Civeo Corp (CVEO) 2024 Q1 法說會逐字稿

Greetings and welcome to the Civeo Corporation first-quarter 2024 earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Regan Nielsen, Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Thank you, and welcome to Civeo's first-quarter 2024 earnings conference call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Barclay Brewer, Civeo's Interim Chief Financial Officer and Treasurer.

Before we begin, we'd like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we're relying on the Safe Harbor protections afforded by federal law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q, and other SEC filings.

I'll now turn the call over to Bradley.

Thank you, Regan, and thank you all for joining us today on our first-quarter earnings call. I'll start with the key takeaways for the first quarter and provide a brief summary of our first-quarter 2024 performance. Then Barclay will go through the financial and segment-level review, and I'll conclude with our updated comments on full-year 2024 guidance and the underlying regional assumptions. We'll then open the call for questions.

The three key takeaways: one, the first quarter and the full year outlook for 2024 were in line with expectations. As a result, there's no change to our full-year guidance.

Secondly, Australia adjusted EBITDA was up 43% compared to first quarter of 2023 due to particular strength in our billed rooms in our owned villages. We also benefited from recent contract wins and year-over-year improvement in Australian owned-villages, and integrated services business in terms of margin. Lastly, we continue to return capital to shareholders for our quarterly dividend and opportunistic share repurchases.

Let me take a moment to provide a business update across the two segments. Our Australian segment performed exceptionally well during the quarter, and our team continues to execute on our plan to grow our Australian integrated services business to $500 million of top line by 2027. We experienced year-over-year growth in both our owned-villages business and our integrated services business, including the benefit of our recent contract wins that reflect improved customer spending across the Bowen Basin villages and our integrated services business.

During the quarter, our Australian owned-villages continued to experience significant year-over-year growth. While metallurgical coal prices have recently declined, prices remain at very healthy levels that support these customer activity levels. Additionally, we are seeing the impact of metallurgical coal mines being sold to producers, who are more focused on increasing production levels.

These macro factors, coupled with the impact of our recent contract wins in the region, have driven this substantial year-over-year growth. In the first quarter, our Australian integrated services business experienced year-over-year margin improvement as our inflation mitigation plan continues to demonstrate positive results. We should continue to see this benefit from our team's efforts throughout 2024.

With the improved margins, we believe the integrated services business is particularly attractive given contract terms and the outlook for additional opportunities in this area.

As expected, our Canadian segment revenues and adjusted EBITDA decreased year over year due to the planned wind-down of LNG-related activity, particularly in our mobile camp business, including $1.8 million of mobile camp demobilization costs in the first quarter.

As we've touched on our -- during our February earnings conference call, we completed the sale of our McClelland Lake Lodge in Canada earlier this year and received all proceeds. Majority of the net proceeds were recognized in the fourth quarter of 2023 with the remainder recognized in this quarter.

As a reminder, the entirety of the sale proceeds and associated costs as well as other related reimbursements are excluded from our adjusted EBITDA calculation. As a result, the sales transaction does not impact our full-year 2024 adjusted EBITDA guidance. The transportation of these assets is now complete, and we continue to pursue other business-related opportunities related to the assets.

I'll now turn it over to Barclay Brewer, our Interim CFO. I would like to thank him for stepping up into the Interim CFO role. Barclay?

Thank you, Bradley, and thank you all for joining us this morning. Today, we've reported total revenues in the first quarter of $166.1 million with a GAAP net loss of $5.1 million or $0.35 per diluted share. During the first quarter, we generated adjusted EBITDA of $17.3 million, again, this is exclusive of the financial impact of the dismantlement and sale for the McClelland Lake Lodge assets.

Operating cash flow of $6 million and free cash flow of about $7.2 million. First-quarter adjusted EBITDA increased year over year due to the increased billed rooms at our Australian owned-villages and improved margins in the Australian integrated services business, partially offset by the expected wind down of LNG-related Canadian mobile camp activity, including $1.8 million at mobile camp demobilizations costs.

Let's now turn to the first-quarter results for our two segments. I'll begin with a review of the Australian segment performance compared to its performance a year ago in the first quarter of 2023. First-quarter revenues from our Australian segment were $91.7 million, up from $77 million in the first quarter of 2023. Adjusted EBITDA was $20.3 million, up 43% from $14.2 million last year. The significant increase to adjusted EBITDA was due to increased billed rooms at our owned villages, increased integrated services activity, and improved margins.

Results for the quarter were strong despite the headwind of a weakening Australian dollar relative to the US dollar with decreased revenues and adjusted EBITDA by approximately $3.7 million and $800,000, respectively. Australian billed rooms in the quarter were a source of strength with 614,000 rooms, up 17% from 523,000 in the first quarter of 2023.

This is due to increased customer demand at our owned-villages as demonstrated by our recent contract awards. The average daily rate in Australian dollars was up 3% year over year. Due to the weakened Australian dollar, the average daily rate for our Australian villages in US dollars was $77 in the first quarter of 2024, down modestly from $78 in the first quarter by 2023.

Turning to Canada. We recorded revenues of $67.2 million as compared to revenues of $89.5 million in the first quarter of 2023. Adjusted EBITDA in Canada was $5.5 million, a decrease from $12 million in first quarter of 2023. The year-over-year revenue and adjusted EBITDA decrease was primarily driven by the sale of McClelland Lake Lodge and the expected wind down of LNG-related mobile camp activity, including $1.8 million of mobile camp demobilization costs.

During the first quarter, billed rooms in our Canadian lodges totaled 610,000, which was down from 643,000 in the first quarter of 2023, primarily due to the sale of McClelland Lake Lodge. Our daily room rate for the Canadian segment in US dollars was $98, which increased slightly from $96 in the first quarter of 2023.

On a consolidated basis, capital expenditures for the first quarter of 2024 for $5.6 million compared to $4.8 million during the same period in 2023. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages, coupled with spending to activate mothballed Australian village rooms with increased customer demand. Additionally, the first quarter of 2024 included $2.4 million in capital expenditures from the Australian customer-funded infrastructure upgrade that we had discussed on prior quarter conference call.

Our net debt on March 31, 2024, was $61.8 million, which was down slightly since December 31, 2023. Our net leverage ratio for the quarter maintained -- remained flat at 0.6 times as of March 31, 2024. As of March 31, 2024, we had total liquidity of approximately $136.9 million, consisting of $120.1 million available under our revolving credit facilities and $16.8 million cash on hand, giving us strength and flexibility to opportunistically pursue growth factors in 2024 and beyond while maintaining prudent leverage ratios.

Turning to capital allocation. In the first quarter of 2024, we repurchased approximately 133,000 shares through our share repurchase program for a total of approximately $3.2 million. This morning we announced that our Board of Directors had declared our fourth quarterly dividend payment. Shareholders of record as of May 27, 2024, will receive a $0.25 per share cash dividend payable on June 17, 2024.

With that, I'll turn it over to Bradley to discuss our guidance for the full-year 2024. Bradley?

Thank you, Barclay. Right now, I'd like to now turn our discussion to our full-year 2024 guidance on a consolidated basis, including after which the updated outlook for each of the regions. Despite the weakening Australian dollar versus the beginning of the year, we are maintaining our full-year 2024 revenue and adjusted EBITDA guidance of $625 million to $700 million for revenues and $80 million to $90 million for adjusted EBITDA.

We are maintaining our full-year 2024 capital expenditure guidance of $30 million to $35 million. Based on this adjusted EBITDA and CapEx guidance, net cash proceeds related to the McClelland Lake Lodge dismantlement and sale of approximately $6 million, adjusted cash interest expense of $6 million, and our expected working capital inflow of $10 million and expected Australian cash taxes of $10 million. We are maintaining our 2024 free cash flow expectation of $45 million to $60 million. I will now provide the regional outlooks and corresponding underlying assumptions by region.

In Canada, we are in the early stages of the turnaround season for our Canadian oil sands lodges. But early activity is shaping up as expected. We will provide further updates on second-quarter call. The billed rooms across our portfolio is consistent with our previous 2024 guidance.

Regarding our mobile camps, the majority of our mobile camp rental activity is complete, and we are continuing the demobilization process. We expect demobilizations to be completed in the second-quarter 2024, [earning] our second-quarter adjusted EBITDA by approximately $4 million of demobilization costs. As a reminder, this is contemplated in our full year 2024 guidance.

Turning to Australia, customer activity in our owned-villages remains incredibly strong, and we expect to continue to see similar levels going forward. We are currently full at three of our Bowen Basin villages with very healthy occupancy at the rest of our owned-village portfolio in Australia.

As it relates to our integrated services business, our improved margins are expected to continue for the remainder of the year. We are encouraged by our progress to date, and we are continuing focus on our inflation mitigation plan. We are excited about the growth potential of our Western Australian integrated services business and now we have made strides on our inflation mitigation plan and shift our focus to winning work and growing the business. Again, our team has set a goal to grow our integrated services business to AUD500 million of top line by 2027.

I will conclude by underscoring the key elements of our strategy. We will prioritize, as always, the safety and well-being of our guests, employees, and communities. We will invest in our operational improvements and innovation to continue enhance -- to enhance our best-in-class hospitality offerings, and we will allocate capital prudently to maximize free cash flow generation while we continue to return capital to shareholders and evaluate growth opportunities.

With that, we're happy to take your questions.

(Operator Instructions) Alec Scheibelhoffer, Stifel.

Thanks. Good morning, everyone, and thanks for taking my questions. So just to kick us off here from me -- just so when we're looking at the full-year guidance, can you just talk about some of the drivers between the low and the high end? And also should we expect to see normal seasonality? That's roughly about 65% of your EBITDA in 2Q, 3Q?

Thank you. The answer to the second part of the question, yes, seasonality should continue in the amount of EBITDA coming in Q2, Q3, it's largely driven by the turnaround season in Canada, and we expect that to be the case this year. The upper end and the lower end is actually linked to the same issue, which is what does the Canadian turnaround season look like. Right now, it looks as expected. We're obviously only one month into it. So we'll see how it plays out. But that's probably the biggest driver for us.

Inflation continues to be an issue largely -- well across the globe. Most impactful right now in Australia, around food costs and more importantly, labor. The team has done a great job in terms of trying to improve, increase our full-time labor as opposed to using temporary labor, which has a negative impact on costs and productivity. So those are primarily the large drivers of the issue.

Currency has gone against us, but we've had a few things go for us year to date. We've had better occupancy in our Kitimat, Sitka Lodge. We've seen better occupancy in the core Canadian area coupled with really just -- really strong occupancy in Australia and Bowen Basin villages and clearly very good execution on the integrated services side in Australia.

Got it. Thanks. Appreciate the color. And then just as a second question. I'm just curious if you could flush out just how you're thinking about uses of cash. What are your key criteria when you're looking at potential M&A?

Well, uses of cash, we've got the dividend, which is $0.25 a share or $1 for the full year for shareholders that is paramount. The -- we've been opportunistically buying back shares as well. We need to get back to growing the business. And those returns for growth opportunities have to size up and be better than the opportunity of buying back stock.

So there are a handful of organic opportunities and then we're looking at M&A. The organic opportunities are around contracted lodge and village rooms, either bringing back online or modest increase in rooms. And the M&A side is around integrated services and expansion of geographies within Canada and Australia.

Got it. Thank you appreciate the color. That's all from me. I'll turn it back.

Thank you.

Steve Ferazani, Sidoti.

Thanks, good morning, Bradley, Barclay. Appreciate all the color on the call this morning. I wanted to ask about Australia. Another really impressive quarter in terms of accommodations and food revenue. You announced so many new contracts or renewed contracts at better rates? Have we seen it all now? Is there more near-term growth or does this level off near term?

No. We'll see further growth, particularly on the integrated services side. The team has a lot of lines in the water and it's really building a good business there. I mean, if you recall, that business was a $70 million business back five years ago and we did $230 million, I'm talking local currency last year. Budget for this year was $250 million and we beat that resoundingly. And that's factored into guidance. And so we're making good strides there. It's a differentiated service. In terms of the competition, we're winning market share from others, so we're more than cautiously optimistic on it.

Great. What are the risks there, given the number of contracts you have renewed already? Anything near term we should be concerned about? And what kind of term that you have that you've de-risks sort of what's in place right now?

There are no questions about Australian integrated services. There are no material renewals until 2027. That being said, in the integrated services business, as you know, all the contracts can be canceled. So every day, we have to show up and deliver service and the team is there.

We've got a good relationship with the major customers there where there's transparency and good conversation where inevitably, when you're trying to serve 8,000, 9,000 people a day, they're going to be mistakes. But with the transparency, the conversation, the willingness to and the effort to deliver excellent service every day, that carries the day.

Fair enough. Turning to the other side, on food and service in Canada, two straight quarters, where your year-over-year top line was up more than 20%? And given -- can you give us a little sense of what's driving that? I know the margins are fairly thin there, but it's pretty significant revenue growth, given everything else that's going on in Canada.

The major driver in Canada are: as discussed, one, I mean, we sold the McClelland asset. So year over year, we're losing those billed rooms; we got a good value for the assets that we sold. And the second is the wind down in the LNG Canada activity. So those are the major drivers for Canada, both top line and EBITDA.

Now the focus for us and for our team is to find additional projects to build back up the profitability of Canada. I think through the process of selling McClelland, we recognize that our modular assets, both permanent and mobile, there are a lot of industrial and mining projects that need assets, that are remote.

A lot of them are driven by power transmission and effectively resources that are used in EV batteries. So we're working very diligently to expand the Canadian business into other geographies specifically east of Alberta and down into the US.

And then any update on McClelland Lake, does that transportation contract completed within Q1 and where are you on any follow up?

Right. The transportation contract is complete. It was all recognized in the first quarter. And we are continuing to pursue the reinstallation of those assets at the new location in the Western US and the potential to operate those assets long term for the new clients.

Thanks, Bradley.

Thank you.

David Storms, Stonegate.

Good morning. Just when we kind of start with the dividend, I know you've been paying it for a couple of quarters now. Your stock has gone up since you started paying it. Just could you give us a sense of what your process is like, how often do you revisit that to make sure it remains competitive? Anything on that front would be very helpful.

Sure. Well, we'd like to get a year underneath our belt. This will be the fourth payment, so we'll readdress it in the fall. And again, it's a key component to our capital allocation framework. And so as you know, cash flow for us is also seasonal. EBITDA is seasonal. We covered that in the first question, but cash flow is better in the back half of the year. So we'd like to see how things play out. Certainly, dividend growth is possibility, but one that we'll address in the back half of this year.

Understood. Very helpful. Thank you. And then just touching back on kind of some of your levers that you have to kind of recoup some of those mobile camp losses? You've mentioned maybe expand into Alberta, maybe into the US a little bit, what would that look like logistically and what would be some of the hurdles to get over that?

Well, right now, the hurdles are twofold. They're not surprising. Which is one, we need the client project to move forward. So we need green light on projects, and then we need to win the work. We've got a handful of projects we're actively pursuing, but that's simply what needs to happen.

We've got a team in Eastern Canada on the business-development side; they are pursuing opportunities and they're largely mining and transmission related. The US is initially going to be dependent on, can we get more work ultimately related to McClelland assets.

Understood. Thank you. Appreciate the color.

Thank you. We have reached the end of our question-and-answer session. And with that, I would like to turn the floor back over to Bradley Dodson for any closing comments.

Thank you so much, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo, and we look forward to speaking to you on our second-quarter earnings call planned for July.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.