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spk04: and welcome to the CBO Corporation Third Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Regan Nielsen, Director of Corporate Development and Investor Relations. Please go ahead.
spk02: Thank you, and welcome to CBO's Third Quarter 2020 Earnings Conference Call. Today, our call will be led by Bradley Dodson, CBO's President and Chief Executive Officer, and Carolyn Stones. to be a 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 information 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 disclosed in our Form 10-K, 10-Q, and other FTC filings. I will now turn the call over to Bradley.
spk03: Thank you, Reagan, and thank you all for joining us today on our third quarter earnings call. We hope that you and your loved ones are staying healthy and safe. The format for today's call is that I'll provide a brief summary of our performance for the third quarter and a business update as we navigate the lingering uncertainties associated with the COVID-19 pandemic and commodity price volatility. Carolyn will then provide a financial statement and a financial and segment level review, and I'll conclude with some directional commentary on our expectations for the fourth quarter and guidance before we move into the question and answer portion of the call. I'll start by emphasizing that at CIVIO, the safety and well-being of our employees, guests, and contractors is always our top priority. Our team continues to be vigilant and following our safety protocols, which aim to mitigate the risk of the virus spreading. Let's start off with some key takeaways for the call today. The business continued to consistently generate cash, which is facilitating an accelerated debt reduction for Civia. In the third quarter, Civia delivered $36 million of adjusted EBITDA, $34.4 million of free cash flow, and we reduced total debt by $27 million to $272.5 million. These results reflect sequential improvements in revenues in EBITDA in the third quarter of 2020 compared to the second quarter of 2020, primarily due to sequentially higher billed room nights in both Canada and Australia. Our leverage ratio declined to 2.16 times as of September 30, 2020, from 2.34 times at the end of the second quarter, Delivering the balance sheet remains our top financial priority. We had a successful quarter commercially. Today, we announced that we had secured four contract renewals in Australia with total expected revenues under the contracts of $135 million Australian over their two-year terms to provide hospitality services through our Action Catering business in Western Australia. Also during the quarter, our team successfully completed the amendment and 18-month extension to our credit agreement. The revised agreement, which governs all the company's outstanding debt, affords the company additional time to pursue our financial objectives of focusing on free cash flow generation and debt reduction while we explore longer-term debt capital solutions. Let me take a moment to provide an update across our three segments. In Canada, We delivered sequentially improved results despite continuing oil price volatility, disruptions related to the pandemic, and customer budgetary constraints. Turnaround activity and build rooms recovered from second quarter lows, and our mobile camp business benefited from a termination payment related to a camp on the CGL pipeline, although occupancy and revenues remained significantly lower on a year-over-year basis. We also received $3.6 million of other income related to proceeds from the Canada Emergency Wage Subsidy Program, or CEWS. Our team's execution, commitment to safety, and vigilant cost management produced adjusted EBITDA in Canada of $21.3 million, which was meaningfully up in the second quarter on a recurring basis. Our Australian business has improved throughout 2020, and that continued in the third quarter. Adjusted EBITDA grew both on a year-over-year and sequential basis due to steady customer activity and higher occupancy, with only modest disruption from the pandemic. We are encouraged by the action and performance in the third quarter, as well as the aforementioned contract renewals. Turning to the U.S., conditions in our U.S. business continue to be extraordinarily challenging. E&P drilling and completion activities remain very subdued in the wake of the COVID-19 pandemic. pandemic and the oil market dislocations. Our focus remains on cost control and operational efficiency, absent signs of a sustained recovery. As we have discussed on earlier calls this year, we're in the process of closing our northern well site services branches and selling or transporting underutilized assets to more attractive southern basins. We are continuing to address the impact of both Hurricane Laura and Hurricane Delta on to our Acadian Acres Lodge in Lake Charles, Louisiana, but we expect the financial impact to be minimal. At CIVIO, we rely on a consistent strategy to navigate the market volatility that is beyond our control. Our priorities are to keep our employees and guests as safe as possible, maximize free cash flow generation, continue to reduce debt to enhance our financial flexibility, and reduce costs without compromising service quality. With that, I'll turn it over to Carolyn.
spk01: Thank you, Bradley, and thank you all for joining us this morning. Today, we reported total revenues in the third quarter of $142.9 million, with net income on a GAAP basis of $6.5 million, or three cents per diluted share. During the third quarter, we generated adjusted EBITDA of $36 million, operating cash flow of $35.4 million, and free cash flow of $34.4 million. Our third quarter 2020 adjusted EBITDA was largely in line with the same period in 2019. Increased occupancy in our Australian Bowen Basin Villages and $3.6 million of other income related to proceeds from the CEWS program were offset by decreased build rooms in our Canadian lodges during the period. Let's now turn to the third quarter results for our three segments. I'll begin with a review of the Canadian segment performance compared to the performance a year ago in the third quarter of 2019. Revenue from our Canadian segment was $71.8 million, as compared to revenue of $91.1 million in the third quarter of 2019. Adjusted EBITDA on Canada was $21.3 million, a decrease from $25 million in the third quarter of 2019. The negative impact on revenues and adjusted EBITDA was largely caused by a meaningful reduction in billed rooms related to COVID-19 as well as lower oil prices. Adjusted EBITDA in the quarter for our Canadian segment included $3.6 million related to proceeds from the CEWS. During the third quarter, billed rooms in our Canadian lodges totaled $508,000, which was down 42% year-over-year from $876,000 in the third quarter of 2019, due in large part to the decline in oil prices and the effects of the COVID-19 pandemic, especially in the oil sands lodges, which negatively impacted both base level occupancy as well as turnaround activity year-over-year. Our daily room rate for the Canadian segment in U.S. dollars was 96%, up slightly with a 5% year-over-year increase. Turning to Australia, during the quarter, we recorded revenues of $64.7 million, up from $47.7 million in the third quarter of 2019. Adjusted EBITDA was $21.5 million, up from $17.2 million during the same period of last year. These results including a 30% period-over-period top-line increase on a constant currency basis. We're driven by increased activity in our action catering business and increased occupancy at our bone basin villages. Our USD results further reflect the impact of a strengthened Australian dollar relative to the US dollar, which increased revenues in the quarter by $2.8 million and adjusted EBITDA by $0.9 million. Field rooms in the quarter in Australia were 514,000, up from 455,000 in the third quarter of last year, and also up from 502,000 in the second quarter of 2020, due again to the continued improvement in metallurgical coal activity across the Bowen Basin. The average daily rate for Australian villages in U.S. dollars was 77 in the third quarter, up from $73 in 2019. Moving to the U.S., revenues for the third quarter were $6.4 million as compared to $9.3 million in the third quarter of 2019. The U.S. segment saw a negative adjusted EBITDA of $1.5 million in the third quarter, down from adjusted EBITDA of $0.3 million during the same period last year. These year-over-year declines were primarily due to broadly lower drilling and completion activity coupled with continued lower occupancy in the U.S. lodges due to lower oil prices and the impact of the COVID-19 pandemic. On a consolidated basis, capital expenditures were $2.4 million in the third quarter, down from $4.3 million in the third quarter of 2019, due predominantly to the completion of the Sitka Lodge expansion last year. Our total debt outstanding on September 30th was $272.5 million, a $27 million decrease since June 30th. The decrease consisted of $33.4 million in payments during the quarter from free cash flow generated by our business, partially offset by an unfavorable foreign currency translation impact of $6.4 million. Our debt level also represents an $87 million decrease since December 31st of last year. consisting of $75.6 million in debt payments made during the first nine months of the year, as well as a favorable FX translation impact of $10.9 million. Our leverage ratio for the quarter decreased to 2.16 times as of September 30th, from 2.34 times as of June 30th. And as of September 30th, we had total liquidity of approximately $85.6 million, which consisted of 78.7 million available under our revolving credit facilities, as well as 6.9 million of cash on hand. Relatedly, we recently announced the completion of an amendment and 18-month extension to our credit agreement. In addition to the extension of the maturity date of our total debt outstanding by 18 months to May 30th of 2023, This amendment decreases our total revolving commitment to $167.3 million, which is a level more consistent with our currently expected needs and will reduce the amount of undrawn commitment fees paid to our lenders. The amendment also increased interest rate spreads above base rates by approximately 100 basis points above prior spreads. Bradley will now provide some closing commentary and discuss our outlook for the remainder of 2020 and into 2021. Bradley?
spk03: Thank you, Carolyn. Following our performance in this quarter, the third quarter of 2020, we are raising our full-year 2020 adjusted EU Adopt Guidance to a range of $100 to $105 million. We expect full-year 2020 revenues between $515 million and $520 million. along with that. We have also adjusted our CapEx guidance, as we now expect to spend less than the previously disclosed $15 million of full-year CapEx guidance. Moving to the segments, in Canada, turnaround activity is winding down, coming into the fourth quarter, and we expect to see normal seasonal holiday downtime, which will lead to lower occupancy revenues and EBITDA sequentially in fourth quarter 2020. However, we are encouraged by conditions that are gradually recovering independent of the seasonal factors and we expect the results to improve in 2021 As an example for the four hills project is in the process of increasing production back to up to two trains by the end of the year after throttling back production during the second quarter and into the third quarter. The updated full year data include any CEWS proceeds for the fourth quarter of 2020 should they occur. The outlook for Australian business for the fourth quarter and beyond is constructive. Both commodity market fundamentals continue to justify guarded optimism for Australian segment in the fourth quarter and going into 2021. Iron ore prices remain near six year highs. due to lingering supply disruptions globally, specifically out of Brazil. The near-term outlook on the coal market remains generally constructive, but Chinese trade policy is a near-term variable which we are monitoring very closely. Earlier this month, China announced the suspension of purchases of Australian coal imports due to souring political relations. However, we believe the variable effects of trade tensions will largely be confined to the coal market. China is still heavily dependent on Australia to supply high-quality met coal due to domestic production limitations. We've not experienced any impact to our business to date, but we are watching this situation again closely. Taking all these factors into consideration, the overall prognosis for Australian segment abstinent quality downtime in Q4 is still very constructive. Customers are performing above their take-or-pay minimums. And we anticipate a continuation of that trend into next year on healthy maintenance activity and relatively strong mining cash flows. Prognosis for the remainder of 2020 in our U.S. segment remains challenging. E&P customers are focused on cost containment, liability management, capital efficiency, and consolidation by necessity. Until oil prices are sustainably above $50 a barrel, we do not anticipate a meaningful rebound in occupancy revenues or EBITDA. The recent trend of consolidation amongst producers is a positive sign, but we will continue to run the business based on market realities with a focus on cost control, operational efficiencies, while we wait for a sustained recovery. I will reiterate the elements of our playbook, which we have continued to follow during these extraordinary times. Our mandate remains that we will prioritize the safety and well-being of our guests, employees, and vendors. We will manage our cost structure in accordance with the outlook across all three regions. We will continue to enhance our best-in-class hospitality offerings, and we will allocate capital prudently to maximize free cash flow generation while we continue to reduce debt. Before we open it up for questions, I want to take a moment to thank our employees around the globe for their efforts in 2020. You have repeatedly exceeded our expectations with your dedication, selflessness, and unyielding professionalism under persistently challenging circumstances. On behalf of the entire studio management team and our board of directors, we thank you for all that you do. Now we'll be happy to take questions.
spk04: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And if you're using speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. And we will go first to Stephen and Carl of Stiefel. Thanks. Good morning, everybody.
spk03: Good morning, too.
spk05: So if we could start, if you don't mind, the bridge to the fourth quarter. It sounds like you're basing the commentary that the sequential changes will mean more driven by Canada coming off a very high level than Australia. And I think the fourth quarter guidance is like $15.5 to $20.5 million. Is that the right way to think about it?
spk03: That's right. There were a couple items in the third quarter that are not currently in the guidance or the forecast for the fourth quarter. First of all, we had, as we mentioned, a little over $3 million of CEWS proceeds in the third quarter, which are not in the forecast for the fourth quarter. We also had the contract termination payment as it related to CGL, which is not anticipated to continue into the fourth quarter. And then we'll have normal holiday downtime, which we're trying to be conservative because in this environment we're not certain how our customers will react as they move into the holiday given the pandemic. So as we look at it, I think the fourth quarter on an operational basis will be modestly better than the second quarter, probably 10% better on a remnant basis. But then we're looking at a number that on a year-over-year basis in the fourth quarter is going to be considerably down. That's largely driven by the oil sands activity and the fact that last fourth quarter we had a really strong turnaround activity that went from third quarter into fourth quarter, which is not anticipated. Thus far in the fourth quarter, the numbers have stayed fairly consistent with the exit rate from the third quarter. But you're right, Canada is going to be the significant driver on a quarter-over-quarter basis.
spk05: And just to cover that 10% room difference from 2Q, is that a community comment or a company-wide comment?
spk03: That was a Canada comment as it related to room 9.
spk05: Okay, thank you.
spk03: So we have about 403,000 room 9s. sorry, $409,000 in the second quarter of this year. We're expecting that to be up plus or minus 10%.
spk05: Okay, great. The other question I had, just from a bigger picture perspective, you mentioned some positives across the different geographies as you look into 2021, including the action contract renewals. When you think about bridging 2021 to 2020 without obviously giving us any specific guidance on what scores you want to, what should we think about as the puts and takes in 2021 versus 2020? And I understand we're in a volatile macro environment right now.
spk03: Sure. Well, we're still going through the budgeting process. And that's not complete and we've not shown that to the board yet. So these will be preliminary comments that need to change. But as of right now, I'll go region by region. In Canada, we do expect 2021 build room to be better year over year. We're thinking probably 15% in total. Maybe it could get to 20%. That'll translate into on an apples to apples basis because Canada has benefited from a a handful of positive one-time items in 2020, that the apples-to-apples results in Canada should be modestly better, 2020 to 2021. Again, there is approximately, in Canada this year, there's about $17 million of one-time items between the CEWS, the arrest and warranty payment, and some gains on sale. So if you back that out of the results, then, you know, for 2020, which has been beneficial and obviously helped us from a cash flow perspective this year and allowed us to pay down additional debt. But as we look into 2021, you back those items out of this year, and we should see some modest improvement. In Australia, and I think before I leave Canada, the big question as it is generally, and we don't have line of sight on this quite yet, although we're working on it, is how big the turnaround activity is in Q2 and Q3 of next year. It was previously anticipated that 2021 was going to be a relatively strong turnaround year, but in this environment, it's really hard to tell until we get closer. But we'll certainly give additional color to the extent we have it on the fourth quarter earnings call. As it relates to Australia, I think the trends will continue. We expect the Bowen Basin to continue to be strong. Again, there we have been benefiting from this year and for some time where our customers are exceeding their take-okay minimums. I expect that we'll be budgeting for that trend to continue, but it's not fully contracted and not a certainty. Action, I think, will continue to be strong year over year. The contract renewals is a huge win for the team. as they continue to build that business and look to expand it. So I think Australia will be modestly up. The U.S., you can tell me what your rig count assumption is and completion activity assumption is, but we're not assuming a significant improvement until very late into 2021 at this point. But the cost reduction efforts that the team has put in place this year should help benefit 2021 over 2020. So I expect that while that the EBITDA for the U.S. business will be better year over year. Corporate should be about the same. So backing out the one-time items this year, we should see modest on an apples-to-apples basis a modestly better year next year.
spk05: Okay, great. Now, that's a very helpful detailed rundown. And then just one final one from me on the cash flow side. I mean, you continue to generate positive free cash. I imagine your CapEx requirements next year are going to continue to be fairly low, so your cash generation should continue to be strong and will continue to target reducing debt. Is that accurate?
spk03: Yeah, we're still working through the budgeting process. I would expect that we'll actually budget higher CapEx next year just for conservatism. And then obviously the team has consistently done a good job of managing that prudently. We'll also have modestly higher CapEx in Australia next year as we reactivate some rooms in the Willam Basin that have been mothballed. Not huge numbers, but if I had to guess for next year, CapEx will be in the $20 million range, plus or minus, is an initial estimate.
spk05: Okay, thank you.
spk04: And we'll go to our next question from Kurt Elliott of RBC.
spk06: Hey, good morning. Good morning. Hey, Fred, I just wanted to follow up, just make sure I'm understanding, you know, how you're kind of trying to help us map out, you know, the bridge from 20 and 2021. I think you referenced that there are about $17 million of one-time items specifically in Canada. So if you take a look at the $100 to $105 million of EBITDA that you're expecting to post for 2020, you would suggest that we subtract the 17 from that and then think about 2021 off of more like 80 to 85 million EBITDA Am I understanding the way you mapped it out correctly?
spk03: Yeah, that's exactly right, Kurt. I mean, I think that the number for this year on a kind of clean basis without the one-time items is probably $90 million plus or minus from the midpoint of the guidance range because Carolyn pointed out to me the 17 is more like 12. Sorry, I misspoke because we don't have the rep and warranty payment in there, so. About 12 million of one-time items in Canada that are in the adjusted EBITDA numbers that you see that we print this year. And so the midpoint of the guidance is 102, so check out about 12. And so the clean number for this year is about 90. And so based on the comments we just made, we expect that our outlook for next year will be flat to up from there. Okay, great.
spk06: That helps. Can you give a little... You kind of referenced some potential risk dynamics relating to some trade policy-related disputes between Australia and China. Just wonder if you can kind of dig into that a little bit more and give us some insights on how you guys are risk assessing that.
spk03: Well, as I said, there's been some – China has – put a prohibition on Australian coal imports. We've not seen that. We've seen that impact on that coal spot prices here over the short term. But this is something that over the last, let's say, 18, 24 months, there have been a handful of trade-related dust-ups, if you will, between China and Australia. They remain very important trading partners to each other. And so at this point, it's something to keep our eye on. By no means it's a reason to push a panic button at all, and we've not seen any operational or planning changes by our customers.
spk06: Okay, fair enough. And then, you know, just as a follow-up to the earlier commentary about, you know, you look at your EBITDA generation and, your capex, you can get to a minimum of around $70 million of free cash, I guess, pending tax, cash taxes, if there's going to be any or some other dynamics, right? So it looks like it could be about $70 million of free cash flow in 2021. Is that a fair way to think about it?
spk03: Well, if we work off of kind of like a 90 to 95 number, where you've got about, let's call it 15 million, 14 to 15 million of interest expense. And then the 20 million of CapEx, I think working capital, it could go either way. Let's just call that a push for right now. And then taxes in 2021 should be minimal. So that's the kind of free cash flow, the simple free cash flow now.
spk06: Yeah, okay. That's great. I appreciate you walking through that process. Very helpful. Okay, that's it for me. Thanks.
spk00: You bet. Thank you.
spk04: And as a reminder, you may press star 1 on your telephone keypad if you do have a question at this time. That is star 1 for any questions. And we will go to a follow-up from Stephen DiIaro of Stifel. Please go ahead.
spk05: Thank you. One or two more things, Bradley, if you don't mind. The first, I believe, from the last couple quarters, the action deal has gone extremely well since you closed it. And when I think about action next year and I think about sort of what you've laid out, what you've acquired, how is that going in general? I mean, you talked about the contract renewals, but how has your success been sort of expanding that business either in the same area or into other parts of Australia?
spk03: It's been a handful of things. One, we've had key customers not only give us additional locations to serve, but we've also seen increased occupancy at the locations we were already serving. So it's a combination of those contract wins between closing and today, and then our customers being very active at the locations that we serve. So the payback on a kind of acquisition consideration versus EBITDA is probably about 18 months on that deal, maybe a little less. through the end of this year, and we expect the results to continue to be good going into next year. So now what we need to do is start taking that capability, that experience that we've gained, that reputation that the action team has built over a long time, and start to win new work. And that will be the focus as we go into 2021. The renewals, as you can tell by the contract value, were material. So the team's primary focus this year continued to be two primary focuses, continued efficient integration of the business, and that includes safety, human resources, and operations. Amidst not being able to travel to Western Australia because the state is closed, to outside travelers, and then the contract renewals. And so now we'll pivot in 2021 to winning new work.
spk05: Great. Thank you. And then just the other quick one is any update on how the Canadian LNG project is progressing?
spk03: Well, we're serving the LNG Canada project through our Sickle Lodge in Kittimat as well as our mobile camp business for the Coastal Gasoline Pipeline. We're continuing to serve the Coastal, while we did have one of those camps and it was a change in the way they had planned to house their pipeline construction employees, they decided to go to live out allowance instead of a mobile camp. That was disappointing to have the cancellation of one of those contracts. We're still working on two others, and those are going along fine. At Sitka, I would say that right now, occupancy is roughly in line with what our expectations were coming into the year, in the back half of this year. And again, we're still in the process of budgeting, but we expect to have similar occupancy levels going into next year. for the LNGC project is whether they decide to green-light Trains 3 and 4. And should that happen, that would be a boost to the longer-term occupancy outlook for Sitka, as well as some additional potential mobile camp work as they work on compressor stations.
spk05: Okay, thank you.
spk03: But from our standpoint, it's going along as planned.
spk05: Okay, great. Thank you. And then just one more, and I know... You know, we're in a tough macro environment, but given the free cash generation that you laid out in response to Kurt's question, I mean, you're basically going to generate half your market cap in free cash next year, potentially. And I know you're focused on delivering a balance sheet, but has there been any thought for looking at buying back stock? And what would we need to say, or how do you think about that decision?
spk03: Well, I think the business does have a very strong free cash flow profile. We have been burning through the debt as fast as we can and paying it off as fast as we can because we need to get not only the leverage ratio but then the absolute amount of debt down. Longer term, the board and management are having those discussions as to the capital allocation. But in the near term, I think we continue to need – the number one priority is to continue to pay down debt. But the free cash flow, in my opinion, the free cash flow profile is compelling. And when we're in a better leveraged position, returning money to the shareholders makes a ton of sense with that cash flow. I personally don't think we're there yet, but that question of a share buyback is one that – you know, we will consider with the board, are considering with the board.
spk05: Great. Thank you.
spk04: And with no other questions in the queue at this time, I'd now like to turn the call back to Bradley Dodson for any additional or closing comments.
spk03: Thank you, Jenny. Thank you all for joining us on the call today. We were pleased, given the macroeconomic environment with the third quarter results and I think the trends that are improving, particularly in Canada and Australia, absence and seasonality in the fourth quarter should continue into 2021, and we look forward to speaking to you in February on the fourth quarter call.
spk04: And so this concludes today's call. Thank you for your participation. You may now.
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