Q2 2023 Civeo Corporation Earnings Call
[music].
Greetings and welcome to the severe Corporation second quarter 2023 earnings call.
At this time, all participants are in listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll now turn the conference over to Reagan Nelson, Vice President corporate development and Investor Relations you may begin.
Thank you and welcome to city in the second quarter 2023 earnings Conference call.
Today, our call will be led by Bradley Dodson City, as 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 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 Brad.
Thank you Reagan and thank you all for joining us today on our second quarter earnings call.
I'll start with the key takeaways for the second quarter, and then give a brief summary of our second quarter of 2023 performance.
And Carolyn will provide financial and segment level review.
And I'll conclude with our updated full year 2023 guidance.
The retool assumptions that underlie that.
At that point, we will open up the call for questions.
The key takeaways from our call today are set.
Second quarter 2023 financial results were in line with our expectations and highlighted the diversity of our revenue drivers across the business.
Our Australian segment performed well during the quarter as we experienced substantial sequential and year over year growth in both our own diligence business as well as the integrated services business.
George guests were up 16% year over year.
Integrated services revenues were up 33%.
And both your own villages and integrated services businesses.
We are seeing the benefits of the contract awards that we have announced over the past 12 months.
It's important to note that during the quarter, we achieved the highest quarterly Australian village occupancy that we've seen since 2014.
Led by increased Bowen basin customer activity with.
The gun to the basin villages contributing as well.
LNG activity in British Columbia, Canada continued to wind down in the quarter as expected, resulting in reduced Canadian mobile camp activity for us and contributing to more lower <unk>.
Ladies and launch billed rooms versus the second quarter of 2022.
As discussed on the last earnings conference call, our inflation mitigation plan for Australian integrated services is underway and we are encouraged by the progress to date.
The majority of these benefits.
From our team's efforts are expected to be seen in the second half of 2023 and going forward.
Our second priority was regarding the Mcclelland Lake Lodge in Canada.
Made significant progress towards an attractive commercial alternatives for the future of that asset as we are in active negotiations to sell the assets to a third party.
We are encouraged by our progress to date, we cannot discuss the details of the proposed deal at this time.
In addition, the demobilization process for Mcclelland Lake is underway.
The related customer room demand from that former watch has moved to other city of lodges and is under a take or pay contract through January 2024.
Through our team's efforts, we expect our net demobilization costs for the assets to be minimal in part due to reimbursements from our client.
The outlook for our Canadian mobile camp has not changed materially since our last call.
As discussed last quarter, we expect the demobilization has commenced in the second half of this year.
We continue to execute on it we continue to execute on our share repurchase program in the second quarter and well Opportunistically buy back shares going forward.
And lastly on key points as we discussed in previous calls.
We are in the process of formulating and capital allocation framework that incorporates our strong balance sheet position and our solid free cash flow outlook. We look forward to sharing with you hopefully later this year.
Okay.
Let me take a brief moment to variety of business update across the segments.
In Canada, our revenues and adjusted EBITDA declined year over year decrease was driven by the wind down a penny mobile camp activity as well as lower year over year Canadian Lodge billed rooms.
The decline was also exacerbated by the weakened Canadian dollar relative to the U S dollar.
Sequentially, However, revenue and adjusted EBITDA increased substantially due to seasonal increase in turnaround activity.
Yeah.
For Australia, we saw significant year over year increase in revenues and adjusted EBITDA driven by increased billed rooms at our own villages.
And increased <unk>.
Great service revenue from both of which were largely from new contracts.
As I noted earlier, we are encouraged by the substantial increase in customer activity.
Bolted and highest quarterly.
<unk> occupancy that we've recorded since 2014.
We also reached key milestones in our inflation mitigation initiatives towards the end of the quarter.
And like I said, we'll begin to realize those benefits in the second half of this year.
Second quarter results were adversely impacted by the weakened Australian dollar relative to the U S dollar.
Sequentially, we experienced increased revenues and adjusted EBITDA to the afore mentioned dynamics as well as the typical seasonal uptick in the second quarter.
Across the Australian business and some inflationary relief in our integrated services business.
It is important to note.
Yeah, well, we've made strides in mitigating inflation inflationary pressures in both our Canadian and Australian businesses.
We expect that inflation will remain a focus of ours for the foreseeable future.
With that I'll turn the call over to Kevin.
Thank you Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the second quarter of $178 $8 million with GAAP net income of $4 5 million or 30 cents per diluted share.
During the second quarter, we generated adjusted EBITDA of $31 $6 million operating cash flow at $19.4 million and free cash flow of $12 $9 million.
Bradley just mentioned the decline in adjusted EBITDA that we experienced in the second quarter of 2023 as compared to the same period in 2022 was largely due to the wind down of Canadian pipeline construction activity.
And therefore, our mobile camp revenues and EBITDA.
And lower LNG related Canadian Lodge occupancy.
These decreases were partially offset by increased billed rooms in our Australian Bowen basin.
And increased Australia, and integrated services activity from our recent contract wins.
Let's now turn to the second quarter results for our key segments I'll begin with a review of the Canadian segment performance compared to its performance a year ago in the second quarter of 2022.
Revenues from our Canadian segment were $95 $5 million as compared to revenues of $109 million in the second quarter of 2022.
Adjusted EBITDA in Canada was $19 $8 million, a decrease from $28 $7 million in the second quarter of last year.
Results from the second quarter of 2023 reflect the impact of a weakened Canadian dollar relative to the U S dollar.
Which decreased revenues and adjusted EBITDA by $5 1 million and $1 1 million respectively.
On a constant currency basis revenues decreased 8%.
Due to a decline in mobile camp activity as pipeline construction continues to wind down.
Coupled with lower Beltran runs in our Canadian lodges.
Adjusted EBITDA also declined year over year due to the aforementioned dynamics.
During the second quarter billed rooms in our Canadian lodges totaled 724000, which was down from 771000 in the second quarter of 2022.
Our daily room rate for the Canadian segment in U S dollars was $100.
Which declined year over year, but that was entirely due to a weakened Canadian dollar relative to U S. Dollar.
The average daily room rate in Canadian dollars went up year over year.
Turning to Australia during the second quarter, we recorded revenues of $82 $5 million up from $67 $8 million in the second quarter of 2022.
Adjusted EBITDA was $19 $6 million up from $15.5 million last year.
Results from the second quarter of 2023 reflects the impact of a weakened Australian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA by $5 7 million and $1 3 million respectively.
On a constant currency basis, the increase in revenue and adjusted EBITDA was largely driven by increased occupancy at our own villages and higher activity for our integrated services business.
It's related to the new contract.
Okay.
Australia and billed rooms in the quarter were at 588000 up 16% from 505000 in the second quarter of 2022.
Due to increased customer demand at our own villages driven by our recent contract awards.
The average daily rate for Australian villages in U S dollars was $75 in the second quarter down modestly from $77 in the second quarter of 2022 and entirely driven by the weakened Australian dollar.
The average daily room rate in Australian dollars was up year over year.
On a consolidated basis capital expenditures for the second quarter of 2023 were $6 $9 million compared to $5 $1 million during the same period in 2022.
Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages coupled with spending to activate mothballed Australian village runs with increased customer demand.
Our total debt outstanding on June 30th was $136 $1 million.
$6 5 million dollar decrease since March 31st.
Our net leverage ratio for the quarter remained flat at 1.2 times as of June 30th 2023.
Since March 31st 2023.
As of June 30th 2023, we had total liquidity of approximately $89 million.
Insisting of $77 6 million available under our revolving credit facility.
And $11 4 million of cash on hand.
In the second quarter of 2023, we repurchased approximately 212000 shares through our share repurchase program for a total cost of approximately $4 2 million.
Bradley will now discuss our updated guidance for the full year 2023 badly.
Thank you Carolyn.
Turning to a discussion of our updated full year 2023 guidance on a consolidated basis, including the outlook for each of the regions as well as the underlying assumptions related to our guidance.
We are increasing the lower end of our full year 2023 revenue and EBITDA guidance range. It was all being tightened ranges of 640 million to $650 million for revenues and $90 million to $95 million for adjusted EBITDA.
We are decreasing our full year 2023, capex, it's been Capex, our capital expenditure guidance to $35 million to $40 million.
Decrease from our prior guidance is entirely driven by scope changes by.
By a customer funded infrastructure project in Australia.
The requested scope was adjusted downward in a portion of that spend will be deferred into 2024.
<unk> reduced the overall capital expenditure outlook for this year.
As a reminder, these upgrades will be fully funded by the customer upfront, therefore, any increased or decreased or our capital expenditure guidance is related to the project will be cash flow neutral.
Really at this point the decrease in 'twenty 'twenty, we'd expect expected capital expenditures relative to previous guidance will not impact 2023 free cash flow guidance.
Based on this EBITDA and Capex guidance.
Expected interest expense of $12 million for 2023.
Working capital inflow of $10 million related to that customer reimbursement.
And minimal cash taxes, we are adjusting our expected 2023 free cash flow to a range of $48 million to $58 million.
I will now provide the regional outlooks in corresponding underlying assumptions.
In Canada as we look at the remainder of 2023, we are expecting to experience sequential decline in Canadian mobile camp activity.
Large turnaround activity in the third quarter of this year.
As it relates to the expiry of the Mcclelland Lake Lodge contract and the underlying customer demand for that large.
We are raising.
The lower end of our guidance range due in part to securing a take or pay contract for the customer's room demand at other severe losses for the remainder of the year.
As I mentioned earlier on the call. We are in active negotiations to sell the assets to a third party later this year.
We expect our net demobilization cost to be minimal in part.
Due to reimbursements from our client.
We are encouraged by the progress to date and expect this to be a positive outcome Presidio.
In the interest of protecting ongoing negotiations we cannot yet provide any further details.
Regarding the Canadian mobile camps.
There are no material changes in our outlook for these assets since our first quarter earnings call.
We continue to expect the camps to wind down in the second half of this year as pipeline construction is completed.
With approximately $10 million U S of demobilization expense this year and $6 million U S D notebooks.
Mobilization expenses next year.
Turning to Australia, we continue to see encouraging signs of growth in customer demand for our own villages and integrated services businesses.
And our own villages, we expense experienced an uplift in customer activity as evidenced by the 16% year over year increase in billed rooms in the second quarter.
Our integrated services business is benefiting from increased revenue from our recent contract awards over the last few quarters.
The inflation mitigation plan.
We are focused on.
As a reminder, we've been attacking inflationary pressures through a three pronged approach.
Of HR recruitment optimization supply chain efforts and scope work scope adjustments.
And seeking contractual adjustments to provide relief and flexibility in this environment.
The team made substantial progress with this approach.
And we expect to realize the majority of these benefits from the mitigation plan in the second half of this year and beyond.
We expect to generate margin improvement throughout the second half of 2023 in Australia and our progress to date is another key factor for increasing the lower end of our full year 2023 revenue and adjusted EBITDA guidance.
Okay.
As we look at our.
Our free cash flow outlook for 2023 and beyond St. James We continue to evaluate our capital allocation framework. We're in final stages of this process. We look forward to discussing that with you later this year.
Yeah.
I will conclude by underscoring the key elements of our strategy as we navigate 2023.
Continue to prioritize the safety and wellbeing of our guests employees and communities.
We continue to enhance our best in class hospitality offerings.
Manage our cost structure in accordance with the occupancy outlook.
Prudently allocate capital to maximize free cash flow generation, while we continue to return capital to shareholders and maintain a strong balance sheet.
We also see.
Opportunities to further our revenue diversification.
With that we're happy to take your questions.
Thank you well now be conducting a question and answer session.
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One moment, please while we poll for questions. Thank you.
Yeah.
Thank you and our first question today comes from the line of Steven <unk> with Stifel. Please proceed with your questions.
Thanks, Good morning, everybody.
Good morning.
I think maybe the first maybe the first one.
When you when you you mentioned the Mcclelland Lake asset fees.
When you think about <unk>.
Capital allocation.
Bob.
Or in the comments you made a capital allocation where would they be the same if there was any kind of lump sum if you sold those assets.
Yes.
Okay.
One when we look at your historical seasonal patterns in it.
For the business in general.
Maybe maybe geographically, we can talk about them a little bit separately, but you clearly generate the bulk of the EBITDA in the second and third quarters of the year I think the numbers, Jeff I think it's about 60 ish maybe 65%.
Is that pattern similar to this year, where given the comments you made about.
Australia margins progressing throughout the year.
Right.
Sure Chris.
Could it be a bit different.
I think it will stay the same.
And to put a little more meat on the bone.
We did see an uptick I'll start with Canada, we did see an uptick in turnaround activity sequentially.
And it but it was slightly up year over year, but it did not meet our expectations coming in there are anecdotal points that our customers as we won't surprise you that everyones, having trouble finding labor and that's that impacted some of the turnaround activity here in the second quarter.
But you're exactly right 60, 65% of the EBITDA comes out of Q2 and Q3 every year. This year it doesn't appear to be different.
There are some pluses and minuses, but that that should be the same.
We will see the wind down of the mobile camps, but we'll see an uptick as we mentioned in some of the margins and in Australia, So some pluses and minuses, but at a historical average will remain the same.
Thanks, and just just correct me if I missed the comment you made about <unk> margins improving throughout the year.
Seasonally adjusted common right I mean, the fourth quarter margins still probably in the third okay.
Okay, just wanted to make sure that that's correct.
That's a very good point, Steve is that that's right.
We will certainly see a R.
We expect to see a material improvement in the integrated services margin in the second half.
Percentage percentage.
And.
We are you know we are see Cbf's again.
Our strong occupancy our own villages in Australia.
You know the market is really starting to tighten up particularly in the Bowen basin, Although we're seeing some uplift in the gun to.
Percentage wise is going to agree with the most sequentially, but the Boeing basin is significantly larger so.
In terms of our total number of rooms.
The but Australia is looking good I think we're.
In both markets and if you look at.
The local currency.
<unk> daily rate, so how much we get paid per person per day versus the average daily cost.
Generally pricing has is not <unk>.
That.
Second quarter, it got very close and so we are seeing some covering of the inflation.
The teams are making very good progress on that and I just wanted to as I mentioned at the end of my first mine.
After he comments.
That inflation isn't going away.
So theres still work to do there, but we're making making good progress.
Great and then just one more for me.
I wanted to clarify you talked about you said $6 million of demobilization costs in 2024 around coastal gasoline I missed the 2023 number I'm just curious if theres.
If there's been any opportunities for those assets that you've been looking at.
So the number for 2023 is $10 million U S.
And we are pursuing opportunities for those assets some of which.
Maybe carry on work not related to the initial construction of of said pipelines, but may follow on work and.
I wont say there is an abundance.
Of our other opportunities, but there are other opportunities.
Okay, great. Thanks for the details.
Okay.
Our next question is from the line of Steve <unk> with Sidoti and company. Please proceed with your question.
Good morning Bradley Caroline.
Just some follow up on you in Australia and margins question.
How much pricing power are you starting to see there and how much can margins be extracted by timing of contract rollovers.
Let me address the first part I would say that we're seeing.
Average daily rates.
For Australia.
That's some of the well I've been working with the business for over 10 years. Now this is the highest rate that I've seen.
We're running a 101 hundred 80 to $109 Australia Tonight.
Towards the village and then what we're seeing which will put somewhat I mean, we'll mitigate that but it's a good thing.
Is that customers are beginning to be worried about availability of rooms in our sky suites.
Specifically in the Bowen basin.
And.
They are willing to lock up on a take or pay basis, even small increments.
Incremented, our peaking needs for turnarounds and maintenance work.
Typically.
Did that if they offer a take or pay that we won't get top.
Top line pricing, but it's good pricing.
Where we're seeing some of the incremental is always on the casual rooms, where.
It's a bit of a customer we will commit to.
A multi month or month multiyear contract casual rates and those typically tend to be much higher than than the blended rate.
Okay.
Okay.
And then on contract rollover first and how that can affect <unk>.
Top line profitably.
We locked in.
A big chunk of our Bowen basin rooms in the last six months on a five year basis with specific and specifically thinking about to clients.
And so yeah I don't have the specific number in front of me, but I can.
And think of only one 400 room contract that will rollover mid year next year in the Bowen basin that we need to work on them.
There's certainly odds and ends in between that but there's a big chunk of rooms order of magnitude I think is about 3000.
Of the 6000 that are occupied today.
That are locked up for five years.
Right Okay.
Yeah.
And then the other side of that which has been the labor costs. So you've talked last quarter and you mentioned it.
Wider recruitment efforts I know the difficulties in pieces in and getting it to Australia can you talk about the progress there.
Are you finding any more successful so challenging.
I would say were.
Trending in the same direction, but I would not say that.
Move materially yet.
We still have a fair amount of vacancies, we're still struggling with temporary labor as we've mentioned in the past.
It costs more its less productive.
It's less safe.
And it also that also puts pressure on the on a full time staff.
Because they end up having to pick up the slack so.
The team is acutely focused on it I think we're putting the right people in place to manage that.
But where I'd say, we're pretty much in the same spot we were at the end of the first quarter.
And so we'll lap it will have to do.
Continue to improve that.
I'm cautiously optimistic we'll get some.
Contract relief as it relates to labor.
On some of that that will will help mitigate it.
Perfect. Thanks, and then if you could provide a little bit more color on how turnaround activities playing out this year versus last year in Canada, because when you look at your billed rooms, and obviously that includes say Scott so it kind of hides what <unk>.
All trends.
Can you give us any kind of a projection.
A clear Samson.
Even if it's not a hard number.
Turnaround versus last year in terms of rooms.
Yeah, I mean, we had a we came in thinking we're gonna be.
10% to 15%.
Turnaround activity 23 versus <unk> 22.
So I believe I believe we're going to be up but more in the 5% to 7% range. So about half of what we were expecting.
Wow, Okay, and you think thats labor costs no issues with wildfires.
Well.
And our safety team stays on it almost 24 Saturn none of our assets, thus far have been well this quarter.
<unk> had been at risk.
Or.
What has been at risk of supply chain and communications and so we have been watching that closely we've been working with the local municipalities and our clients to make sure that if there are evacuees that we can help where where needed.
And so but actual buyers endangering our asset not since we had a 48 hour evacuation of our customer asset that we were on <unk>.
Back in April April May.
But we haven't had anything that.
That series since then knock on wood.
But you don't think got affected customers' decisions on whether to do so so I'm sorry, no I don't think that I don't think that impacted it's more.
Well, we have one customer that's off very cost focused right now.
That's impacting their spending.
Another major customer I believe it was availability.
Okay.
Okay.
Thanks, Brian .
Thank you.
Thank you.
As a reminder to ask a question today you May press star one from your telephone keypad.
The next question is from the line of Dave storms with Stonegate. Please proceed with your questions.
Good morning.
Hey, guys how are you.
Oh, God I hope you're doing well.
Just wanted to start with the clients that's adjusting their scope.
Wondering if you could touch on kind of what drove them.
Tesco from reduced their capex is that something that's Linda.
An indicator of macro demand or is that more customer specific.
Okay that is specifically related to the village security improvements that we're doing down in Australia are these were done at the request of the customer.
As they tried to bring the rooms that we own and run.
In line with the security enhancements and they've done it their own the villages that their own villages.
And they decided to change the scope on that.
<unk>.
I guess because of the way the cost came in to be honest.
But the whole thing is fully funded by them.
Got it got it I just want to make sure that wasn't yeah, yeah, no it's not.
No that was not it's not a read through to macro.
Perfect perfect.
And then I know, we've kind of touched on it already but just if you could talk a little more about the.
The rates coming up you know Bose seasonally sequentially and on a call.
Constant currency basis is there anything specific that's driving.
The average daily rates in both.
Canada, and Australia markets other than just like the tightening in the Bowen basin.
Clearly the tightening in the Bowen basin for there is the most significant factor.
Also CPI.
And then CPI adjustments related that that's part of what's covering the inflation.
Perfect.
The base rates base rates are kind of flat.
Yeah before CPI adjustments.
Understood I appreciate that and then just one more if I could on the M&A and acquisition front are you seeing anything.
In either of the markets I guess more specifically the Australian markets.
Starting to soften.
Any movement there.
No.
We're looking at in Australia, more one off asset opportunities and given the activity levels that it is not softening.
So we'll have to see how that plays out.
We continue to pursue it.
See if.
We can reach a reasonable transaction.
In Canada, I would say that we're starting to see some asset transactions available.
But nothing significant.
As you know potentially near term is what's in Australia.
Very helpful. Thank you for taking my question.
Oh absolutely.
Our next.
<unk> is from the line of Stephen <unk> with Stifel. Please proceed with your question.
Okay.
Hi, Thanks for taking the follow up.
Just one more for me.
Would you be willing to give us a stab at what 2024 it looks like.
I know it's early.
Uh Huh, it's too early we've got a lot of moving parts and.
Our teams have not put pen to paper, yet and so I know it's important certainly as soon as as you know as soon as we have some clarity on outlook, we try to be as transparent as possible, but it's too early at this point.
Yes, I understand I figured I would try.
Uh huh.
And I will ask I will ask one more since you said I'm.
In queue here.
You you've done this normal issuer bid up in Canada for the last I guess, you've been through now youre in the midst of your second round.
Is that one of the capital allocation things that youre alluding to or is it something that you potentially could could moves to an extraordinary issuer bid at some point.
At this point.
We think it's an important part of the capital allocation, we've been doing it for two years now.
And it'll come up in September or late August September for renewal subject to board approval and so I would say unless there's something that changes we would renew.
Okay, great. Thank you.
Yeah.
Thank you at this time, we've reached the end of the question and answer session and I'll turn the call over to Bradley Dodson for closing remarks.
Thank you.
Thank you everyone for joining the call today. We appreciate your interest in severe we look forward to speaking to you on the third quarter earnings call expected in October .
This will conclude today's call you may disconnect. Your lines at this time and thank you for your participation.
Okay.
Okay.