Q3 2023 Civeo Corp Earnings Call
Greetings and welcome to City O Corporation third quarter 2023 earnings Conference call.
This time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
One should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce Reagan Nielsen Vice President corporate development and Investor Relations. Thank you you may begin.
Thank you and welcome to <unk> third quarter 2023 earnings Conference call.
Today, our call will be led by Bradley Dodson, <unk>, President and Chief Executive Officer, and Carolyn Stone.
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 now I'll turn the call over to Bradley.
Yeah.
Thank you Reagan and thank you all for joining us today on our third quarter earnings call.
I'll start with the key takeaways from the third quarter, and then give a brief summary of our third quarter 2023 performance. Thanks.
Carolyn will provide financial and segment level review and I'll.
I'll conclude with our updated full year 2023 guidance with its underlying assumptions.
And I'll also provide a preliminary outlook for 2024.
Then we'll open up the call for questions.
Four key takeaways from our call today, our third quarter 2023 financial results exceeded our expectations with strong operational execution.
Canada and Australia.
Dahlia, demonstrating strong year over year growth.
During the quarter, we secured an economically attractive solution for our Mcclelland Lake.
Assets, which we are optimistic will also lead to additional opportunities.
We announced our capital allocation framework, including initiating a <unk> 25 per share quarterly dividend provide a consistent form of capital return to our shareholders and we renewed our share buyback program.
The last key point is we will provide a qualitative.
None of our initial outlook for 2020.
Yeah.
Let me now take a moment to discuss the third quarter in our segments.
Our revenue in the third quarter reflected a diverse customer base from traditional oil and gas production LNG project construction of wildfire response in Canada to met coal and iron ore protection algebra.
Our Australian segment performed exceptionally well during the quarter as we experienced sequential and year over year growth.
Our diligence business and our integrated services business.
During the quarter, we experienced a sequential increase in Australian village occupancy setting a second consecutive quarterly record for Australia and build rates on a constant currency basis yesterday in village revenues were up 25% year over year led by increased occupancy.
Bowen basin, and kind of debates and villages.
Assuming a constant currency revenue from our Australia and integrated services business grew both sequentially, 12% and year over year to 23% as recent contract awards again June contribute.
During the quarter. We also saw tangible results from our inflation mitigation plan for the integrated services business.
We should see the benefit from our team's efforts more fully in the fourth quarter of this year and into next year.
However, it is important to note that while we've made strides in mitigating inflationary pressures in both our Canadian and Australian businesses, we expect inflation to remain a focus of ours for the foreseeable future.
Okay.
Our Canadian segment delivered strong quarterly results in the third quarter from turnaround and wildfire activity.
This was partially offset by lower LNG related activity in British Columbia, Canada as pipeline construction activity continues to wind down.
Resulting in reduced Canadian mobile camp activity for us compared to the third quarter of 2022.
We also began demobilizing our mobile camps in the third quarter in this third quarter of 2023.
Regarding the sale of arm upon Lake Lodge in Canada. We have secured in addition to the sale of the transportation contracts for the assets and the depot demobilization and transportation work is underway.
During the third quarter of 2023, we incurred approximately $4 9 million of demobilization expense related to the Mcclelland Lake Lodge assets.
The majority of the net proceeds from quality sale will be recognized in the fourth quarter of 2023 and into the first quarter of 2024.
In regards to the financial impact of this sale the entirety of the sales proceeds and associated costs will be accounted for in the other income line item on the income statement and they are excluded from our adjusted EBITDA calculation.
As a result, this transaction does not impact our full year 2023, adjusted EBITDA guidance.
Lastly.
We announced our new capital allocation framework simultaneously with the initiation of a 25 cent per share quarterly dividend policy.
This provides flexibility to use our strong cash flow generation for our existing operations.
Growth opportunities and returning capital to shareholders.
We also continue to execute on our share repurchase plan in the third quarter, and we will opportunistically buyback shares netting forward.
With that I'll turn the call over to Carolyn.
Bradley and thank you all for joining us this morning.
Today, we reported total revenues in the third quarter and $183 $6 million.
GAAP net income of 9 million or 61 per diluted share.
During the third quarter, we generated adjusted EBITDA of $17.
Alright and cash flow.
Thanks.
And free cash flow of 31 seven.
As Bradley mentioned earlier the decline in adjusted EBITDA, we experienced in the third quarter of 2023.
And to the same period of 2019.
Largely due to the wind down Canadian pipeline construction activity and.
And therefore, our novel camp revenues and EBITDA.
This decrease was partially offset by increased L brands.
Foundation Nowadays.
And the increased Australian integrated services activity due to our recent contract win.
Let's now turn to the third quarter results for our key segments.
Again, let me hear if you had the Canadian segment.
Compared to its performance a year ago third quarter of 2020.
Revenues from our Canadian segment were $95 1 million as compared to revenues at $103 million in third quarter of 2020.
Adjusted EBITDA in Canada was 23, nine a decrease from $25 6 million.
Third quarter of last year.
Okay.
From the third quarter of 2023 reflects the impact of a weaker Canadian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA at $2 6 million and $7 million respectively.
On a constant currency basis, Ratine decreased 5%, primarily DHA declining mobile camp activity as pipeline construction continues to wind down.
Adjusted EBITDA also declined year over year ghd formats.
During the third quarter billed rooms in our Canadian lodges totaled 726000, which was modestly down from 731000 in the third quarter.
<unk> 2020.
Our daily room rate for the Canadian segment in U S dollars was $98, which declined slightly year over year entirely due to the weakened Canadian dollar balances.
Sure.
The average rate in Canadian Opex was up slightly year over year.
Turning to Australia during the third quarter, we reported revenues of $87 9 million up from.
From $73 8 million in the third quarter of last year.
Adjusted EBITDA was $18 8 million.
1% or $16 9 million in 2022.
Results from the third quarter of 2023 reflects the impact of weakened Australian dollar relative to the U S dollar, which decreased revenues and adjusted EBITDA by $3 8 million in Europe was $8 million respectively.
On a constant currency basis, the increase in revenue and adjusted EBITDA was largely driven by increased occupancy in our Alf.
As well as higher activity for our integrated services business related to new contracts.
Australia and billed rooms in the quarter were 623000 up 19% from 525000 in the third quarter of 2020.
Due to the increased customer demand in our end.
Driven by our recent contract awards.
The average daily rate for Australian and.
In U S dollar was $74 quarter up modestly 73 in the third quarter last year.
The increase was moderated by the weakened Australian dollar the average daily rate in Australian dollars was up 6% year every year.
On a consolidated basis capital expenditures for the third quarter of this year were $9 5 million compared to $8 8 million during the same period of 2020.
Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages coupled with spending to activate Moscow Australian village.
With increased customer demand.
Additionally, the third quarter of 2023 also included $3 $6 million in expenditures for the Australian customer funded infrastructure upgrades that we've discussed on prior quarter conference call.
Our total debt outstanding on September 30th was $103 2 million.
A $32 9 million decrease since June 30th.
Our net leverage ratio for the quarter also decreased the DRAM nine times as of September 30 from one two times as of June 30.
And as of September 30, we had total liquidity of approximately $110 $6 million, consisting of $114 8 million available under our revolving credit facility and $7 8 million of cash.
I'd like to turn now to capital allocation.
In the third quarter of 2023, we repurchased approximately 62000 shares through our share repurchase program for approximately $1 3 million.
And in September we announced our new capital allocation framework, which included the initiation of <unk> 25 per share quarterly dividend.
After paying our first dividend in late September. This morning, we announced that our board of directors just declared our second quarterly dividend payment shareholders of record as of November 27, we will receive a 25 cent per share cash dividend payable on December <unk>.
Our new capital allocation framework allows our strong cash flow generation to support our existing operations.
Return capital to our shareholders pay consistent dividends and opportunistic share repurchases.
Use excess cash flow to find growth opportunities.
And maintain our target leverage ratio at one times to 125 times through the cycle we.
We do believe that its prudent however should provide flexibility to increase our leverage ratio at two two times.
And accretive growth opportunities where appropriate.
With that I'll turn it over to Bradley to discuss our updated guidance for the full year 2023.
Thank you Carolyn.
I'd like to turn our discussion to our updated full year 2023 guidance.
On consolidated basis.
Our outlook for each of the regions.
We are increasing our full year 2023 revenue and adjusted EBITDA guidance ranges, resulting in the ranges.
675 to 885.
$635 million to $685 million for revenues and $95 million to $100 million for adjusted EBITDA.
We are maintaining our full year 2023 capital expenditure guidance.
<unk> $35 million to $40 million.
Based on this EBITDA and Capex guidance expected net cash.
Cash proceeds from.
We call them like demobilization and sale of those assets and approximately $20 million.
Expected cash interest expense of $12 million for 2023.
And expected working capital inflows of $5 million.
Largely related to customer reimbursements of capital.
Associated with village upgrades.
Limited cash taxes, we are adjusting our expected 2023 free cash flow range to 68 million to $78 million.
For the full year.
I'll now turn to regional outlooks and the underlying assumptions.
In Canada as we look into the fourth quarter of 2023, we're expecting to experience a sequential decline in Canadian mobile camp activity coastal gasoline pipeline continuing to wind down.
With the typical fourth quarter sequential decline in March billed rooms, due to the end of turnarounds Houston and normal holiday downtime at the end of the year.
So already today in mobile camps, there are no material changes in our outlook. The camps began winding down in the third quarter and the fourth quarter will be burdened with approximately $10 million U S of demobilization expense.
We continue to expect approximately $6 million U S. D mobilization expenses in 2024 related to the mobile games.
In regards to the Mcclelland Lake Lodge sale, we expect to receive the majority of the net proceeds currently estimated to be $20 million in the fourth quarter of 2023 with the remainder.
Of the net proceeds in early 2024.
We are pleased to announce that we have secured the transportation contracts associated with the sale and demobilization and transportation of these assets is underway.
We are actively pursuing other opportunities associated with the sale, we will update you as we know.
Turning to Australia, we continue to see encouraging signs of growth in customer demand for both our own villages and our integrated services business.
Our integrated services business is benefiting from increased revenue from our recent contract wins over the last few quarters.
And our efforts in the inflation mitigation plan.
Christoph.
We began to see the benefits of our inflation mitigation efforts in the third quarter and expect to see additional benefits in the fourth quarter and into 2024.
As it relates to our 2024 outlet I'll provide a few preliminary comments.
As we've discussed throughout the year 2024 is expected to be a transitional year for our Canadian business, resulting in a year over year decline in EBITDA.
With the sale of the Mcclelland Lake Lodge in the wind down.
Mobile camp activity.
Purely focused on replacing these earnings and growing.
The company.
While we continue to monitor market dynamics as we work through our 2020 for budget process.
And we will provide a more detailed outlook on our 2023 year end conference call in February.
We are gaining more optimism around the ability to offset a material portion of this decline.
I'd like to touch on a few of these opportunities and positive trends that we're seeing.
In Canada, we are pleased with the outcome of the Mcclelland Lake Lodge sale and securing the transportation contracts for those assets.
I have to actively pursuing additional opportunities related to this transaction.
In 2020.
While we will lose the billed rooms from our former Mcclelland Lake Lodge customer the remainder of our oil sands portfolio remains solid and we should see improved performance from our large portfolio.
In Australia, we are encouraged by the outlook for both our own villages and integrated services business.
Our own villages are currently at record high occupancy and we're expecting higher billed rooms in 2024.
Our integrated services business should continue to benefit from the inflation mitigation plan and the margin improvement experienced in the second half of this year and we expect it to also grow top line in 2020.
Regarding free cash flow, while we are currently anticipating a decline in EBITDA in 2024, we should see relatively consistent free cash flow and the wind down mode camp activity, resulting in significant associated receivables, we expect to be collected in the first half of 2024.
I will conclude by underscoring the key elements of our strategy.
We will prioritize the safety and wellbeing of our guests employees and communities.
We will continue to enhance our best in class hospitality offerings.
We will continue to manage our cost structure in accordance with our occupancy outlook.
And we will allocate capital prudently maximize free cash flow generation, while we continue to return capital to shareholders and focus on growth opportunities.
With that we're happy to take your questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate 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 key.
Our first question comes from the line of Steve <unk> with Sidoti. Please proceed with your question.
Good morning, Bradley Caroline Thanks for all the color on the call.
Just wanted to ask a couple of questions on Canada.
The Canadian accommodations margins.
Significantly improved interest if that was around Mcclellan and the sale or if there was anything significant costs, you're taking out or any margin improvement that's sustainable because it was much better.
I think it's a handful of claims we had strong occupancy in Canada in the third quarter.
Very strong turnaround activity.
What we call our core region of assets, which is the.
Good morning village Beaver Athabasca area. In addition, we had the occupancy there wasn't mcclelland move into the Beaver Athabasca. So improved occupancy gives us economy of scale and wherever able to leverage that there were also some efforts that have been put in place earlier in the year benefit.
In terms of labor costs.
And that really flown through the third quarter.
Operator: Greetings, and welcome to Civeo Corporation, 3rd quarter, 2023 Earnings Conference Call. At this time, all participants are in a listen-all remote. A question and answer session will follow the formal presentation.
With our first time to really see the benefits of that.
Additionally, we had.
Wildfire related response related occupancy at Sitka Enbridge.
Operator: If anyone's require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
In British Columbia that held during the quarter.
Those are the main components that helped.
Okay, how much of that do you think is sustainable the actions you've taken.
Regan Nielsen: It is now my pleasure to introduce Regan Nielsen, Vice President, Corporate Development and Investor Relations. Thank you, you may begin. Thank you, and welcome to Civeo's 3rd quarter, 2023 Earnings Conference Call.
Well certainly the labor efforts that we've put in place.
We will continue.
We won't have final there's seasonality to it.
Regan Nielsen: Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer and Carolyn Stone, Civeo's 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, 10K, 10Q and other SEC violins.
I know.
<unk>, yeah, but I think the efforts the team has made.
The last thing on the labor side in Canada.
On the cadence of that to wind down with mobile camps I was surprised that it didn't step down this quarter can you just help us out on.
You know one on timing when you think that the.
Wind down is complete.
It'll be fourth quarter.
It will still would you still go up but you were expecting some revenue remaining there.
Bradley Dodson: We'll now turn the call over to Bradley. Thank you, Regan, and thank you all for joining us today on our 3rd quarter Earnings call. I'll start with the key takeaways with 3rd quarter, and then give a brief summary of our 3rd quarter 2023 performance. Then, Carolyn will provide a financial and segment level review, and I'll conclude with our updated full-year 2023 guidance with its underlying assumptions, and I'll also provide a preliminary outlook for 2024.
We're not.
We will have some.
Bradley Dodson: Then we'll open up the call for questions. The four key takeaways from our call today are the 3rd quarter 2023 financial results exceeded our expectations for strong operational execution in those Canada and Australia, with Australia demonstrating strong year-over-year growth. During the quarter, we secured an economically attractive solution for our McLean Lake assets, which we are optimistic will also lead to additional opportunities. We announced our capital allocation framework, including initiating a 25 cent per share quarterly dividend to provide a consistent form of capital return to our shareholders, and we renewed our share buyback program.
Okay in terms of EBITDA contribution coupled with the mobile camp demobilization costs flow.
Through the fourth quarter.
So the revenues will.
No.
Step downward.
Okay fair enough.
<unk>.
On when you sold Mcclelland Lake you you highlighted the fact that you can use funding for for.
Gross and that's certainly not something you've.
There hasn't been a lot of growth efforts in the last few years.
Can you give us a little bit highlights on what your growth strategies might be particularly as you try to replace some of that mobile camp revenue.
Yes, so in Canada.
Looking at.
At this point into the Montney.
They're also going to be some opportunities to pick up selected properties in Canada that would augment the portfolio.
Those are the two main things we're looking at right now in addition to pursuing opportunities related to <unk>.
Okay.
And then last one from me your outlook on Australia, obviously significant gains we know that theres terracing fast niche by the mining industry in Australia, but what's your upside from here do you think you've seen the biggest gains I know you've had some big contracts.
Bradley Dodson: The last key point is that we'll provide a qualitative assessment of our initial outlook for 2024. Let me now take a moment to discuss the 3rd quarter and our segments. Our revenue in the 3rd quarter reflected in diverse customer base from traditional ongoing gas production, LNG, project construction, and wildfire response in Canada to met coal and iron ore production in Australia. Our Australian segment performed exceptionally well during the quarter as we experience sequential and year-over-year growth in both our own diligence business and our integrated services business.
Is there room for four occupancies to grow from here.
Going into 2024, we'll have the benefit of.
Full year of contracts, we signed this year that we mentioned on prior calls.
They're going to be some opportunities modest opportunities to add additional rooms or bring mothballed rooms online in Australia both.
Are those whether they're newbuild ramps or bringing on ballrooms those'll.
Bradley Dodson: During the quarter, we experienced a sequential increase in Australian own village occupancies, setting in a second consecutive quarterly record for Australian The Australian village revenues were a 25% year over year led by increased occupancy in both our Bowen Basin and Gunna Basin villages. Assuming the constant currency revenue from our Australian and Integrated Services business grew both sequentially 12% and year over year 23% as recent contract awards began to contribute. During the quarter we also saw tangible results from our inflation mitigation plan for the Integrated Services business.
Only move forward, if we have customer commitments that support.
We expect that.
So that's on the diligence side on the <unk>.
And services side, we will have the full year benefit of the contract wins that we've had this year and we see a portfolio of opportunities to continue to win additional work and grow that business.
It will also benefit from the full year.
Benefits of the inflation mitigation plan that we put in place so as the first half margins out of the integrated services business, we're not where we wanted them to.
We've got we had some benefit in the second quarter, we had some benefit.
Bradley Dodson: We should see the benefit from our team's efforts more fully in the fourth quarter of this year and into next year. However, it is important to note that while we've made strides in mitigating inflationary pressures in both our Canadian and Australian businesses, we expect inflation to remain a focus of ours for the foreseeable future. Our Canadian segments delivered strong quarterly results in the third quarter from turnaround and wildfire activity. This was partially offset by a lower LNG related activity in British Columbia Canada as pipeline construction activity continues to wind down as expected, resulting in reduced Canadian mobile camp activity for us compared to the third quarter of 2022.
From the mitigation plan in the third quarter really didn't see the full benefit of it on a clean basis.
Until September so fourth quarter will be one where we're expecting to see the true benefit.
Confirming that our efforts played out as we anticipated.
Perfect and if I could just get one last one in given the very healthy dividend, you've introduced and I know given the liquidity of the stock buyback is can be challenging does the dividend just to some degree replace the buyback or could you still be aggressive with the buyback.
Given that you have with the cash coming in from Mcclelland Lake.
Bradley Dodson: We also began demobilizing our mobile camps in this third quarter of 2023. Regarding the sale of our McCone Lake Lodge in Canada, we are secured in addition to the sale the transportation contract for the assets and the demobilization and transportation work is underway. During the third quarter of 2023, we incurred approximately 4.9 million of demobilization expense related to the McCone Lake Lodge asset. The majority of the net proceeds from the McClellan sale will be recognized in the fourth quarter of 2023 and into the first quarter of 2024.
Leverage is probably going to bump against the low range for your target already.
That's correct in there.
In terms of timing of redeploying it for growth opportunities it may bump down lower in the fourth quarter as well.
But.
Expect that we'll have some opportunities to put capital work in 2024.
We will fund with cash.
Cash flow and leverage.
Alright, Thanks Robert.
Our next question comes from the line of Alec Shaiva Haufer with Stifel. Please proceed with your question.
Bradley Dodson: In regard to the financial impact of this sale, the entirety of the sales proceeds and associated costs will be accounted for in the other income line item on the income status and they are excluded from our adjusted e-to-dot calculation. As a result, this transaction does not impact our full year 2023 adjusted e-to-dot guidance. Lastly, we announced a new capital allocation framework simultaneously with the initiation of a 25 cent per share quarterly dividend policy.
Hi, good afternoon, everyone and thanks for taking my question here.
Yeah.
Hum.
If you can hear me just to yeah, just just to kick us off here I know you gave a lot of color just in the last a Q&A session. During the call, but just at a high level. If there's any additional color you can give us on just understanding the puts and takes when we're thinking about 2024 and you know maybe some of the avenues of growth you're pursuing or cost out maybe a little bit more granular.
Yeah.
Well, let's start with Australia in terms of year over year, we will have as I mentioned.
Bradley Dodson: This provides flexibility to use our strong cash flow generation or our existing operations, fund growth opportunities and return capital shareholders. We also continue to execute on our share purchase plan in the third quarter and will opportunistically buy back shares moving forward.
We will see we expect at this point still finalizing our budgets.
That build brands in the diligence will be up year over year, we'll have the full year benefit of <unk>.
Quite frankly fully occupied at comparable more and Bob villages.
Carolyn Stone: With that, I'll turn the call over to Carol. Bradley, and thank you all for joining us today. Today we reported total revenues in the third quarter of 183.6 million dollars with gap net income of 9 million or 61 cents per deleted share. During the third quarter, we generated adjusted e-to-dot 32.9 million dollars operating cash flow of 36.8 million and free cash flow of 31.7 million. As Bradley mentioned earlier, the decline in ingested EBITDA we experienced in the third quarter of 2023, as compared to the same period of 2022, was largely due to the wind down of Canadian pipeline construction activity and therefore our mobile camp revenues in EBITDA. This decrease was partially offset by increased build rooms in our Australian Bowen-Based villages and increased Australian integrated services activity due to our recent contract winds.
Which were nicely occupied in the first half of 2023, but certainly are.
Following the rafters in second half.
And I expect that to continue into <unk>.
2024.
The.
The other piece major piece is going to be just top line growth and integrated services, coupled with better margins as we've.
Adjusting pricing for.
<unk> environment.
I'm going to experience.
So those are the main drivers there.
If we can get the customer commitments will certainly expand.
The own villages.
If we can make the economics work.
So that's Australia and Canada.
God, we had effectively a full year of mcclelland.
Occupancy in the first half was that in the call into the second half was at Beaver Athabasca. So their Canadian billed rooms will be down year over year, we're still finalizing what that looks like.
Carolyn Stone: Let's now turn to the third quarter results for our two segments. I'll begin with a review of the Canadian segment performance, compared to its performance a year ago in the third quarter of 2022. Revenues from our Canadian segment were 95.1 million, as compared to revenues of 103 million in the third quarter of 2022. Adjusted EBITDA in Canada was 23 million, a decrease from 25.6 million in the third quarter of last year.
And then we'll have a mobile camp, both topline and EBITDA will be down year over year. So.
What we're looking at is.
Trying to redeploy assets one of the things that really.
You look for a silver lining in difficult situations in the Mcclelland Lake Lodge was a difficult situation, but in marketing those assets gave us a very good insight into the value.
Carolyn Stone: Results from the third quarter of 2023 reflect the impact of a weakened Canadian dollar relative to the US dollar, which decreased revenues and adjusted EBITDA at $2.6 million and $0.7 million respectively. On a constant currency basis, revenues decreased 5% primarily due to a decline in mobile camp activity, as pipeline construction continues to wind down. Adjusted EBITDA also declined year-over-year due to the aforementioned dynamics. During the third quarter, build rooms in our Canadian lodges totaled 726,000, which was modestly down from 731,000 in the third quarter of 2022.
Modular and mobile camp assets and the broader industrial complex.
Both in Canada down here in the U S and see an opportunity to leverage.
Underutilized as existing underutilized assets in Canada.
To leverage our way into new opportunities both.
Cross, Canada and into the U S.
<unk> expect over the next 12 months will have be able to put some more meat on that book.
Great Great. Thank you for the color there and then just as a second question here. If you could just remind us or talk a little bit about the.
Mobile Kmt demobilization that had been a 2023 and how much lingers into 'twenty. Four I think you said 6 million, but if you could just refresh my memory on that.
Carolyn Stone: Our daily room rate for the Canadian segment in US dollars was 98, which declined slightly year-over-year entirely due to the weakened Canadian dollar relative to the US dollar. The average rate in Canadian dollars was up slightly year-over-year. Turning to Australia, during the third quarter, we reported revenues of $87.9 million, fast from $73.8 million in the third quarter of last year. Adjusted EBITDA was $18.8 million, at 11% from $16.9 million in 2022.
Yeah, great. So.
Yeah, So let me be clear for everyone.
So on the mobile camps.
We had a $10 million of demobilization expenses run through EBITDA and.
Uh huh.
2023, 6 million that we'll run through EBITDA and 2024 as it relates to the demobilization costs related to mcallen that will flow through.
Carolyn Stone: Results from the third quarter of 2023 reflect the impact of weakened Australian dollar relative to the US dollar, which decreased revenues and adjusted EBITDA by $3.8 million and $0.8 million respectively. On a constant currency basis, the increase in revenue and adjusted EBITDA was largely driven by increased occupancy at our own villages, as well as higher activity for our integrated services business related to new contracts. Australian build rooms in the quarter were 623,000, at 19% from 525,000 in the third quarter of 2022 due to increased customer demand at our own villages, driven by our recent contract awards.
Other income and expense line item along with the proceeds from selling those assets.
Little confusing who will talk about the mobe in both cases, but we'll try and be clear.
Great. That's all for me and I'll turn it back thank you.
Thank you very much thanks for your questions.
Our next question comes from the line of Dave storms with Stonegate capital markets. Please proceed with your question.
Good morning.
Good morning.
Just one quick one on Mcclelland Lake or are there any contingencies, there that we should be aware of any.
Earnest money that may or may not be material.
Are there were there were some deposits that were put in place a upon signing the agreement.
Carolyn Stone: The average daily rate for Australian villages in US dollars was $74.3 million, at modestly from $73.3 million in the third quarter of last year. The increase was moderated by the week in Australian dollars. The average daily rate in Australian dollars was at 6% year over year. On a consolidated basis, capital expenditures from the third quarter of this year were $9.5 million, compared to $8.8 million during the same period 2022. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages, coupled with spending to activate mothball Australian village room with increased customer demand.
And what were paid as soon as the units are truck ready on location in Alberta.
As it relates to the sale of the assets as it relates to the transportation those will be start to be recognized in the fourth quarter as we move the assets from Alberta down to the Western U S to the Western U S.
Understood I appreciate it and then it looks like over the last four quarters. The EBITDA contribution from Australia, and Canada has been about a 50 50 split.
Is this a trend we should think about going forward or do you think that there is a potential for that split to diverge a little.
Carolyn Stone: Additionally, the third quarter of 2023 also included $3.6 million in expenditures for the Australian customer funded infrastructure upgrades that we've discussed on prior quarter conference calls. Our total debt outstanding on September 30th was $103.2 million. A 32.9 million decrease since June 30th, our net leverage ratio for the quarter also decreased to 0.9 times as of September 30th from 1.2 times as of June 30th. And as of September 30th, we had total liquidity of approximately $110.6 million, consisting of $102.8 million available under our revolving credit facilities and $7.8 million of cash on hand.
Well because of the loss of the Mcclelland earnings and the mobile camera earnings in Canada.
We will shift in 2024 and as highlighted in the comments, we're working to two on.
On earnings replacement for Canada.
That will take some time.
Understood. Thank you and then just one more and I think you touched on this a little bit earlier, but your leverage ratios.
So that one times target.
This cycle.
I would say, it's normal fluctuations our free cash flow.
Historically, and we expect this trend to continue.
Carolyn Stone: I'd like to turn now to capital allocation. In the third quarter of 2023, we repurchased approximately 62,000 shares through our share repurchase program for a total of approximately 1.3 million.
Is usually strongest in the second half of the year. The reasons for that are you ramp up in the first half of the year receivables go up you have the start of the turnaround seasons predominantly in Canada, and Australia as well in the second quarter and then those receivables start to unwind in the second half of the year. So we had strong free cash flow in the quarter.
Carolyn Stone: And in September, we announced our new capital allocation framework which included the initiation of a 25 cent per share quarterly dividend. After paying our first dividend in late September, this morning we announced that our board of directors has declared our second quarterly dividend payment. Share holders of record as of November 27th will receive a 25 cent per share cash dividend payable on December 18th. Our new capital allocation framework allows our strong cash flow generation to support our existing operations, return capital to our shareholders to a consistent dividend and opportunistic share repurchases. Use excess cash flow to fund growth opportunities and maintain our target leverage ratio at one time to 1.25 times through the cycle.
We expect to have strong free cash flow in the fourth quarter and then on top of that you've got the net proceeds from maclellan coming through.
So.
I would say, it's just normal fluctuations exacerbated our enhance not exacerbate enhanced by the proceeds from the sale. So I do expect it to temporarily.
Carolyn Stone: We do believe it has proven, however, to provide flexibility to increase our leverage ratio up to two times to pursue the creative growth opportunities where appropriate.
So our our range and then we expect to deploy that and growth efforts in <unk> and <unk>.
2020.
Understood. That's very helpful. Thank you for taking the questions.
Absolutely. Thank you.
There are no further questions in the queue I'd like to hand, the call back to Bradley Dodson for closing remarks.
Thank you and thank you all for joining us on the call today. We appreciate your interest in <unk> and we look forward to speaking with you on the fourth quarter and full year earnings call, which we expect to do in February.
Bradley Dodson: With that I'll turn it over to Bradley to discuss our updated guidance for the full year 2023. Bradley? Thank you, Carolyn.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Bradley Dodson: I'd like to turn our discussion to our updated full year 2023 guidance on consolidated basis and we'll look at the outlook for each of the regions. We are increasing our full year 2023 revenues and adjusted even about guidance ranges, resulting in the ranges of 675 to 885, sorry, 635 million to 685 million for revenues and 95 to $100 million for adjusted[inaudible] Duff. We are maintaining our full year 2023 couple of expenditure guidance of $35 to $40,000,000.
Bradley Dodson: Based on the speed of time, CapEx guidance, expected net cash proceeds from the McLean Lake demobilization and sale of those assets of approximately $20,000,000, expected cash interest expense of $12,000,000,000 2023, and expected working capital inflows of $5 million, largely related to customer reimbursement of capital associated with village upgrades. Limiting cash taxes, we are adjusting our expected 2023 free cash flow range to $68,000,000 to $78,000,000 for the full year.
Bradley Dodson: Now turn to regional outlooks and the underlying assumptions. In Canada, as we looked into the fourth quarter of 2023, we're expecting to experience a sequential decline in Canadian mobile camp activity with the coastal gasoline pipeline continuing to line down, coupled with the typical fourth quarter sequential decline in large bill rooms due to the end of turnaround season and normal holiday downtime at the end of the year. Starting today in mobile camps, there are no material changes in our outlook.
Bradley Dodson: The camps began winding down in the third quarter, and the fourth quarter will be burdened with approximately $10 million US of demobilization expense. We continue to expect approximately $6 million US of demobilization expenses in 2024 related to the mobile camps. In regards to the McClellan Lake lodge sale, we expect to estimate the majority of the net proceeds currently estimated to be $20 million in the fourth quarter of 2023 with the remainder of the net proceeds in early 2024.
Bradley Dodson: We are pleased to announce that we have secured the transportation contract associated with this sale, and the demobilization and transportation of these assets is underway. We are actively pursuing other opportunities associated with the sale and will update you as we know more.
Bradley Dodson: Turning to Australia, we continue to see encouraging signs of growth in customer demand for both our own villages and our integrated services business. Our integrated services business is benefiting from increased revenue from our recent contract wins over the last few quarters, and our efforts in the inflation mitigation plan that we've been focused on. We began to see the benefits of our inflation mitigation efforts in the third quarter and expect to see additional benefits in the fourth quarter and end of 2024.
Bradley Dodson: As it relates to our 2024 outlet, I'll provide few preliminary comments. As we've discussed throughout the year, 2024 is expected to be a transitional year for our Canadian business, resulting in a year-over-year decline in even done. With the sale of the phone lake lodge and the wind down of Canadian mobile camp activity, we are acutely focused on replacing these earnings and growing the company. While we continue to monitor market dynamics, it's our 2024 budget process, and we will provide a more detailed outlook on our 2023 year-in conference call in February. We are gaining more optimism around the ability to offset a material portion of this decline.
Bradley Dodson: I'd like to touch on a few of these opportunities and positive trends that we're seeing. In Canada, we are pleased with the outcome of the McCone Lake Lodge sale and securing the transportation contract for those assets. We're actively pursuing additional opportunities related to this transaction that could contribute in 2024. Oil loses the buildrooms from our former McCone Lake Lodge customer. The remainder of our oil stands for Fed have remained solid and we should see improved performance from our Lodge portfolio.
Bradley Dodson: In Australia, we are encouraged by the outlook for both our own villages and great services business. Our own villages are currently at record high occupancy and we're expecting higher buildrooms in 2024. Our integrated services business should continue to benefit from the inflation mitigation plan and the margin improvement experience in the second half of this year. And we expect it to also grow top line in 2024. Regarding free cash flow, while we're currently anticipating the decline in the EBITDA on 2024, we should see relatively consistent free cash flow through the wind-down mode camp activity resulting in significant associated receivables that we expect to be collected in the first half of 2024.
Bradley Dodson: I will conclude by underscoring the key elements of our strategy. We will prioritize the safety and well-being of our guests, employees and communities. We'll continue to enhance our best-in-class hospitality offerings. We will continue to manage our cost structure and importance with our occupancy outlook. And we'll allocate capital-prudently, maximize free cash flow generation, while we continue to return capital shareholders and focus on growth opportunities.
Bradley Dodson: With that, we're happy to take your questions. Thank you.
Operator: Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tunnel indicate your line is in the question queue. You may press star two if you 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 key.
Steve Ferrazani: Our first question comes from the line of Steve Ferrazani with Sedoti. Please proceed with your question. Good morning, Bradley. Caroline, thanks for all the color on the call. I want to ask a couple of questions on Canada. The Canadian accommodations, margins, significantly improved if that was around a McClellan in the sale, or if there's anything significant cost you're taking out or any margin improvement that's sustainable there, because it was much better.
Steve Ferrazani: I think it's a handful of things. We had strong occupancy in Canada in the third quarter. We had very strong turnaround activity in what we call our core region of assets, which is the Port McMurray Village Beaver River at the Basque area. In addition, we had the occupancy that was at the McClellan's movement into Beaver River at the Basque. So improved occupancy gives us economies of scale and we're able to leverage that.
Steve Ferrazani: There were also some efforts that have been put in place earlier in the year. There are benefits in terms of labor costs and that really flowed through the third quarter was our first time to really see the benefits of that. In addition, we had some wildfire-related, response-related occupancy at SICCA in British Columbia that helped turn the world. Ward. Those are the main components to help.
Bradley Dodson: How much of that do you think is sustainable the actions you've taken? Well, certainly the labor efforts that we've put in place will continue. We won't have fire. I know there's seasonality to it. I know there's all these lasting on the labor side in Canada. On the cadence of that to line down with mobile camps, I was surprised that it didn't step down this quarter.
Bradley Dodson: Can you just help us out on anything you know on timing when you think that the line down is complete? It'll be fourth quarter. It will still be. But you're expecting some revenue remaining there. We're not. We'll have some, but it will in terms of either dot contribution coupled with the mobile camp demobilization cost that was starting. We'll throw in the fourth quarter. So the revenues will step down. Okay, very enough.
Bradley Dodson: When you sold McClellan, like you highlighted the fact that you can use funding for growth and that's certainly not something. There hasn't been a lot of growth efforts the last few years. Can you give us a little bit of highlights on what your growth strategies might be particularly as you try to replace some of that mobile camp revenue? Yes. So in Canada, we're looking at an additional point into the Latina. There are also going to be some opportunities to pick up selected properties in Canada that would augment the portfolio. Those are the two main things we're looking at right now. In addition to pursuing opportunities related to the McClellan Lake sale.
Bradley Dodson: And then last one for me, you're your outlook on Australia. Obviously significant gains. We know that there's investment by the mining industry in Australia. But what's your upside from here? Do you think you've seen that the biggest gain? I know you've had some big contracts. Is there room for occupancies to grow from here? Going into 2024, we'll have the benefit of a full year of the contracts we signed this year that we mentioned on prior calls.
Bradley Dodson: There are going to be some opportunities, modest opportunities to add additional rooms, or bring mothball rooms online in Australia. Both of those, whether they're new build rooms, or bringing on mothball rooms, those will only move forward if we have customer commitments that support them. We expect that. So that's on the own village's side on the Integrated Services side. We'll have the full year benefit of the contract wins that we've got this year.
Bradley Dodson: And we see a portfolio of opportunities to continue to win additional work and grow that business. Justice. It will also benefit from the full year benefits of the inflation and mitigation plan that we put in place. So, the first half margins out of the Integrated Services business were not where we wanted them to be. We have some benefit in the second quarter, we have some benefit from the mitigation plan. And the third quarter really didn't see the full benefit of it on a clean basis until September. So, fourth quarter will be one where we're expecting to see how the true benefit and confirming that our efforts played out as we anticipated.
Bradley Dodson: Perfect. I think it just got one last one in. Given the very healthy dividend you've introduced, and I know given the liquidity of the stock, the buyback can be challenging, does the dividend, to some degree, replace the buyback or could you still be aggressive with the buyback, given that you're with the cash coming in from McClellan Lake, your net leverage is probably going to bump against the low range of your target already.
Bradley Dodson: That's correct. In terms of timing of redeploying it for growth opportunities, it may bump down lower in the fourth quarter as well. But expect that we'll have some opportunities for capital work in 2024 that we will fund with cash coming out of the leverage.
Steve Ferrazani: Thanks for having me.
Shyville Hauffer: Our next question comes from the line of Outlook, Shyville Hauffer with Steeple. Please proceed with your question. I good afternoon, and thanks for taking my question here. If you can hear me, just to kick us off here, I know you gave a lot of color just in the last Q&A session during the call, but just at a high level, if there's any additional color, you can give us on just understanding the puts and takes when we're thinking about 2024.
Shyville Hauffer: You know, maybe some of the avenues of growth you're pursuing are going to be a little bit more granular. Well, let's start with Australia in terms of year-to-year. We'll have dimensions. We'll see, we expect at this point, still finalizing our budgets, that pilgrims and the young pilgrims will be up year-to-year. We'll have the full-year benefit of being, by frankly, fully occupied at Coppabella and Mornbaw villages, which were nicely occupied in the first half of 2023, but certainly are full-of-erafters in the second half.
Shyville Hauffer: And expect that to continue into 2024. The other major piece is going to be just top-line growth and integrated services coupled with better margins, as we've adjusted pricing for the inflationary environment that we've experienced. So those are the main drivers there. If we can get to customer commitments, we'll certainly expand the own villages if we can make the economics work. So that's Australia, in Canada, you know, we've got, we had effectively a full year of McLean occupancy.
Shyville Hauffer: The first half was at McLean, and the second half was at Beaver River, at the Baskas. So their Canadian builderings will be down year over year, still finalizing what that looks like. And then we'll have a level camp of top line in even top, will be down year over year. So what we're looking at is trying to redeploy assets. One of the things that really, you know, you look for the silver lining in difficult situations, and McLean Lake Lodge was a difficult situation.
Shyville Hauffer: But in marketing those assets, it gave us a very good insight into the value of modular and mobile camp assets in the broader industrial complex, both in Canada and down here in the US. And see an opportunity to leverage under utilized assets, existing under utilized assets in Canada, to leverage our way into new opportunities both across Canada and into the US. And expect over the next 12 months, we'll have just a second question here.
Shyville Hauffer: If you could just remind us or talk a little bit about the mobile camp demobilization that hit in 2023 and how much the lingers in the 24. I think you said 6 million, but if you just refresh my memory on that, that would be a great. So let me be clear for everyone. So on the mobile camps, we have $10 million demobilization expenses that will run through EBITDA in 2023 and 6 million that will run through EBITDA in 2024.
Shyville Hauffer: As it relates to the demobilization costs related to McLean, that will flow through other income and expense, why not, along with the proceeds from selling those assets. So a little confusing, we'll talk about demobil in both cases, but we'll try and be clear. Great. And that's all from me. I'll turn it back. Thank you. Thank you very much. Thanks for your questions.
Dave Storms: Our next question comes from the line of Dave Storms with Stonegate Capital Markets. Please proceed with your question.
Bradley Dodson: Good morning. Just one quick one on McLean Lake. Are there any contingencies there that we may not be material? There were there were some deposits that were put in place, pond signing the agreement and what were paid as soon as the units are truck ready on location in Alberta. As it relates to the sale of the assets as it relates to the transportation, those will be start to be recognized in the fourth quarter as we move the assets from Alberta down to Western US to the Western US.
Bradley Dodson: Understood. Appreciate it. And then it looks like over the last four quarters, the EBITDA contribution from Australia and Canada has been about a 50-50 split. Is this a trend we should think about going forward or do you think that there's a potential that's what to defer to?
Bradley Dodson: Richard Little. Well, because of the loss of the McClellan earnings and the mobile camp earnings in Canada, it will shift in 2024. And as highlighted in the comments, we're working to, to, on our needs replacement for Canada, that will take some time.
Bradley Dodson: Understood. Thank you.
Bradley Dodson: And then just one more. And I think you touched on this a little bit earlier. But your leverage ratio is, you know, below that one time's target. Is this gear and up for something? Or is it just the normal fluctuations of the leverage ratio through the cycle? And I would, I would say it's normal fluctuations. Our free cash flow, historically, and we expect this trend to continue, is usually strongest in the second half of the year.
Bradley Dodson: The reasons for that are you ramp up in the first half of the year, receivables go up, you have the start of the turnaround seasons, predominantly in Canada, but Australia as well, in the second quarter. And then those receivables start to unwind in the second half of the year. So we had strong free cash flow in the quarter. We spent half strong free cash flow in the fourth quarter. And then on top of that, we've got the net proceeds from McClellan coming through.
Bradley Dodson: So I would say it's just normal fluctuations exacerbated or enhanced, not exacerbated, enhanced by the proceeds from them on sale. So I do expect it to temporarily go below our range. And then we expect to deploy that in growth of efforts in 2024.
Bradley Dodson: Understood. That's very helpful.
Bradley Dodson: Thank you for taking the questions. Absolutely. Thank you.
Operator: There are no further questions in the queue.
Bradley Dodson: I'd like to hand the call back to Bradley Dawson for closing remarks. Thank you. And thank you all for joining us on the call today. We appreciate your interest in the video. And we look forward to speaking with you on the fourth quarter and full year earnings call, which we expect to do in February.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your line to this time and have a wonderful day.