Despite the sales and service efforts of our team.
And with that I'll turn it over to Jeremy.
Thank you Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the third quarter and $184 $2 million with gasoline in Canada, $5 2 million or 30 key principally in sure.
During the third quarter, we generated adjusted EBITDA of 35 million operating cash plan, $38 7 million and free cash flow of $38 6 million.
As Bradley.
The increased adjusted EBITDA that we experienced in the third quarter of 2019. Thank.
Same period last year.
Partially due to increased telegram and our Canadian market and increased Canadian mobile camp activity, coupled with increased Australian village telegrams and granite city.
Tony.
The quarter over quarter increase in operating cash flow and free cash flow was primarily these days.
Let's now turn to the third quarter results for <unk>.
I'll begin with a review of the Canadian segment performance compared to the performance a year ago in the third quarter of 2021.
Revenues from our Canadian segment were $103 million as compared to revenues of $84 $1 million in the third quarter of 'twenty one.
Adjusted EBITDA in Canada was $25 $6 million, an increase from $19 8 million in the third quarter of last year.
Results from the third quarter of 2020 to reflect the impact of the weakened Canadian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA by $3 7 million.
9 million respectively.
On a constant currency basis, the increase in both revenues and adjusted EBITDA was largely driven by a 19% year over year increase in bill rates related to the recovery in oil prices and increased turnaround activity.
Coupled with increased levels of activity.
Yeah.
During the third quarter billed rooms in our Canadian lodges totaled 300 731000, which.
Which were up 19% year over year from 613000 in the third quarter of 2021 due to the factory.
Yeah.
Our daily room rate for the Canadian segment in U S dollars was $99, which was relatively flat year over year largely DHL, we contained in dollar amounts.
Sure.
Turning to Australia during the third quarter, we reported revenues of $73 8 million.
Up from $65 1 million in the third quarter of 2021.
Adjusted EBITDA was $16 9 million.
$14 8 million last year.
From the third quarter of 2020 to reflect the impact of a weekend, Australia U S dollar, which decreased revenue and adjusted EBITDA.
5 million and $1 3 million respectively.
On a constant currency basis, the increase results were driven by the increased build rate.
And increased <unk>.
Okay.
Australia billed rooms in the quarter were 525000, a 7% or 491000 in the third quarter of last year.
You again to the recovery of customer maintenance activity in our villages.
Thing from a more muted impact into China and Australia.
Yeah.
While the average daily rate for our Australian villages in U S dollars was $73 in third quarter down from 78 in third quarter of 2021. The decrease was entirely driven by the weak dollar.
Moving to the U S revenues for the third quarter was $7 4 million as compared to $5 9 million in the third quarter of 2021.
The U S segment adjusted EBITDA was a loss of 33000 in the third quarter.
From the loss of 544000 same period last year.
The increase in adjusted EBITDA was primarily due to increased activity positively impacting our well site services and offshore businesses.
All set by the impact of the sale of the West Permian lives in the fourth quarter of 'twenty one.
On a consolidated basis capital expenditures for the third quarter of 2020 were $8 8 million compared to $3 4 million. During the same periods in 2021 capital expenditures in both periods were predominantly related maintenance spending on a lot of intelligence.
Our total debt outstanding on September 30th 2020, with 126 2009.
Which have been $28 4 million decrease since June 30.
The decrease consisted of $19 5 million in debt payments from cash flow generated.
And a favorable foreign currency translation of $8 9 million.
And our net leverage ratio for the quarter decreased <unk> nine times and the September 30th from one two times as of June 30.
And at September 30, we had total liquidity of approximately $117 3 million, which consisted of $108 9 million available under our revolving credit facilities and $8 4 million of cash on hand.
Bradley will now discuss our updated guidance for the full year 2020 preliminary comments on our 2023 Allen Bradley.
Thank you Joan.
I would like to discuss our updated full year 2022 guidance.
Validate basis, including the underlying outlook for each of the segments as well as the airline assumptions related to the guidance.
I'll provide a few preliminary comments regarding our 2023 outlook.
Based on our third quarter results and the deferral of the majority of our Canadian mobile camp utilization costs into 2023, we are raising our full year 2022 revenue and EBITDA guidance to 675 to 685 million revenues and $110 million to $115 million of adjusted EBITDA.
We are maintaining our full year 2022 capital expenditure guidance, which is $24 million to 49.
Based on this EBITDA and Capex guidance.
Expected interest expense of $10 million in 2022 and minimal.
Taxes.
We expect our 2022 free cash flow forecast is expected to be in the range of $71 million a month.
Yeah.
The increase to our revenue and EBITDA guidance is primarily driven by the deferral of our mobile camp demobilization costs into 2023.
Our Canadian mobile camp activity is primarily range the construction of the coastal gasoline and other pipelines. This pipeline construction is now expected to continue into 2023.
And should require the use of our mobile camps supporting that project construction of the pipeline is nearing completion.
Expect to see a reduction in our occupancy and profitability related to mobile camps.
As this activity winds down as 2023.
We recognized the majority of the expected demobilization costs this year.
I will provide the regional outlooks guidance on a reasonable outlook and corresponding assumptions.
In Canada as we look through the remainder of 2022, we're expecting to experience a decrease in billed rooms to the correct turnaround activity winding down coupled with typical holiday downtime.
We're also experiencing inflationary pressures on our utility costs, which will be exacerbated by winter weather.
Turning to Australia, we continue to see encouraging signs of improvement in customer demand for integrated services.
Activity as well as arent real this business.
The fourth quarter of 2020 June will also be burdened by the typical fourth quarter seasonality.
That will definitely impact our village occupancy.
[laughter].
Iron ore prices remain a constructive levels and customer activity in Western Canada remains strong.
While we are seeing gradual progress as it pertains to COVID-19.
COVID-19 related labor issues, we've experienced the last few years, it's a slow process and we expect.
Labor shortages to remain a factor for the remainder of this year and into next.
I'll now move to the 'twenty to 'twenty three outlook.
And I'll provide some preliminary comments.
Customer spending specifically customer capital spending drives our occupancy at our Canadian lodges, and our Australian villages well commodity prices for oil natural gas met coal and iron ore continues to be constructive.
Customers continue to be focused on cash flow generation capital discipline, and returning capital to shareholders.
So as a result at this point.
So you're not seeing a material increase in occupancy in 2023 for either the Canadian lodges or their Australia and diligence.
In Canada, we're expecting relatively flat occupancy entertained launches, perhaps with some modest upside.
As we've discussed on previous calls we et cetera.
Well, Ken activity to significantly decline.
<unk> of the coastal gasoline pipeline as well as others.
This decline in low cat activity profitability will be exacerbated by the recognition of demobilization costs in 2023.
In Australia.
We're expecting a modest increase in occupancy in our villages due to customer expansionary activity.
We're also expecting an increase in Australia.
Or is this business do some incremental contracts the team as well.
However, we are extending expecting.
Depression, due to labor shortages and food inflation.
While this has improved or several quarters, we're expecting only a gradual improvement in 2023.
Given the significant progress we've made in reducing our total leverage we expect capital allocation going forward to focus on Opportunistically repurchasing our stock under our authorized buyback plan.
Weighing those returns against the expected returns with growth opportunities, both organic and inorganic.
Okay.
With that I'll conclude our prepared remarks by underscoring the key elements of our strategy as we navigate this market climate.
Our mandate remains as follows we will prioritize the safety and wellbeing of our guests employees and communities.
Manage our cost structure in accordance with our outlook across all three segments.
We will continue to enhance our best in class hospitality offerings.
Allocate capital prudently.
It will seek opportunities to further our revenue diversification and free cash flow generation through organic growth and M&A opportunities to have a superior anticipated returns.
With that and how to take some questions.
Yeah.
Thank you.
I will begin the question and answer session.
To ask a question. Please press the Taiwan and your telephone keypad, a confirmation tone will indicate your lines into question Kim.
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One moment, please while we poll for questions.
Our first question comes from Jason doesn't go well with T cell. Please go ahead.
Hi, good morning, everybody.
Good morning, David Good morning.
So a couple of things for me I think the first the first would be around the fourth quarter like when we when we think about your revenue guidance.
And I know you mentioned some of the.
Margin headwinds in the fourth quarter.
But if you look at the two segments, where where do you see the bigger kind of a.
Margin degradation in the fourth quarter because of seasonality.
Canada.
It'll be in Canada.
But right now based on customer labor curves it looks like we're going to have a.
Significant downturn in terms of occupancy both as the pipeline camps as well as at the lodges.
So I would say based on guidance.
As well as we start going into winter.
And we'll start to see increased propane and diesel costs as we have to keep the largest so it'll be a combination of both.
Australia will see some holiday downtime, but it's much more muted.
Got it great. Thanks, and then.
You mentioned the demo costs I mean, if you had a crystal ball right now, which I know, it's tough would you would you would you see that.
Any sense for when that occurs next year is it is it first quarter or is it or is it still too early to tell.
Fortunately, it's David it's too early to tell.
Wait I think we feel confident.
Oh Wow improvement since last quarter, we've moved to be confident although we kind of hinted that would happen.
The demob costs in activity will continue in 2023, but how long. It continues into 2023 is still very opaque.
And so we'll look forward to giving hopefully some better guidance on our fourth quarter earnings call as we get better insight from our customers.
Okay, great. Thank you and then just one final one for me.
As I look back historically I mean, you guys have always done a good job sort of managing cost pressures and I know we're in an unusual Boston environment right now can you talk about.
Both.
You got the levers you have to pull operationally and and maybe be the contractual.
Discussions in terms that you have with customers to help offset that impact.
I would say that.
So I'll start with contractually.
All of our multi year contracts will add annual adjustments for.
Inflation, but there Andrew.
So theres going to be a lag historically they have done.
An adequate job of managing inflation. This is certainly a eight situation.
So I.
I would say were probably losing 200 basis points of margin.
Because of our inflation, both labor and food costs and then in Canada.
Power or.
Utility costs are more exacerbated.
I think the team has done a good job.
So operationally what do we do so in Canada as it relates to utility costs. We work on loaded so to the extent that we can ask customers to move their occupancy from one location to another so we can.
Increase the loading on a given location and improve efficiencies there we have and we'll we'll do that.
On food costs, it's around managing to scope, but looking for opportunities where we can change.
Food that we're offering specifically proteins.
To manage that cost on labor side, it's around managing shifts and making sure as efficient as we can be.
In Australia, I think the team is doing a great job around.
Trying to get labor, where we're in a much better position now.
On a labor situations in Australia than we're at the beginning of the year, but we're not back to where we want to be we're trailing in turn.
Labor cost to budget.
But it's within our.
Our margin that I think is less than the inflationary pressures so.
On the food cost side, we've got to get better one picture procurement.
And we're working on.
So our overall and you still have the same scope discussions international and Canada.
I think in light of where we are from a global economy standpoint, I think the team is doing a good job.
It's not we could be doing better given where activity levels are absolutely in place.
Great.
Very good color I appreciate it thank you.
Thank you Steven.
Yeah.
Next question comes from Heath Terry.
Sarah Dunn with Sidoti. Please go ahead.
Good morning proudly morning Caroline.
You'd want to follow up to Steven's question on on the winding down of some of the.
Mobile camps in Gist.
Do you have any ability to quantify.
How quickly some of that revenue.
Just because when I'm thinking about your fourth quarter revenue guidance sort of backing into it it's year over year down is that primarily on starting to see that decline in mobile camps or are there other pieces to that.
Here with me.
Uh huh.
There's some mobile camp activity, which is not really a wind down it's more of a holiday downtime issues as well.
Well, yeah, we will.
Partial gmail, but one of the camps and the fourth quarter, which is contributing to it.
But the.
The biggest piece is just overall oil sands activity.
In the fourth quarter, which as of right now the labor curves look like it's going to be a pretty basic.
Pretty significant.
Countering and occupancy in the Oilsands region, I think it's exacerbated by FX.
So theres a little bit of that going.
But in terms of where the mobile camps land in terms of occupancy for next year I wish I had a better answer quite honestly, no I understand but right.
Yeah, right now as close as we are for our customers.
Uh huh.
Not a clear picture of how long those cancer have reacted I think the good news is that our team both operationally and from a sales perspective.
<unk> have choices, where pipeline construction is winding down they can choose which counts to keep or or Demoed. I think the teams did a good job of operating.
And staying close to the customers such that our cancer are being chosen to continue into next year.
So it's a win for us, but eventually we're going to have to find a replacement for those earnings.
I'm, hoping it's later in 2023, but we'll see.
Okay.
When you gave your early look at Canadian expectations for 2023.
I'm not super.
Positive or bullish I'm, just trying to think about.
The fact that <unk>.
Mountain comes online late 2023.
Labor availability should be getting better we're still not turnaround still not back to pre COVID-19 levels, there seem to be reasons and I know day to day oil prices don't matter much but certainly the differential should narrow next year I mean, there would seem to be a lot of reasons to be more bullish or not.
No well I think what we need to see from here.
Is what what are the capex plans for the customers.
We're we're kind of treading water.
A couple of years in turn in terms of total Canadian Capex at all also applies to Australia on the on the eastern side of the business.
The Capex is what's going to drive our occupancy in both the Canadian lodges and villages. So as we start to see Capex plans by our customers come out we will adjust accordingly, we've got a little bit of a tailwind in Australia. Because there are a couple of expansionary projects that are driving incremental occupancy there.
It's getting eaten up a little bit Bob.
I would say exacerbated inflation there.
But overall, it's going to be Capex.
So.
Makes me more bullish certainly say sitting here at high Eighty's oil prices and the other commodity prices that we would see more activity, but again, it's it's customer disciplined in returning capital to shareholders are enjoying higher commodity prices.
And they're not spending money that we would see historically.
So until that changes.
It's hard to say now I think the good news is.
That we're largely supporting day to day operations.
So no.
No we're not seeing the volatility as it relates to that I think the other piece, which I didn't mention earlier is we'll have to see how Canadian turnaround activity is next year I think.
Right now I believe it'll be relatively consistent.
With this year.
So I would say that we're in Canada in terms of build rooms kind of flat with some modest upside.
In Australia with the with the exception of projects, we've got some upside there.
The team has done a good job on the integrated services side in Australia of winning new work.
And so we're cautiously optimistic that will continue but again, that's lower margin business. It is good work, we want to win it.
And.
It should add to.
It should add to the results.
Right, great. Thanks, and if I can get one more in terms of capital allocation, obviously, you've done a fantastic job with the balance sheet.
You're still generating an awful lot of cash flow good problem to have Youre limited on the normal course issuer bid I'm not an expert on Canadian Securities rules, but I mean, you can couple in a substantial issuer bid is that correct. If you wanted to particularly with the share conversion coming or what other possible uses for cash flow.
Are you thinking about next year.
So on capital allocation, we've gotten to a point around one times Levered, that's where we want to be.
I think that gives us the flexibility that when they're parallel opportunities to either opportunistically buy back stock we will.
We're gonna be smart about it.
And then in ways those returns expected returns against the growth projects that we have.
And to your point we're into.
A relatively strong.
<unk> environment.
Should that continue it will present opportunities.
We'll be very.
Uh huh.
Smart in terms of how we look at growth opportunities and weigh those against buying back stock.
And so that with the one times lever, we can lever up a little bit for either one of those two.
Opportunities and then the shift will be back to paying down that debt. So that's the plan going forward.
Okay.
Thanks Bradley appreciate the time.
Thank you.
Okay.
Next question comes from John Danielle with Daniel and Maggie Partners. Please go ahead.
Good morning, Rodney and Reagan. Thank you for taking the call.
Bradley I got it right.
V. A dumb question and you guys can laugh at me after I hang up.
And hopefully you guys can you hear me okay.
Yeah.
Okay. Good I'm driving here and so you know I I drive a lot around the various basins and you know back in the day you know go back to call. It 2011 2012 or whatever.
You couldn't find rooms in the Bakken people sleep in Walmart you go up there today no trouble finding a room.
M S.
And you know a lot of the places you end up staying or kind of dumpy at least where I stayed perhaps but it would seem like are there opportunities for opportunistic purchases of some of these places.
It might be hotels that you could renovate in and it's a growth opportunity where maybe someone's.
Built something up in the Hot times, it's not faded and so perhaps a better valuation could be had.
Oh, just dumb question, perhaps but I'm curious your thoughts.
Well I would say our watch business in the U S.
Our COO.
Couple of issues.
One.
Others have built out and gotten scale, which has really been our issue in the U S from.
For a while.
Yeah, when things were better a decade ago, we were focused on expanding our Canadian and Australia business and the returns were better there.
Meantime, we missed out on the U S opportunities and so we were left with a portfolio of large locations that are it's tougher to compete against folks to have a better portfolio and can meet customer needs across the basin.
As as the activity shifts as you well know.
Alright so.
So difficult for us in the U S to augment that because where we're behind the April .
So I would say our activity our occupancy.
Specifically in the Bakken is has improved we're running better than budget.
And again our larger.
Occupancy there is driven by our completion crews.
So we've got a handful of groups and are killed your location and it's doing better than expected, but we just don't have the scale there.
And.
Thanks.
The returns opportunities elsewhere, we will continue to be better than us.
Looking to build that up.
Fair enough well, if you've got something really nice I'd be happy to stay there good job on that.
It'll be our first yes.
Well, there's one particular nasty one in downtown Midland I'd like someone to fix but maybe that's for a later date alright, well, that's all I got I am sorry for the dumb question, but.
Just curious I know, it's a good question no I appreciate it.
Okay guys. Thank you very much.
Okay.
There are no further questions at this time I would like to turn the floor back over to Bradley Dodson CEO for closing remarks.
Thank you.
And thank you everyone for joining the call today. We appreciate your interest in <unk> and we look forward to speaking with you on it.
Fourth quarter earnings call in February .
Okay.
This concludes today's teleconference. You may disconnect your lines.
Thank you for your participation.
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