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spk04: Press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Reagan Nielsen, Vice President, Corporate Development and Investor Relations. Reagan, you may now begin.
spk05: Thank you, and welcome to Sibio's fourth quarter and full year 2023 earnings conference call. Today, our call will be led by Bradley Dodson, Sibio's President and Chief Executive Officer, and Carolyn Stones. Sibio'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 Brandon.
spk07: Thank you, Reagan, and thank you all for joining us today on our fourth quarter full-year earnings call. We had a solid end to the year, having reached and exceeded our target leverage ratio. We are entering into 2024 with financial strength and flexibility to execute on our capital allocation strategy, including looking to identify and execute on growth opportunities. This morning, I'll review our fourth quarter 2023 performance. Then Carolyn will provide a financial and segment level review. And I'll conclude with our initial full year 2024 guidance and the underlying regional assumptions. Lastly, we'll open up the call for questions. I'll begin with a few important highlights. Our fourth quarter 2023 revenues adjusted EBITDA and free cash flow exceeded our expectations. Australian adjusted EBITDA increased 64% compared to the fourth quarter of 2022 due to particular strength in our build rooms at our own villages where we posted our third consecutive quarter of record performance. We also saw margin improvement in our Australian integrated services business as a result of our inflation mitigation efforts. And both our own villages and our integrated services benefited from recent contract wins. Moving to Canada, subsequent to the end of the quarter, we completed the previously announced sale of the McClellan Lake Lodge, and we are currently performing the associated transportation services contract for those assets. During 2023, we returned 23% of our free cash flow to shareholders through both our recently initiated dividend and continued opportunistic shared purchases.
spk06: I'll now make a few comments on the business segments.
spk07: Australian segment performed exceptionally well during the quarter as we experienced sequential and year-over-year growth in both our own village business and our integrated services business. During the quarter, we experienced a sequential increase in Australian-owned village occupancy, setting, again, a third consecutive quarterly record for that side of our business. In the fourth quarter, our Australian integrated services business experienced significantly improved margins as our inflation mitigation efforts started to demonstrate positive results. We should continue to see this benefit from our team's efforts as we move into 2024. Our team continues to execute on our growth plans for our integrated services business with a goal to reach $500 million Australian in top-line revenues out of integrated services in Australia by 2027. With improved margins, we believe the integrated service business is particularly attractive given contract terms and the outlook for additional opportunities in the business. As expected, our Canadian segment revenues in adjusted EBITDA decreased year-over-year due to the wind-down of LNG-related mobile camp activity, including $5.6 million in mobile camp demobilization costs in the fourth quarter. Regarding the sale of our McLean Lake Lodge in Canada, we completed the sale in January of 2024 and have received all proceeds. The majority of the net proceeds were recognized in the fourth quarter, with the remainder here in January 2024. As a reminder, the entirety of the sale proceeds and associated costs, as well as other related reimbursements, are excluded from our adjusted EBITDA calculation. As a result, the sales transaction does not impact our full year 2024 adjusted EBITDA guidance. The transportation of these assets is progressing well, and we continue to pursue other related business opportunities. And with that, I'll turn the call over to Carolyn.
spk01: Thanks, Bradley, and thank you all for joining us this morning. Today, as Bradley noted, we reported financial results that exceeded our guidance. Total revenues in the fourth quarter were $170.8 million, with gas net income of $23 million, or $1.55 per diluted share. During the fourth quarter, we generated adjusted EBITDA of $17.4 million, and Again, this is exclusive of the financial impact of the dismantlement and sale of the McClellan Lake Lodge asset. Operating cash flow of $40 million and free cash flow of $39.2 million. Fourth quarter adjusted EBITDA increased year over year due to increased billed rooms at our Australian-owned villages and improved margins in the Australian integrated services business. partially offset by the expected wind down of LNG-related Canadian mobile camp activity, including $5.6 million in mobile camp demobilization costs. For the full year 2023, we reported revenues of $700.8 million and net income of $30.2 million, or $2.01 per Duluth share. In 2023, we generated adjusted EBITDA of $102 million, a decrease from our 2022 adjusted EBITDA of $112.8 million. Results for the full year of 2023 reflect the impact of a stronger U.S. dollar, which decreased both revenues and adjusted EBITDA by $28.8 million and $5.7 million, respectively. The decrease in adjusted EBITDA was largely driven by the wind-down of LNG-related activity in Canada, and the impact of weakened Canadian and Australian dollars, but partially offset by significant improvement across our Australian business. Let's now turn to the fourth 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 fourth quarter of 2022. Revenues from our Canadian segment were $72.7 million, as compared to revenues of $88 million in the fourth quarter of 2022. Adjusted EBITDA in Canada was $3.4 million, a decrease from $11.8 million in the fourth quarter of last year. Revenues in adjusted EBITDA decreased 17% and 72%, respectively, primarily driven by the wind-down of LNG-related mobile camp activity, including $5.6 million of mobile camp demobilization costs. During the fourth quarter, billed rooms in our Canadian lodges totaled $617,000, which was modestly down from $622,000 in the fourth quarter of 2022. Our daily room rate for the Canadian segment in U.S. dollars was $95, which increased slightly from $93 in the fourth quarter of last year. Turning to Australia, during the fourth quarter, we recorded revenues of $89.3 million, which up from $73.1 million in the fourth quarter of 2022. Adjusted EBITDA was $21.5 million, up 64% from $13.1 million last year. A significant increase to adjusted EBITDA was due to increased billed rooms at our owned villages, increased integrated services activity, and improved margins due to our inflation mitigation efforts. Australian billed rooms in the quarter were a source of strength 638,000 rooms, up 23% from 519,000 in the fourth quarter of 2022. This is due to increased demand at our own villages as demonstrated by our recent contract awards. The average daily rate for our Australian villages in U.S. dollars was $74 in the fourth quarter, up modestly from $73 in the fourth quarter of 2022. On a consolidated basis, capital expenditures for the full year 2023 were $31.6 million compared to $25.4 million during the full year 2022. Capital expenditures in both periods were related to maintenance spending on our lodges and villages. Additionally, the full year 2023 also included $10 million in expenditures for the Australian customer-funded infrastructure upgrades that we have discussed on prior quarter conference calls. Our total debt outstanding on December 31, 2023 was $65.6 million, a $37.7 million decrease since September 30, 2023. We were pleased to reach and exceed our net leverage ratio target in 2023. We ended the year at 0.6 times, down from 0.9 times as of the September quarter end. And as of December 31, 2023, we had total liquidity of approximately $136.4 million, consisting of $133.1 million available under our revolving credit facilities and $3.3 million of cash on hand, giving us the strength and flexibility to opportunistically pursue growth vectors in 2024 and beyond while maintaining prudent leverage ratios. And turning to capital allocations. As you are aware, we updated our capital allocation priorities in September. Our new capital allocation framework is designed to allow our strong cash flow generation to support our existing operations, return capital to shareholders through a consistent dividend and opportunistic share repurchases, and use excess cash to fund growth opportunities. all while maintaining our target leverage ratio in the range of 1.0 times to 1.25 times through the cycle. However, we are open to increasing our leverage ratio up to 2.0 times to pursue accretive growth opportunities where appropriate, and we may also occasionally drop below 1.0 times, as we have at December 31st, as we carefully assess growth opportunities. During the fourth quarter of 2023, we repurchased approximately 121,000 shares through our share repurchase program for a total of $2.4 million. And earlier this month, we announced that our Board of Directors has declared our third quarterly dividend payment. Shareholders of record as of February 26th will receive a $0.25 per share cash dividend payable on March 18th. With that, I'll turn it over to Bradley to discuss our initial guidance for the full year 2024. Bradley?
spk07: Thank you, Carolyn. Now I'd like to turn the discussion to our initial full year 2024 guidance on a consolidated basis and I'll include an outlook for each of the regions. We are initiating full year 2024 guidance of revenues of $625 million to $700 million and adjusted EBITDA of $80 million to $90 million.
spk06: Our initial full year 2024 capital expenditure guidance is $30 million to $35 million.
spk07: Based on this adjusted EBITDA and CapEx guidance, expected net cash proceeds related to McGaughan Lake dismantlement and sale of approximately $6 million, expected cash interest expense of also approximately $6 million, expected working capital inflow of $10 million, and expected
spk06: in the range of $45 to $60 million. I will now provide the regional outlooks and the corresponding underlying assumptions.
spk07: As we mentioned on our last conference call, the primary reason for the year-over-year EBITDA decline in 2024 is the wind-down of Canadian mobile camp activity and the loss of the McClellan Lake earnings, which account for approximately $27 million year-over-year change between 2023 adjusted EBITDA and 2024 EBITDA guidance. These are partially offset by year-over-year increases in revenues and margins in our Australian integrated services business and modestly improved performance in the Australian villages and Canadian lodges. We are acutely focused on replacing these earnings and growing the company, but 2024 will be a transition year for our Canadian business. In Canada, as we look into 2024, the macroeconomic environment for oil sands is improving with increased customer capital spending and the Trans Mountain Pipeline expansion coming online this year. With the exception of the loss of occupancy at the McLean Lake Lodge, we should experience steady to mostly increasing build rooms across the rest of our lodge portfolio. Regarding our mobile camps, the majority of our mobile camp rental activity is complete, and we are continuing the demobilization process in 2024. We expect approximately $6 million of demobilization costs in the first half of this year, which is contemplated in our full year 2024 guidance. Again, this will be a transition year for our Canadian business. Moving forward, we have identified promising opportunities and expect to leverage our brand and scale to expand in additional Canadian geographies in NMARC. Turning to Australia, customer activity in our own villages improved throughout 2023, and we expect that to continue into 2024 at similar levels to the end of the year. We are currently full at three of our Bowen Basin villages with very healthy occupancy at the rest of our own villages in the portfolio in Australia. As it relates to our integrated services business, the story of 2023 was our inflation mitigation plan that we executed throughout the year. Our significantly improved margins in the fourth quarter demonstrate the progress that has been achieved, and we should continue to see the benefit of our efforts through 2024, resulting in increased EBITDA year over year. We are excited about the growth potential of our Western Australian integrated services business, and now that we have executed on our inflation mitigation plan, we can shift our focus back to winning work and growing the business. Our team has set a goal to grow our Australian integrated services business to $500 million of revenues, Australian, by 2027.
spk06: I will conclude by underscoring the key elements of our strategy.
spk07: We will prioritize the safety and well-being of our guests, employees, and communities. We will invest in operational improvements and innovation to continue to enhance our best-in-class hospitality offerings. We will allocate capital prudently to maximize free cash flow generation while we continue to return capital to shareholders and evaluate growth opportunities.
spk06: With that, we're happy to take your questions.
spk04: Thank you. We'll now be conducting the 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 lines in the question queue. You may press star 2 if you'd like to withdraw 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. And once again, that's star one. Thank you. Thank you. And our first question comes from the line of Steven Gingaro with Stifel. Please proceed with your questions.
spk08: Thanks. Good morning, everybody. Good morning. I think the first for me is when we think about the strength in Australia that you saw in the fourth quarter was very strong. And you think about the outlook for Australia. I mean, one of the things that we keep hearing about is kind of concerns about economic growth in China. And I'm just curious sort of what your outlook and guidance sort of suggests for Australia and how we should think about sort of the potential gives and takes with the economic conditions right now.
spk07: All the indications from our customer base down there on the owned villages side is one of, for the new customers about growing production, certainly some of the majors are looking at cost containment, but our outlook for occupancy in the owned villages is nicely up year-over-year, 24 from 23. We're seeing a big uplift in Our integrated services business, some of its top line, where we're expecting to hit over 250 million in revenues in 2024, that's up from about 240 in 2023, but the big story is the margin improvement there. And the vast majority of that integrated services business is iron ore related. So we're quite constructive on the Australian business, certainly always composite of macroeconomic forces. As of right now, we feel very good about it.
spk08: Great, thanks. And when you think about use of cash, and you've obviously done a tremendous job over the last several years, right, deleveraging and returning capital, what types of acquisitions, if you were thinking about acquisitions, should we consider? think you would be pursuing? Would it be geographic expansion or would it be things like the sort of on the logistics and catering side that would be more likely in current geographies?
spk07: Well, we will focus on current geographies, which would be Australia and North America. I'll start with Australia. There are a handful of one-off properties that would be nice additions to the portfolio, primarily in the Bowen Basin. So we're pursuing those. The integrated services, there are opportunities to expand that business through acquisition, and we're looking to do so. And that would be, again, in the Australian geography. In Canada, I think one of the big takeaways from the saga that was McClellan Lake is that existing infrastructure has value because the replacement costs are significantly higher today than they have been historically. So reaching... A complete new-build lodge in North America economically is very difficult, in my opinion. So how can we leverage existing underutilized assets, primarily in Alberta, to expand into other geographies, specifically eastern Canada, looking perhaps as the McClone Lake assets moving into western U.S., as an opportunity to expand into the U.S. in a fashion that more reflects or resembles, mirrors what our Canadian operations are today. Certainly, also looking in Canada to find an entry point into the mountains, we see long-term activity there. That has been more difficult to determine the entry point.
spk08: Great. Good. Now, thank you for the call.
spk04: Our next question is from the line of Steve Ferrazani with Sidodian Company. Pleased to see you with your questions.
spk02: Morning, Bradley and Carolyn. Obviously finished up a very busy year. When I think about 2024 and the margin improvement you've already seen in Australia, and I'm assuming you may be proud of the color, I'm assuming it's a mix of the new contracts some easing inflationary pressures. Also wanted to ask about if labor constraints are easing and how much more room you've got into 2024 on all those points.
spk07: Some of it is gaining scale, although I don't think we've seen the improvement on getting scale in the integrated services business quite yet. That will be part of what we pivot to focus on is to have more, improve our processes, to improve really bring more of it to the bottom line. I think as you look at kind of gross margins and integrated services, the fourth quarter was a really nice quarter. If we can maintain that kind of 9% to 10% gross margin integrated services, that's pretty solid. So now we've got to work on being more efficient on the operational side. Inflation is still an issue, so I don't want to discount it. What I think the team has done by focusing in, as we mentioned in our inflation mitigation plans was work on human capital and how can we be more efficient there. I think we've seen improvements at location by location in terms of reducing turnover and reducing the reliance on temporary employees.
spk06: And so, you know, we're early stages in that, but the progress has been good.
spk02: Okay. And then turning to the U.S. market, you noted it looks like another year of rising capex and we have the Trans Mountain coming. How are you thinking about that translating into turnaround activity? And is it too early to get a sense? Are you hearing much right now from customers about occupancy this summer? Spring, I guess, starting in spring?
spk07: Yeah. Still a little early to really call the Canadian turnaround activity for 2024. Guidance assumes a slightly softer turnaround period in Q2, Q3 this year, and so we'll have to see how it plays out. But right now, guidance is a little bit softer on turnaround activity, but we'll see. We've seen some improved margins in some locations in Canada because of some of our mitigation efforts, and we expect that to continue into 2024.
spk02: Great. You covered a lot of territory in the call. I didn't hear, did you provide guidance on free cash flow?
spk06: Forty-five to $60 million.
spk02: Any changes to your target range or other uses of capital beyond acquisitions on the net leverage?
spk07: Right now? Right. I mean, we kind of flew through our target with the strong pre-cash flow in the fourth quarter. But it's really kind of a timing issue. Certainly expect to be returning the same kind of capital to our shareholders in 2024. But we do need to pivot and allocate more to growth than we have, well, quite frankly, been able to. But now building that pipeline or that funnel of growth opportunities that I just highlighted on the past question. And so, you know, I'm cautiously optimistic we're going to be able to show some growth and putting capital to work in a growth fashion in 2024.
spk06: Great. Thanks, Brian. Thank you.
spk04: Thank you. Our next question is from the line of Dave Storms with Stonegate. Please proceed with your questions.
spk03: Good morning.
spk04: Good morning.
spk03: I'm hoping we could start with kind of the cadence of the guidance. Should we expect it to follow pretty typical seasonal patterns, or is there anything else that you think might throw a wrench in that?
spk07: I think for right now, for 2024, we expect it to be fairly typical, where historically 65% of the annual EBITDA, Composite, and CUTE combined Q2, Q3, and that's largely driven by a couple factors that we've highlighted previously. One, certainly turnaround activity in Canada. Q4 and Q1 are usually softer because of the holidays, either beginning of the year or ending of the year. So I think it'll be fairly typical in terms of cadence.
spk01: We expect to see the same cadence on cash, or not the same cadence on cash flow, the same historical cadence on cash flow where first quarter is our lowest cash flow because of various timing and buildup of revenues and such. And then that will kind of get more cash in as the year progresses.
spk03: Understood. Thank you. And then you mentioned the goal of getting integrated services up to $500 million in Australia. What do the logistics look like for that, and what does short-term success look like, considering it's a fairly long-term goal?
spk07: Well, our team has identified tangible contract wins over the next three years that should be able to get us to that $500 million mark. As many of you may recall, we entered into integrated services in Western Australia in 2019 with the Action Industrial Catering acquisition, which at the time we bought it, it was doing about $40 million Australian of and last year it did 239. So we've made significant progress, and we see a very tangible pathway to get to 500. It's not without a lot of work by the team and continuing to demonstrate the value proposition to the customer base to achieve new contract wins.
spk06: Understood. Thank you for taking my questions. Absolutely. Thank you.
spk04: Thank you. At this time, we have no additional questions. I'd like to hand the floor to Bradley Dodson for any closing remarks.
spk07: Thank you, Rob. And thank you, everyone, for joining the call today. We appreciate your interest in CIVIO, and we look forward to speaking with you on the first quarter earnings call expected in April.
spk04: Thank you. This will conclude today's conference. We disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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