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spk03: Greetings and welcome to CVO Corporation third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Reagan Nielsen, Vice President, Corporate Development and Investor Relations. Thank you. You may begin.
spk01: Thank you, and welcome to CIVIO's third quarter 2023 earnings conference call. Today, our call will be led by Bradley Dodson, CIVIO'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 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.
spk02: Thank you, Reagan, and thank you all for joining us today on our third quarter earnings call. I'll start with the key takeaways for the third quarter and then give a brief summary of our third quarter 2023 performance. Then Carolyn will provide a financial and segment level review. And I'll conclude with our updated full year 2023 guidance with its underlying assumptions. And I'll also provide a preliminary outlook for 2024. Then we'll open up the call for questions. The four key takeaways from our call today are the third quarter 2023 financial results exceeded our expectations, strong operational execution, in both Canada and Australia, with Australia demonstrating strong year-over-year growth. During the quarter, we secured an economically attractive solution for our McClellan Lake assets, which we are optimistic will also lead to additional opportunities. We announced our capital allocation framework, including initiating a 25-cent per share quarterly dividend to provide a consistent form of capital return to our shareholders. and we renewed our share buyback program. The last key point is that we'll provide a qualitative assessment of our initial outlook for 2020. Let me now take a moment to discuss the third quarter and our segments. Our revenue in the third quarter reflected a diverse customer base, from traditional oil and gas production, LNG, project construction, and wildfire response in Canada, to met coal and iron ore production in Australia. Our Australian segment performed exceptionally well during the quarter as we experienced sequential and year-over-year growth in both our own villages business and our integrated services business. During the quarter, we experienced a sequential increase in Australian-owned village occupancy, setting a second consecutive quarterly record for Australian build rooms. On a constant currency basis, the Australian village revenues were up 25% year-over-year, led by increased occupancy in both our Bowen Basin and Gunnedah Basin villages. Assuming a constant currency, revenue from our Australian integrated services business grew both sequentially 12% and year-over-year 23% as recent contract awards began to contribute. During the quarter, we also saw tangible results from our inflation mitigation plan for the integrated services business. we should see the benefit from our team's efforts more fully in the fourth quarter of this year and into next year. However, it is important to note that while we've made strides in mitigating inflationary pressures in both our Canadian and Australian businesses, we expect inflation to remain a focus of ours for the foreseeable future. Our Canadian segment delivered strong quarterly results in the third quarter from turnaround and wildfire activity. This was partially offset by lower LNG-related activity in British Columbia, Canada, as pipeline construction activity continues to wind down, as is expected, resulting in reduced Canadian mobile camp activity for us compared to the third quarter of 2022. We also began demobilizing our mobile camps in this third quarter of 2023. Regarding the sale of our Mofon Lake Lodge in Canada, we have secured, in addition to the sale, the transportation contract for the assets, and the demobilization and transportation work is underway. During the third quarter of 2023, we incurred approximately $4.9 million of demobilization expense related to the McClellan Lake Lodge assets. The majority of the net proceeds from the McClellan sale will be recognized in the fourth quarter of 2023 and into the first quarter of 2024. In regards to the financial impact of this sale, the entirety of the sales proceeds and associated costs will be accounted for in the other income line item on the income statement, and they are excluded from our adjusted EBITDA calculation. As a result, this transaction does not impact our full year 2023 adjusted EBITDA guidance. Lastly, We announced a new capital allocation framework simultaneously with the initiation of a 25 cent per share quarterly dividend policy. This provides flexibility to use our strong cash flow generation for our existing operations, fund growth opportunities, and return capital to shareholders. We also continue to execute on our share repurchase plan in the third quarter and will opportunistically buy back shares moving forward. With that, I'll turn the call over to Carol.
spk00: Thank you, Bradley, and thank you all for joining us this morning. Today, we reported total revenues in the third quarter of $183.6 million, with GAAP net income of $9 million, or 61 cents per deleted share. During the third quarter, we generated adjusted EBITDA of $32.9 million, operating cash flow of $36.8 million, and free cash flow of $31.7 million. As Bradley mentioned earlier, the decline in adjusted EBITDA we experienced in the third quarter of 2023, as compared to the same period of 2022, was largely due to the wind-down of Canadian pipeline construction activity, and therefore our mobile camp revenues and EBITDA. This decrease was partially offset by increased build rooms in our Australian Bowen Basin Villages, and increased Australian integrated services activity due to our recent contract win. Let's now turn to the third quarter results for our two segments. I'll begin with a review of the Canadian segment performance compared to its performance a year ago in the third quarter of 2022. Revenues from our Canadian segment were $95.1 million as compared to revenues of $103 million in the third quarter of 2022. Adjusted EBITDA in Canada was 23 million, a decrease from 25.6 million in the third quarter of last year. Results from the third quarter of 2023 reflect the impact of a weakened Canadian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by 2.6 million and $0.7 million, respectively. On a constant currency basis, revenues decreased 5%, primarily due to a decline in mobile camp activity as pipeline construction continues to wind down. Adjusted EBITDA also declined year over year due to the aforementioned dynamics. During the third quarter, billed rooms in our Canadian lodges totaled 726,000, which was modestly down from 731,000 in the third quarter of 2022. Our daily room rate for the Canadian segment in U.S. dollars was 98 dollars, which declined slightly year over year entirely due to the weakened Canadian dollar relative to the U.S. dollar. The average rate in Canadian dollars was up slightly year over year. Turning to Australia, during the third quarter, we reported revenues of $87.9 million, up from $73.8 million in the third quarter of last year. Adjusted EBITDA was $18.8 million. of 11% from $16.9 million in 2022. Results from the third quarter of 2023 reflect the impact of weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $3.8 million and $0.8 million, respectively. On a constant currency basis, the increase in revenue and adjusted EBITDA was largely driven by increased occupancy at our own villages as well as higher activity for our integrated services business related to new contracts. Australian billed rooms in the quarter were $623,000, up 19% from $525,000 in the third quarter of 2022, due to increased customer demand at our own villages driven by our recent contract awards. The average daily rate for Australian villages in U.S. dollars was $74 in the third quarter, up modestly from $73 in the third quarter of last year. The increase was moderated by the weekend Australian dollar. The average daily rate in Australian dollars was up 6% year over year. On a consolidated basis, capital expenditures for the third quarter of this year were $9.5 million, compared to $8.8 million during the same period in 2022. 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 third quarter of 2023 also included $3.6 million in expenditures for the Australian customer-funded infrastructure upgrades that we've discussed on prior quarter conference calls. Our total debt outstanding on September 30th was 103.2 million, a 32.9 million decrease since June 30th. Our net leverage ratio for the quarter also decreased to 0.9 times as of September 30th from 1.2 times as of June 30th. And as of September 30th, we had total liquidity of approximately $110.6 million, consisting of 102.8 million available under our revolving credit facilities, and $7.8 million of cash on hand. I'd like to turn now to capital allocation. In the third quarter of 2023, we repurchased approximately 62,000 shares through our share repurchase program for a total of approximately $1.3 million. And in September, we announced our new capital allocation framework, which included the initiation of a $0.25 per share quarterly dividend After paying our first dividend in late September, this morning we announced that our Board of Directors has declared our second quarterly dividend payment. Shareholders of record as of November 27th will receive a $0.25 per share cash dividend payable on December 18th. Our new capital allocation framework allows our strong cash flow generation to support our existing operations return capital to our shareholders through a consistent dividend and opportunistic share repurchases, use excess cash flow to fund growth opportunities, and maintain our target leverage ratio at one times to 1.25 times through the cycle. We do believe it is prudent, however, to provide flexibility to increase our leverage ratio up to two times to pursue accretive growth opportunities where appropriate. With that, I'll turn it over to Bradley to discuss our updated guidance for the full year 2023. Bradley?
spk02: Thank you, Carolyn. I'd like to turn our discussion to our updated full year 2023 guidance on a consolidated basis, and then we'll look at the outlook for each of the regions. We are increasing our full year 2023 revenue and adjusted EBITDA guidance ranges, resulting in the ranges of 675 to 885. sorry, $635 million to $685 million for revenues and $95 to $100 million for adjusted EBITDA. We are maintaining our full year 2023 capital expenditure guidance of $35 to $40 million. Based on this EBITDA and CapEx guidance, expected net tax proceeds from the McClellan Lake demobilization and sale of those assets are approximately $20 million. Expected cash interest expense of $12 million for 2023 and expected working capital inflows of $5 million, largely related to customer reimbursement of capital associated with village upgrades. Limited cash taxes. We are adjusting our expected 2023 free cash flow range to $68 million to $78 million for the full year. I'll now turn to the regional outlooks and the underlying assumptions. In Canada, as we look into the fourth quarter of 2023, we're expecting to experience a sequential decline in Canadian mobile camp activity with the coastal gasoline pipeline continuing to wind down, coupled with the typical fourth quarter sequential decline in lodge build rooms due to the end of turnaround season and normal holiday downtime at the end of the year. Regarding Canadian mobile camps, there are no material changes in our outlook. The camps began winding down in the third quarter, and the fourth quarter will be burdened with approximately $10 million U.S. of demobilization expense. We continue to expect approximately $6 million U.S. of demobilization expenses in 2024 related to the mobile camps. In regards to the McClellan Lake lodge sale, we expect to receive the majority of the net proceeds currently estimated to be $20 million in the fourth quarter of 2023, with the remainder of the net proceeds in early 2024. We are pleased to announce that we have secured the transportation contract associated with this sale, and the demobilization and transportation of these assets is underway. We are actively pursuing other opportunities associated with this sale, and we'll update you as we know more. Turning to Australia, we continue to see encouraging signs of growth in customer demand for both our own villages and our integrated services business. Our integrated services business is benefiting from increased revenue from our recent contract wins over the last few quarters and our efforts in the inflation mitigation plan that we've been focused on. We began to see the benefits of our inflation mitigation efforts in the third quarter and expect to see additional benefits in the fourth quarter and into 2024. As it relates to our 2024 outlet, I'll provide a few preliminary comments. As we've discussed throughout the year, 2024 is expected to be a transitional year for our Canadian business, resulting in a year-over-year decline in EBITDA. With the sale of McClellan Lake Lodge and the wind down Canadian mobile camp activity. We are acutely focused on replacing these earnings and growing the company. While we continue to monitor market dynamics as we work through our 2024 budget process, and we will provide a more detailed outlook on our 2023 year-end conference call in February, we are gaining more optimism around the ability to offset a material portion of this decline. I'd like to touch on a few of these opportunities and positive trends that we're seeing. In Canada, we are pleased with the outcome of the McClellan Lake Lodge sale and securing the transportation contract for those assets. We're actively pursuing additional opportunities related to this transaction that could contribute in 2024. While we will lose the build rooms from our former McClellan Lake Lodge customer, the remainder of our oil sands portfolio remains solid, and we should see improved performance from our Lodge portfolio. In Australia, we are encouraged by the outlook for both our own villages and integrated services business. Our own villages are currently at record high occupancy, and we're expecting higher build rooms in 2024. Our integrated services business should continue to benefit from the inflation mitigation plan and a margin improvement experienced in the second half of this year, and we expect it to also grow top line in 2024. Regarding free cash flow, While we're currently anticipating a decline in the EBITDA in 2024, we should see relatively consistent free cash flow due to the wind-down of mobile camp activity, resulting in significant associated receivables that we expect to be collected in the first half of 2024. I will conclude by underscoring the key elements of our strategy. We will prioritize the safety and well-being of our guests, employees, and community. continue to enhance our best-in-class hospitality offerings. We will continue to manage our cost structure in accordance with our occupancy outlook, and we will allocate capital prudently to maximize free cash flow generation while we continue to return capital to shareholders and focus on growth opportunities. With that, we're happy to take your questions.
spk03: Thank you. Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Steve Ferrazani with Sidoti. Please proceed with your question.
spk06: Morning, Bradley, Carolyn. Thanks for all the color on the call. I want to ask a couple questions on Canada. The Canadian accommodations margins significantly improved. If that was around the McClellan and the sale or if there's anything significant costs you're taking out or any margin improvement that's sustainable there because it was much better.
spk02: I think it's a handful of things. We had strong occupancy in Canada in the third quarter. We had very strong turnaround activity in what we call our core region of assets, which is the Fort McMurray Village, Beaver River, Athabasca area. In addition, we had the occupancy that was at McClone move into Beaver River, Athabasca. So improved occupancy gives us economies of scale, and we were able to leverage that. There were also some efforts that have been put in place earlier in the year their patent benefits in terms of labor costs, and that really flowed through the third quarter was our first time to really see the benefits of that. In addition, we had some wildfire-related, response-related occupancy at Sitka in British Columbia that helped during the quarter. Those are the main components that helped. Okay.
spk06: How much of that do you think is sustainable, the actions you've taken?
spk02: Well, certainly the labor efforts that we put in place will continue. We won't have fire. I know there's seasonality to it, of course. I know there's seasonality, of course. Yeah. But I think the efforts the team has made will be lasting on the labor side in Canada.
spk06: Okay. On the cadence of the wind down with mobile camps, I was surprised that it didn't step down this quarter. Can you just help us out on anything you know on timing when you think that the wind down is complete?
spk02: It'll be fourth quarter.
spk06: It will still be. But you're expecting some revenue remaining there or not?
spk02: We'll have some, but in terms of contribution, coupled with the mobile camp demobilization costs that will start to flow through in the fourth quarter. So the revenues will step down. Okay.
spk06: Fair enough. When you sold McClellan Lake, you highlighted the fact that you can use funding for growth, and that's certainly not something you've there hasn't been a lot of growth efforts the last few years. Can you give us a little bit of highlights on what your growth strategies might be, particularly as you try to replace some of that mobile camp revenue?
spk02: Yes. So in Canada, we're looking at an entry point into the lot need. There are also going to be some opportunities to pick up selected properties in Canada that would augment the portfolio of Those are the two main things we're looking at right now, in addition to pursuing opportunities related to the McClellan Lake sale.
spk06: And then last one for me, your outlook on Australia, obviously significant gains. We know that there's investment by the mining industry in Australia. But what's your upside from here? Do you think you've seen the biggest gains? I know you've had some big contracts. Is there room for occupancies to grow from here?
spk02: Going into 2024, we'll have the benefit of a full year of the contracts we've signed this year that we mentioned on prior calls. There are going to be some opportunities, modest opportunities, to add additional rooms or bring mothballed rooms online in Australia. Both of those, whether they're new build rooms or bringing on mothballed rooms, those will only move forward if we have customer commitments that support them. We expect that, so that's on the own villages side. On the integrated services side, we'll have the full year benefit of the contract wins that we've had this year. And we see a portfolio of opportunities to continue to win additional work and grow that business. It'll also benefit from the full year benefits of the inflation mitigation plan that we put in place. So because the first half margins out of the integrated services business were not where we wanted them to be. We had some benefit in the second quarter. We had some benefit from the mitigation plan in the third quarter. Really didn't see the full benefit of it on a clean basis until September. So fourth quarter will be one where we're expecting to see how the true benefit and confirming that our efforts played out as we anticipated.
spk06: Perfect. If I could just get one last one in. Given the very healthy dividend you've introduced, And I know given the liquidity of the stock, the buyback can be challenging. Does the dividend to some degree replace the buyback, or could you still be aggressive with the buyback? Given that you're with the cash coming in from McClellan Lake, your net leverage is probably going to bump against the low range of your target already.
spk02: That's correct. And in terms of timing of redeploying it for growth opportunities. It may bump down lower in the fourth quarter as well. But expect that we'll have some opportunities to put capital at work in 2024 that we will fund with cash flow and leverage.
spk00: Perfect.
spk06: Thanks, Francis.
spk03: Our next question comes from the line of Alec Scheibelhofer with Stifel. Please proceed with your question.
spk05: Good afternoon, everyone, and thanks for taking my question here. If you can hear me, just to kick us off here, I know you gave a lot of color just in the last Q&A session during the call, but just at a high level, if there's any additional color you could give us on just understanding the puts and takes when we're thinking about 2024 and maybe some of the avenues of growth you're pursuing or crossed out, maybe a little bit more granular. Sure.
spk02: Well, let's start with Australia in terms of year-over-year. We'll have, as I mentioned, we'll see, we expect at this point still finalizing our budgets, that build rooms in the young villages will be up year-over-year. We'll have the full-year benefit of being, quite frankly, fully occupied at Capabella and Moranba villages, which we're certainly are full of rafters in the second half, and expect that to continue into 2024. The other piece, major piece, is going to be just top-line growth in integrated services coupled with better margins as we've adjusted pricing for the inflationary environment that we've experienced. So those are the main drivers there. If we can get the customer commitments, we'll certainly expand the owned villages if we can make the economics work. So that's Australia. In Canada, we had effectively a full year of McClelland occupancy. The first half was at McClelland, and the second half was at Beaver River, Athabasca. So their Canadian build rooms will be down year over year. Don't finalize in what that looks like. And then we'll have mobile camp, both top line and even top, will be down year over year. So what we're looking at is trying to redeploy assets. One of the things that really, you know, you look for the silver lining in difficult situations, and the McClellan Lake Lodge was a difficult situation. But in marketing those assets, it gave us a very good insight into the value of modular and mobile camp assets in the broader industrial complex, both in Canada and down here in the U.S., and see an opportunity to leverage existing underutilized assets in Canada to leverage our way into new opportunities, both across Canada and into the U.S., And expect over the next 12 months, we'll be able to put some more meat on that boat.
spk05: Great. Great. Thank you for the color there. And then just as a second question here, if you could just remind us or talk a little bit about the mobile cam demobilization that hit in 2023 and how much lingers in 2024. I think you said 6 million, but if you could just refresh my memory on that, that'd be great. Yeah.
spk02: So let me be clear for everyone. So on the mobile camps, we had $10 million of demobilization expenses that will run through EBITDA in 2023 and $6 million that will run through EBITDA in 2024. As it relates to the demobilization costs related to McClelland, that will flow through other income and expense line item, along with the proceeds from selling those assets. So a little confusing because we'll talk about DMO in both cases, but we'll try and be clear.
spk05: Great. And that's all for me. I'll turn it back. Thank you.
spk02: Thank you very much. Thanks for your questions.
spk03: Our next question comes from the line of Dave Storms with Stonegate Capital Markets. Please proceed with your question.
spk04: Good morning. Good morning. Just one quick one on McClellan Lake. Are there any contingencies there that we should be aware of? Any earnest money that may or may not be material?
spk02: There were some deposits that were put in place upon signing the agreement and were paid as soon as the units are truck ready on location in Alberta. As it relates to the sale of the assets, as it relates to the transportation, those will start to be recognized in the fourth quarter as we move the assets from Alberta down to the Western US.
spk04: Understood. Appreciate it. And then it looks like over the last four quarters, the EBITDA contribution from Australia and Canada has been about a 50-50 split. Is this a trend we should think about going forward, or do you think that there's a potential for that split to diverge a little?
spk02: Well, because of the loss of the McClelland earnings and the mobile camp earnings in Canada, it will shift in 2024. And as highlighted in the comments, we're working on earnings replacement for Canada. That will take some time.
spk04: Understood. Thank you. And then just one more, and I think you touched on this a little bit earlier, but your leverage ratio is below that one times target. Is this gearing up for something, or is this just the normal fluctuations of the leverage ratio through the cycle?
spk02: I would say it's normal fluctuations. Our free cash flow historically, and we expect this trend to continue, is usually strongest in the second half of the year. The reasons for that are you ramp up in the first half of the year, receivables go up. You have the start of the turnaround seasons, predominantly in Canada, but Australia as well in the second quarter. And then those receivables start to unwind in the second half of the year. So we had strong free cash flow in the quarter. We expect to have strong free cash flow in the fourth quarter. And then on top of that, we've got the net proceeds from McClellan coming through. So, yeah, I would say it's just normal fluctuations exacerbated or enhanced, not exacerbated, enhanced by the proceeds from them on sale. So I do expect it to temporarily go below our range, and then we expect to deploy that in growth efforts in 2024.
spk04: Understood. That's very helpful. Thank you for taking the questions. Absolutely.
spk03: Thank you. There are no further questions in the queue. I'd like to hand the call back to Bradley Dotson for closing remarks.
spk02: Thank you, and thank you all for joining us on the call today. We appreciate your interest in Cibio, and we look forward to speaking with you on the fourth quarter and full year earnings call, which we expect to do in February.
spk03: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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