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spk04: Good day and welcome to the CBO Corporation second quarter 2021 earnings call. Today's conference is being recorded. At this time, I'll turn the conference over to Mr. Reagan Nielsen, Senior Director, Corporate Development and Investor Relations. Please go ahead, sir.
spk02: Thank you, and welcome to CBO's second quarter 2021 earnings conference call. Today, our call will be led by Bradley Dotson, CBO's President and Chief Executive Officer, and Carolyn Stone, Civio'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 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 SEC filings. I'll now turn the call over to Bradley.
spk03: Thank you, Reagan, and thank you all for joining us today on our second quarter earnings call. For today's call, I'll provide a brief summary of our performance for the second quarter. Karen will then provide some color on the consolidated and segment-level financials. I'll conclude with some directional and commentary on our expectations for the remainder of the year before we move into the question-and-answer portion of the call. We continue to focus on safety and well-being of our guests and employees. We saw an increase in COVID-19 cases in Canada in the second quarter and an increase in COVID-19 cases in July in Australia. Our operational protocols continue to help stem the spread of the virus effectively. Financially, our focus is to generate free cash flow and reduce leverage. Operationally, our focus is on maintaining our high-level of service standards and capturing market share in a turbulent market environment. The key takeaways from our call today, despite a strong third wave of COVID-19 in Canada and a lingering China-Australia trade dispute, our business continued to generate cash, which we allocated to debt reduction. In the second quarter, Sevilla reported $32.2 million of EBITDA, $13.7 million of free cash flow, and we repaid $14.4 million of debt. We continued to reduce our leverage ratio to 2.0 times at March 31, 2021, from 2.1 times... Sorry. We reduced the leverage ratio to 2 times at June 30, from 2.1 times in March 31. We are increasing our free cash flow guidance for the full year, which I'll describe after Carolyn. And we view labor supply issues and subdued customer activity in Australia as transitory problems, as we expect to have those resolved by the end of 2021. In the second quarter, Sibio delivered $32.2 million of adjusted EBITDA, $13.7 million of free cash flow, and reduced debt by $11 million to $226.8 million. These results reflect sequential improvement in revenues in EBITDA in the second quarter compared to the first quarter, largely due to higher billed rooms in Canada. In line with our continued push to deliver our balance sheet, our leverage ratio declined to 2.0 times at June 30 and 2.1 times at the end of the first quarter. Diving into the segments in Canada, we saw sequential improvement as a result of increased activity in our core oil sands region, as well as sequentially increased occupancy at our Sitka Lodge as the COVID-19 health orders in British Columbia began to be lifted towards the end of the second quarter. Our year-over-year performance in Canada was relatively flat, with the increased oil sands activity offsetting the impact of several one-times items realized in the quarter a year ago, which, as you may remember, included proceeds from the Canadian Emergency Wage Subsidy, as well as a gain on sale of some of our assets at the Henday Lodge. Our performance in Australia improved sequentially, but was down compared to a year ago due to increased labor costs related to the COVID-19 travel restrictions in the country, as well as lower billed rooms in the Bowen Basin, driven by the ongoing China-Australia trade dispute. In the U.S., drilling completion activity continues to be near historic lows. While the activity has improved year over year, it remains a challenging environment For Cibio's business, we saw modest performance improvements, largely due to increased fabrication activity in our offshore division and increased contribution from our West Permian launch. Despite a wide array of challenges, we achieved moderate sequential and yearly improvements. With that brief overview, I'll turn it over to Carolyn for some more detail. Carolyn?
spk00: Thanks, Bradley, and thank you all for joining us this morning. Today we reported total revenues in the second quarter of $154.2 million, with a net loss on a GAAP basis of $0.5 million, or $0.03 per deleted share. As Bradley just mentioned, during the second quarter we generated adjusted EBITDA of $32.2 million, operating cash flow of $16.5 million, and free cash flow of $13.7 million. The increase in revenues in adjusted EBITDA experienced in the second quarter of 21, as compared to the same period last year, was largely due to an increase in build rooms in the oil sands lodges and Canadian mobile camp activity. Results from the second quarter of 21 were also favorably impacted by a strengthened Canadian dollar and Australian dollar relative to the U.S. dollar. Let's now turn to the second 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 second quarter of 2020. Revenue from our Canadian segment was $83.3 million as compared to revenue of $53 million in the second quarter of 2020. Adjusted EBITDA in Canada was $22.6 million, an increase from $15.3 million in the second quarter of last year. Results from the second quarter reflect the impact of a strengthened Canadian dollar relative to the U.S. dollar, which increased revenues and adjusted EBITDA by $9.6 million and $2.7 million, respectively. The remaining increase in revenues and adjusted EBITDA was largely driven by increased build rooms in the oil sands lodges coupled with increased mobile camp activity. These factors were partially offset by decreased build rooms at our Sitka Lodge, due to British Columbia's health order protocol affecting the vast majority of the quarter. Adjusted EBITDA in the second quarter of 2021 for our Canadian segment included $0.7 million related to proceeds from the CEWS program, compared to $6.2 million in the second quarter of 2020. During the second quarter of this year, billed rooms in our Canadian lodges totaled 723,000, which was up 76% year-over-year from 410,000 last year. The increase was driven by the recovery of oil prices, as well as lessened impacts from COVID-19 and the continued normalization of customer activities. Our daily room rate for the Canadian segment in U.S. dollars was $96, which is flat year-over-year. Turning to Australia, during the second quarter, we recorded revenues of $64 million up from $57.1 million in the second quarter of 2020. Adjusted EBITDA was $15.4 million, representing a $3.4 million decrease from $18.8 million during the same period of 2020. Results from the second quarter of 2021 reflect the impact of a strengthened Australian dollar relative to the U.S. dollar, which increased revenues and adjusted EBITDA by 9.4 million and 2.3 million, respectively. The resulting decrease in EBITDA was driven by a lower village occupancy in the Bowen Basin, as well as higher labor costs in the integrated services business. Build rooms in the quarter were 466,000, down from 502,000 in the second quarter of 2020, also impacted by lower customer activity in the Bowen Basin. The average daily rate for Australian villages in the US dollars was $81 this quarter, up from $70 in 2020. This increase was driven by the impact of the strengthened Australian dollar. Moving to the US, revenues for the second quarter were $6.9 million as compared to $4.6 million in the second quarter of 2020. The US segment generated adjusted EBITDA of $0.3 million, up from an adjusted EBITDA loss of $1.4 million during the same period last year. The year-over-year increases were primarily due to increased fabrication activity in our offshore division coupled with higher occupancy in our U.S. lodges. On a consolidated basis, capital expenditures were $3.2 million this year in the second quarter, up from $1.2 million in the second quarter of last year. Our total debt outstanding on June 30, 2021, was $226.8 million, which represents an $11.2 million decrease since March 31. The decrease is made up of $14.4 million in debt payments from cash flow generated by our business, partially offset by an unfavorable foreign currency translation of $3.2 million. Our leverage ratio for the quarter is now down to 2.0 times as of June 30th, compared to 2.1 times as of March 31st. And as of June 30, we had total liquidity of approximately $116.5 million, which consists of $112.1 million available under our revolving credit facilities, as well as $4.4 million of cash on hand. Bradley will now provide some closing commentary and discuss our outlook for the remainder of the year and our full year guidance. Bradley?
spk03: Thank you, Carolyn. Based on our outlook moving into the second half of the year, we're maintaining our previous revenue and adjusted EBITDA guidance for the full year 2021 at a range of $555 million to $850 million for revenues and $90 to $100 million for adjusted EBIT jobs. In regard to CapEx guidance, we're lowering our full year 2021 capital expenditure guidance to a range of $15 to $20 million. Based on the EBITDA and CapEx guidance just outlined, expected interest expense of $15 million, no expected cash taxes, and roughly $5 million of cash inflow from working capital. We are raising our expectations for 2021 free cash flow to a range of $60 million to $75 million. I'll now provide the regional outlooks for our business with corresponding market assumptions. In Canada, we expect turnaround activity to begin to tail off as we progress through the third quarter. We are encouraged by the decline in COVID-19 cases in Canada and hope this trend allows our customers to continue to normalize operations. The British Columbia Health Order, which temporarily limited occupancy at all industrial projects in the province, including our Sitka Lodge, was lifted late in the second quarter. Now that that order has been lifted, we have seen an uplift in occupancy as our customer works to catch up on their project timeline. These expectations are in line with the EBITDA guidance that we are maintaining from the last quarter. In Australia, we anticipate that the prolonged travel restrictions related to the COVID-19 pandemic will continue to pressure our performance in the region with increased labor costs anticipated to be a factor that will continue to impact our margins. The outlook for metallurgical coal markets in Australia for 2021 has continued to be impacted by the Chinese trade policy, though increased interest in Australian met coal outside of China has dulled some of the negative impacts. We expect a supportive commodity price environment to remain for the rest of the year, with met coal currently trading above $200 per ton. While met coal prices are at much healthier levels than we had last provided revenue and EBITDA guidance, we've chosen not to increase our expectations for the back half of the year for the Australian segment. Our customers could continue to be hesitant to increase activity in light of the lingering China-Australia trade dispute. Our current guidance does not assume a material improvement or degradation in the Australian-Chinese trade dispute, nor does it assume a material improvement or degradation in labor costs. Our U.S. segment has improved throughout the first half of the year. It's still a tough environment. In the second half of the year, we continue to focus on cost management and getting market share across the U.S. business where possible. Looking forward, we remain focused on the key elements of our strategic playbook, which are as follows. We will prioritize the safety and well-being of our guests, employees, and customers. We will manage our cost structure accordingly to the outlook across each of the three regions. We 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 prioritize debt reduction. As we proceed to Q&A, I would like to recognize the unyielding dedication of our employees around the world. Your commitment to keeping guests safe, comfortable, and healthy is the foundation of what makes Cibio, Cibio. And so I thank you for that. With that, we're happy to take questions.
spk04: Thank you. If you wish to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using your speakerphone, please make sure your mute function is turned off. Again, press star 1 for a question. We'll now pause for just one moment. Our first question comes from Steve Ferrazati from Sedoti. Please go ahead.
spk05: Good morning, everyone. I wanted to follow up on your last comments about the met coal markets. When you can see where prices are, as you talk to your customers in Australia, what do you think will drive activity if it isn't price right now?
spk03: That's a good question. Right now, I think certainty is what will drive customer spending. The markets have rebalanced. The flows of exported met coal seem to be moving to different markets than historically that they've been. Our customers are certainly making a lot of profit and free cash flow at these levels. But in terms of green lighting, either maintenance spending or expansionary spending, there's I think we need more certainty in the market. So as of right now, we're not really expecting... Well, we'll see modest improvements. Our guidance assumes modest improvements in occupancy Q2 to Q3, and quite frankly, Q3 to Q4. We're still not at levels that we were expecting coming into the year.
spk05: And then on the Australian side, you know, is it reasonable to think that turnaround activity should be a lot happier given that probably a lot, it was a lot lighter during the COVID year? And is that what you're thinking? And is that what you're seeing?
spk03: Well, in Canada, yeah, yeah, we've seen much better turnaround activity. You know, second quarter was in line with expectations. despite the fact that we had one customer push some of their activity from Q2 to Q3. But it appears that that activity will come through. But turnaround activity in Canada is clearly much improved year over year. For the full year, we're still expecting Canadian build rooms to be approximately 2.3 million build rooms, a little over that. compared to 2.1 million build rooms last year. That improvement is both operational as well as better turnaround activity over here. Going into the third quarter, we've seen better occupancy. For most of the second quarter, we averaged about 5,000 Canadian guests a day, and now we're averaging a little bit over 6,000, so Things are improving, but certainly not to where we were pre-pandemic.
spk05: Great. If I could just get one more in. You noted lower CapEx now expected. You're down to two times leverage. Sounds like reasonable free cash flow this year. Any other thoughts on uses of cash, given that leverage is probably down to an area you're comfortable with?
spk03: It's getting there. I think for our business, our target is to get to one and a half times levered. That being said, to your point, capital allocation decisions have a little bit more freedom now, and we will be assessing whether or not a share and purchase program is prudent. But that is on the to-do list for Q3.
spk05: Great. Thanks so much. Appreciate the time.
spk04: Thank you. Appreciate the call. That's a reminder. And a star one for a question. We will now take our next question from Jacob Whitman from Stifu. Please go ahead.
spk06: Hey. Good morning, everyone. So looking at Stifio over the next one to two years, can you talk about key potential growth drivers for the overall business?
spk03: Sure. I'll go region by region. In Canada, There's still some recovery just that we expect to, presuming that the pandemic starts to get behind us, there's a recovery to near pre-pandemic levels, although we're not expecting, at least in our internal forecast, a recovery fully to pre-pandemic levels. And that's based on some projects that our customers are going to need to do, and that's going to drive some occupancy for us, as well as the benefits from the pipeline work, which will really start to impact us in the second half of this year as we're supporting the coastal gasoline pipeline as well as the Trans Mountain pipeline. And those mobile camp assets are in place and starting in the third quarter to earn some money. In Australia, with steel prices at near all-time highs or all-time highs with met coal and iron ore at, quite frankly, levels that are not necessary to drive our forecasted occupancy. Our forecast occupancy actually expects lower prices than where we are right now. So, to the earlier question, I think once customers start to feel comfortable with the outlook, there's a pent-up demand here in terms of occupancy in our Bowen Basin locations. There are potential growth projects by our customers that could drive further occupancy, and if we can open up the borders or if they can open up the borders in Australia, to help alleviate the labor issues that would improve our margins in Western Australia. Beyond that, there are a handful of things we'd like to do organically. We'd like to expand our integrated services business and continue to capture market share there. I think we've got an interesting... value proposition to the customer in terms of our service delivery and execution, and we'd like to build on that.
spk06: That's great. Thank you so much. I have one more follow-up, if you don't mind. Of course. So, in Australia, how are you managing COVID issues, personnel issues, and cost inflation, and how has it impacted margins?
spk03: So in terms of COVID, knock on wood, we've not had a positive case at any of our villages to date. The protocols that we globally put in place have worked successfully. We continue to work with our customers to ensure that we're keeping their people safe and their operations going. But that being said, for the better part of the last 18 months, there have been effectively travel restrictions inside the country which have limited movement of personnel and labor. We've seen some margin impact in our Bowen Basin locations because of higher labor costs, but where we've really felt it is in our Western Australian operations where Labor availability is difficult, and we've been having to rely on temp labor, which is both more expensive and less productive. So we're managing it. The guidance for 2021, while last time we spoke with you all on the first quarter call, we were expecting that the labor issue would be largely resolved by the second half of the year, we're effectively not assuming that anymore. we've backed off of that. We're assuming we're going to have higher labor costs in Western Australia for the balance of the year, as well as in the Bowen Basin, although it's less of an impact there. We do, as I mentioned in my earlier comments, we do expect that occupancy will continue to sequentially improve throughout the year, just not getting to where we had expected coming into the year because of the Chinese-Australian labor dispute.
spk01: Great. Great. Thank you so much. It appears there are no further questions at this time. Well, thank you all for joining us on the second quarter call.
spk03: We hope you and your families are all safe and healthy, and we look forward to speaking to you on the third quarter call.
spk04: This concludes today's call. Thank you for your participation. You may now disconnect.
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