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spk02: Greetings. Welcome to the Civio Corporation's second quarter 2022 earnings call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note the conference is being recorded. At this time, I'll now turn the conference over to Reagan Nielsen, Director of Corporate Development and Investor Relations. Reagan, you may now begin.
spk03: Thank you, and welcome to CIVIO's second quarter 2022 earnings conference call. Today, our call will be led by Bradley Dawson, CIVIO's President and Chief Executive Officer, and Carolyn Stone, CIVIO's Senior Vice President, 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.
spk06: Thank you, Reagan, and thank you all for joining us today on our second quarter earnings call. I'll start with key takeaways for the second quarter and then give a brief summary of our second quarter of 2022 performance. after which Carolyn will provide a financial and segment-level review, and I'll conclude with our updated full-year 2022 guidance and the regional assumptions that underlie that guidance. Then we'll open up the call for questions. The key takeaways from our call today are we had a strong second quarter with year-over-year revenues up 20% and adjusted EBITDA 15%, primarily driven by an increase in Canadian lodge build rooms and increased Canadian mobile camp activity, as well as an increase in Australian village build rooms. Second quarter performance coupled with improving customer demand drove our upward revision to our full year guidance. We continue to be encouraged by customer conversations and increasing customer activity and robust pipeline construction work, particularly in Canada. and expect increased maintenance and turnaround spending for the remainder of the year. As a result, we are raising the upper end of our full year 2022 adjusted EBITDA guidance, which I will detail later in the call. Our announcement earlier this month of a 12-year contract renewal for Waposuke Creek Lodge for a long-term partner that our services are necessary to support continued demand in Canadian oil sands regions for many years to come. This morning, we're pleased to announce a five-year integrated services contract with a new customer in South Australia with expected revenues of 120 million Australian. This contract is a testament to the growth and diversification potential of our integrated services business as it encompasses a new customer, a new state in Australia, and a new commodity. From a capital perspective, we continue to deleverage our balance sheet in the second quarter with debt repayments of $18 million, positioning CBO to be opportunistic going forward regarding capital allocation. The contract renewals and awards granted in the second quarter are consistent with our strategy of collaborating with long-term partners to maximize value in the current operating environment in a mutually beneficial way. Overall, we're pleased with our second quarter results compared to our expectations. Although we were encouraged by the current operating environment, we remain committed to capital discipline. We're going to take a brief moment to provide a business update on the three segments. In Canada, our revenues of adjusted EBITDA were slightly above our expectations, increased year over year, driven by a recovery in lodge build rooms and increased Canadian mobile camp activity. We also experienced a significant sequential increase in adjusted EBITDA due to an uptick in activity in the central oil sands area as a result of seasonal turnaround activity, as well as a rebound from a slower start to the year and improved weather conditions, which lowered operating costs. For Australia, our revenues and adjusted EBITDA were in line with our expectations, increasing year over year and relatively flat sequentially. This was driven by increased year-over-year and sequential occupancy at our Capabella Village due to recovering demand with sequential improvement offset by a weakening Australian dollar relative to the U.S. dollar. Turning briefly to the U.S., revenues increased year-over-year due to increased drilling activity positively impacting our well site services business, partially offset by the sale of our West Permian launch, which we did in the fourth quarter of 2021. Adjusted EBITDA decreased slightly year over year, primarily due to the sale of West Permian Lodge, largely offset by increased drilling activity, which, again, impacted the well-safed services business. 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 second quarter of $185 million, with gas net income of $9.1 million, or $0.54 per deleted share. During the second quarter, we generated adjusted EBITDA of $37.1 million, operating cash flow of $21.7 million, and free cash flow of $17.6 million. As Bradley mentioned earlier, the increased adjusted EBITDA we experienced in the second quarter of 2022, as compared to the same period in 2021, was largely due to increased billed runs in our Canadian lodges and increased Canadian mobile camp activity coupled with increased Australian village build rooms. The quarter-over-quarter increase in operating cash flow and free cash flow was primarily due to these same factors. 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 its performance a year ago in the second quarter of 2021. Revenues from our Canadian segment were $109 million. as compared to revenues of $83.3 million in the second quarter of 2021. Adjusted EBITDA in Canada was $28.7 million, an increase from $22.6 million in the second quarter of 2021. Results for the second quarter of 2022 reflect the impact of a weakened Canadian dollar relative to the U.S. dollar, which decreased revenues in adjusted EBITDA by $4.4 million and $1.2 million, respectively. On a constant currency basis, the increase in both revenues and adjusted EBITDA was largely driven by a 7% year-over-year increase in billed rooms related to the recovery of oil prices and the reduced effects of the COVID-19 pandemic, coupled with increased mobile camp activity. During the second quarter, billed rooms in our Canadian lodges totaled 771,000, which was up 7% year-over-year from 723,000 in the second quarter of 2021 due to the factors just discussed. Our daily room rate for the Canadian segment in U.S. dollars was 103, a 7% year-over-year increase, largely due to client mix. Turning to Australia, during the second quarter, we recorded revenues of 67.8 million, up from 64 million in the second quarter of 2021. Adjusted EBITDA was 15.5 million, in line with the same period of 2021. Results from the second quarter of 2022 reflect the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $5.3 million and $1.2 million, respectively. On a constant currency basis, the increased results were driven by both increased billed rooms and daily room rates in our villages. Australian build rooms in the quarter were 505,000, up 8% from 466,000 in the second quarter of 2021, due again to the recovery of customer maintenance activity at our villages, resulting from a more muted impact of the China-Australia trade dispute. While the average daily rate for Australian villages in U.S. dollars was $77 in the second quarter, down from $81 in the second quarter of 2021, The decrease was entirely driven by the weakened Australian dollar. Moving to the US, revenues for the second quarter were 8.1 million as compared to 6.9 million in the second quarter of 2021. The US segment adjusted EBITDA was $221,000 in the second quarter, down slightly from $290,000 during the same period last year. The decrease in adjusted EBITDA was primarily due to the fourth quarter 2021 sale of our West Permian Lodge, largely offset by increased drilling activity, which positively impacted our well site services business. On a consolidated basis, capital expenditures for the second quarter of 2022 were 5.1 million, compared to 3.2 million invested during the same period of 2021. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. Our total debt outstanding at June 30, 2022 was $154.6 million, a $23.3 million decrease since March 31. The decrease consisted of $18 million in debt payments from cash flow generated by the business and favorable foreign currency translation of $5.3 million. As a result, our net leverage ratio for the quarter decreased to 1.18 times in June 30, from 1.4 times as of March 31st, 2022. As of June 30th, we had total liquidity of approximately $95.3 million, which consisted of 90.5 million available under our revolving credit facilities and 4.8 million of cash on hand. Bradley will now discuss our updated guidance for the full year 2022. Bradley? Thank you, Carolyn.
spk06: I'd like to discuss our updated full-year 2022 guidance on a consolidated basis, including the underlying outlook for each of the regions, as well as underlying assumptions related to our guidance. Based on our second quarter results and improving outlook for the remainder of the year, we are raising our full-year revenue and EBITDA guidance to $660 million to $675 million of revenues and $95 million to $105 million of EBITDA, adjusted EBITDA. As previously announced, we are raising our full-year capital expenditure guidance to $24 million to $29 million, with the increase related to capital spending tied to the Wausau Creek Lodge contract route. Based on the increased EBITDA and CapEx guidance that I just outlined, expected interest expense of $10 million for the full year 2022, minimal expected cash taxes, and our expected free cash flow forecast is in the range of $56 million to $71 million, modestly down from the previous free cash flow guidance to $60 to $72 million. This free cash flow range assumes the first half of 2022's working capital increase unwinds in the second half of the year, consistent with prior working capital trends. The increase to our revenue and EBITDA guidance is primarily driven by recent customer conversations and contract rewards and renewals, related to maintenance and turnaround activity across our Canadian lodges and Australian villages. We're seeing our customers increase their maintenance plans for the year due to sustained commodity prices at very healthy levels. The single largest uncertainty for our 2022 guidance continues to be the timing and duration of our Canadian mobile camp activity related to pipeline projects in British Columbia. Regarding this matter, we have not changed our assumption related to the demobilization of the three Canadian mobile camps in the fourth quarter of 2022. Should these projects extend into 2023, we can see our 2022 adjusted EBITDA improve anywhere from $3 million to $10 million. I will not provide a regional outlook and corresponding underlying assumptions by region. In Canada, as we look At the remainder of 2022, we are encouraged by our recent customer conversations surrounding increased demand for maintenance and turnaround-related rooms for the summer and early fall. We continue to expect an increase in Canadian oil sands, lodge-filled rooms from 2021 levels in the third quarter of this year. There is a risk that customer labor availability in the region could dampen our customers' ability to execute these larger turnarounds. and we have baked in a portion of that risk into our guidance. As I mentioned earlier, we are still forecasting the majority of our Canadian mobile camp activity to wind down by the end of the year, and we've included the related demobilization costs in our full year and fourth quarter guidance. Turning to Australia, we've also seen encouraging signs of improvement in customer demand, albeit not at the same levels as our Canadian business. Although met coal prices remain in very healthy levels and at historically high levels, the historic volatility in met coal pricing, La Nina weather, and lingering China-Australia trade dispute continues to impact customer spending. Iron prices remain at constructive levels and customer activity in Western Australia remains strong. While we are seeing gradual progress as it pertains to COVID-19 related labor issues that we experienced last year and into this year, it is a slow process and we expect labor shortages to remain a factor in our integrated services business for the remainder of the year. For our U.S. business, the oil and gas price environment is strong. We expect to continue to benefit from increased drilling and depletion activity in the U.S., We expect our well site and offshore businesses to continue to improve throughout the rest of the year. I'll conclude our prepared comments by underscoring key elements of our strategy as we navigate this extraordinary market climate. We will continue to prioritize the well-being of our guests, employees, and communities. We'll manage our cost structure in accordance with occupancy outlook across each of the three regions. We will continue to enhance our best-in-class hospitality offerings And we will allocate capital prudently to maximize free cash flow while we continue to reduce debt and return capital to shareholders through our share repurchase program. And lastly, we will seek opportunities to further our revenue diversification and free cash flow generation as organic and innovative opportunities arise.
spk07: With that, we're happy to take your questions.
spk02: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 when you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. And our first question is from the line of Steven Gingaro with Stifel. Please proceed with your questions.
spk04: Thanks and good morning.
spk07: Good morning.
spk04: So a couple of things, one of the things I was struggling with is sort of squaring what I think, what I think about the third quarter should be a fairly solid quarter relative to where the second quarter flushed out and the full year guidance. And I think it's probably related to the mobile camp demobes. Can you talk a little bit about what the severity of that that you've kind of baked into your guidance?
spk06: In terms of the demobilization costs, the guidance assumes $10 million of U.S. demobilization costs in the fourth quarter in Canada.
spk04: And does that have a... And that impacts the mobile camp revenue line as well, right? So it's cost as well as the revenue coming down.
spk07: Yeah, we'll lose... Yes, when we demobilize, we'll lose the revenues, yes.
spk04: Okay, can you... quantify that at all, the revenue impact?
spk06: Well, so we've been running about $24 million a quarter of mobile camp revenue the last couple quarters. It'll be consistent in that range in the third quarter, and then it drops to about $11 million in the fourth quarter.
spk04: Okay, great. No, that's very helpful. The, from a, what I was trying to get at, so when we think about this going forward, and we think about the stability of your Canadian operations, right, and obviously the big 12-year contract that you announced a couple weeks ago sort of speaks to that, but can you talk about the Canadian lodge and village side and the visibility that you have, at least for, I think, a relatively large portion of that business going forward. That's one of the things we get asked a lot, but it seems like it's more stable than people think, given the reserve life of the oil sands.
spk06: Right. So, obviously, the Wapasoo contract lost up that asset. That was rolling from a 10-year contract now into a 12-year contract. So, that's got some good visibility to it with take-or-pay minimums. The McClelland Lodge is one that has been going year to year. So we're working with the client on a longer term option there. We have the core region. We've got two primary customers, Syncrude and Suncor. We have an exclusivity agreement with Suncor, which runs through 2027. And then the Syncrude work, we're currently working on an extension of that five-year contract that's coming to, that ends this year. We're working with the client to negotiate a longer-term solution there. And so if we get all of that done, then really the variability will be customers using rooms above their take-or-pay minimums and turnaround work during the second and third quarters. But it will be very firm. Now the contract can't work Right now, we have nothing from the clients to indicate an extension into 2023, but I think that's more likely than not. And so, you know, there's an upward bias to move those demo costs into 2023.
spk07: As it's been, you know, well documented, those pipeline projects are running long.
spk04: Great. Thanks. And then just one final one from me on the new contract in southern Australia. Is that related to the action business that you guys acquired? And is that a five-year contract? When do we start to see the impact of the revenue from that award?
spk07: In the third quarter. And yes, it is the action business. Great. Thank you.
spk02: The next question is from the line of Steve Farazani with Sedodian Company. Please receive your question.
spk05: Morning, everyone. Appreciate all the color on the call. I did want to ask about what you're seeing both on labor availability, both in Canada and in Australia. In terms of Canada, certainly it seemed like we were heading into a much healthier turnaround season this year. CapEx indicated it. yet the concern was whether there were, and you talked a little bit about this, the labor availability to get the workers up there. How would you characterize turnaround activity this season versus pre-COVID levels, and do you think it's still being impacted by labor availability?
spk07: Thank you for the question.
spk06: Definitely, labor availability continues to be an issue. We had one customer in particular that was not able to source labor, but others are having success. And so some of it appears to be labor rates. So others are moving labor rates up and they're getting labor, and others are trying to hold fast, and it's proving to be more difficult. For us, we continue to struggle with getting labor. We're short-staffed. both in Canada and Australia. The team is working very hard to maintain service levels when we don't have a full complement of employees.
spk05: So in terms of Australia, and you had indicated you expected margin pressure this year largely due to where you're going to find the ability to fill positions given the visa restrictions. Have you seen that loosen enough now where margins can move back to earlier levels? And also, how does that affect you ramping up staffing for the new contract?
spk06: Well, it's been a challenge on the latter question, but we've been able to mobilize and staff that up. I would say on our integrated services business, which is the For that contract, we've had net additions to employment for the last five months in a row. We still have a lot of turnover, but we're starting to make headway. And so kudos to our HR and ops teams down there for achieving that. We're still fighting that battle, but it's moving in the right direction. We're starting to get some foreign chefs on visas to be able to come into the country. And so we're making progress. It's just not resolved. So margins are moving in the right direction in our Australian integrated services business, but they're not to where we want them ultimately. Margins in our villages in Australia have been relatively consistent. We've probably lost 100 basis points from what we were hoping for, maybe 150 basis points on margin year to date.
spk07: But I think given the environment, that's a pretty good outcome.
spk05: Absolutely. And then on capital allocation, obviously you have a little bit of additional CapEx now with the long-term contract, but still your CapEx rate is very, very subdued. How are you thinking about it? You haven't used a lot of the share repurchase. How are you thinking about that or other opportunities?
spk06: Sure. So we were saving our dry powder on the share repurchase program for potentially using or being able to execute on the right of first refusal to buy shares from one shareholder. That didn't occur in the quarter, and so we didn't get as much done in the second quarter as we had hoped, and we'll have to step it up in the third quarter while still remaining ready to execute on the ROFR should it become available. and that we have every expectation that we'll continue to execute on the program. And we just, we've run into some bumps along the way here today, but we'll get it back after it in the third quarter.
spk05: All right. Thanks so much for the commentary. Thanks.
spk02: Thank you. The next question is a follow-up from the line of Stephen Gingara with FIFO. Please proceed with your questions.
spk04: Thanks. I have two more, if you don't mind. The first was around Your leverage ratio has obviously come down significantly over the last year plus. Where does it settle out where you decide I'm going to just stop buying back debt? And if so, and maybe a better question is what are the other options you might be looking at outside of clearly continuing exercise on the share repurchase?
spk06: Well, I would say we've reached a level on the debt where when we continue to pay it down, it's because the other alternatives have not been available for capital allocation. So we'll continue to do that, saving our dry powder for the roofer as the first use of capital beyond debt repayment. But we're very comfortable levering back up for capital returns. So to execute under it. Right now, what the discretionary capital that we're spending is in support of contracts. So while the two contracts won, there's a little bit of capital going into the new contract in South Australia. Should we continue to win work in our integrated services business down there, those contracts typically have a modest amount of capital. associated with them. We are in the process of refurbing and refreshing some of our Bowen Basin rooms in Australia. Right now, we've been running near full capacity at Capabella. And so we've been rotating rooms out of service and bringing mothballed rooms into service. And so there's probably about $6 million worth of capital in the guidance. that's related to refreshing those rooms and bringing them back online. Part of that is due to demand, and part of that's been that we've been very stingy on capital the last three years as we were trying to get our debt under control. And we need to put some more money into the rooms. I expect that we'll be in this range of plus or minus $25 million of capital going forward with a more healthy, refer program in place.
spk04: Great. Thank you. And then just one final, when, you know, obviously with inflationary pressures out there, are you seeing much on the pricing side? And you've clearly done a good job offsetting inflation and delivering margin performance. Can you talk a little bit about those dynamics?
spk06: Well, we have some contractual protection in our multi-year contracts around inflation. This is obviously a very extreme situation to which we work with the client. First, we work on scope. So if there are items that are concrete above scope, we bring those back in to reduce our costs. We work with the client on scope to see if there are ways that we can adjust the scope to reduce our costs and not have to pass that through to them. But generally speaking, there's an upward bias on pricing in both of our major regions.
spk02: Great. Thank you. Thank you. At this time, we've reached the end of the question and answer session. I'll turn the call back to Bradley Dodson for closing remarks.
spk07: Thank you, Rob. Thank you, everyone, for joining the call.
spk06: Thank you, Stephen and Steve, for your questions and We appreciate your interest in CIVIO. We look forward to speaking with you on the third quarter of this call in about three months. Hope everyone has a good weekend. Take care.
spk02: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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