Civeo Corporation

Ladies and Chairman, good morning and welcome to the CIVIO Corporation Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a 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 and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you and welcome to CIVIO's Second Quarter 2024 Earnings Conference Call. Today, our call will be led by Bradley Dawson, CIVIO's President and Chief Executive Officer and Barclay Brewer, CIVIO's Interim Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding board-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. Thank you, Regan. Thank you all for joining us today on our Second Quarter Earnings Call. I'll start with some key takeaways from the Second Quarter and then give a brief summary of our Second Quarter 2024 performance. Then, Barclay will provide a financial and segment-level review and I'll conclude our prepared comments with updated comments on our full year 2024 and the underlying regional assumptions. Then we'll open the call for questions. Key takeaways from our call today are our Second Quarter results demonstrate the initiatives that we have undertaken to position the company for growth. That can be seen in our Australian results. Our Second Quarter 2024 revenues and free cash flow improved year over year with adjusted EBITDA relatively flat despite the expected headwind that we experienced from Canadian LNG mobile camp activity, which decreased our adjusted EBITDA by $6.9 million year over year. Australian adjusted EBITDA increased by 10% compared to the Second Quarter of 2023 due to continued strength in our build rooms at our own villages and increased activity in our integrated services business as we expand existing customer relationships. Our Canadian segment performance was stronger than we expected for the quarter due to the pull forward of some customer turnaround activity from the Third Quarter of 2024 into the Second Quarter of 2024. We also returned $10.3 million of capital to shareholders through our quarterly dividend and share repurchases during the Second Quarter of 2024. Lastly, we will maintain our revenue and adjusted EBITDA and CAFEX guidance for the full year 2024. I'll discuss that later in our prepared comments. We take a brief moment to provide a business update across our two segments. Australian segments performed well during the quarter and the team continues to execute on our previously stated goal to grow Australian integrated services revenues to $500 million Australian by 2027. We experienced year over year growth in both our own villages business and the integrated services business. Our integrated services business growth was particularly strong due to the impact of recent competitive wins as well as expansion, the expansion of an existing customer relationship. In Canada, as expected, our Canadian segment revenues and adjusted EBITDA decreased year over year due to the wind down of LNG related activity, specifically the mobile camp activity in the Second Quarter of 2024. Our Second Quarter Canadian results were actually stronger than we expected initially due to the shift again of the timing of turnaround activity and the oil sands region. And with that, I'll turn it over to Barclay for

some financial review and second level comments. Thank you Bradley and thank you all for joining us this morning. Today we reported total revenues in the Second Quarter of $188.7 billion with net income of $8.2 or 56 cents per diluted share. During the Second Quarter, regenerated adjusted EBITDA of $31.3 million, operating cash flow of $32.4 million, and free cash flow of $30.9 million. Second Quarter adjusted EBITDA increased year over year due to increased activity at our Canadian lodges, Australian-owned villages, and Australian integrated services business, partially offset by the expected wind down of LNG related Canadian mobile camp activity, which decreased adjusted EBITDA by $6.9 million year over year, including $1.4 million in mobile camp demobilization costs. Let's now turn to the Second Quarter results for our two segments. I'll begin with a review of the Australian segment performance compared to its performance a year ago in the Second Quarter of 2023. Second Quarter revenues from our Australian segment were $108.6 million, up from $82.5 million in the Second Quarter of 2023. Adjusted EBITDA was $21.6 million, 10% from $19.6 million last year. The increase to revenues and adjusted EBITDA was due to increased build rooms at our own villages and increased integrated services activities related to recent competitive winds, as well as the expansion of existing client activity. This shows our continued and steady growth in the segment. Australians build rooms in the quarter for 625,000 rooms, up 6% from 588,000 in the Second Quarter of 2023. This is due to increased customer demand at our own villages, as demonstrated by our recent contract awards. The daily room rate for our Australian-owned villages in US dollars of $78, which increased from $75 in the Second Quarter of 2023 due to CPI escalation in the recent contract. Turning to Canada, we've recorded revenues of $79.5 million as compared to revenues of $95.5 million in the Second Quarter of 2023. Adjusted EBITDA in Canada was $17.2 million, a decrease from $19.8 million in the Second Quarter of 2023. The -over-year revenue and adjusted EBITDA decrease was primarily driven by the expected wind down of LNG-related global camp activity. During the Second Quarter, build rooms in our Canadian lodges totaled $752,000, which was up from $724,000 in the Second Quarter of 2023, despite the sell of the Cullin Lake Lodge. This increase was primarily driven by stronger turnaround activity during the quarter related to a shift of customer activity from the Third Quarter of 2024 into the Second Quarter of 2024. The daily room rate for the Canadian segment in US dollars was $96, which decreased from $100 in the Second Quarter of 2023 due to the mix of occupancy between lodges and contracted rate incentives for increased occupancy at select lodges. On a consolidated basis, capital expenditures for the Second Quarter of 2024 were $5.3 million compared to $6.9 million during the same period in 2023. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. Our net debt on June 30, 2024 was $40.1 million, a $21.8 million decrease into March 31, 2024. Our debt leverage ratio for the Second Quarter decreased to 0.3 times as of June 30, 2024. As of June 30, 2024, we had a total liquidity of approximately $159 million, consisting of $151.5 million available under our revolving credit facilities and $7.4 million of cash on hand, giving us the strength and flexibility to preventively perceive growth factors in 2024 and beyond while maintaining prudent leverage ratios. Turning to capital allocation, in line with our previously stated goals for 2024 and the Second Quarter of 2024, we've repurchased approximately 274,000 shares through our share repurchase program for a total of approximately $6.6 million. As Bradley mentioned, we returned $10.3 million of capital to shareholders through the quarterly dividend and share repurchases in the quarter, bringing our total -to-date return of capital to shareholders to $17.2 million. This morning, we announced that our Board of Directors had declared a quarterly dividend payment. Shareholders of record as of August 26, 2024, will receive a $0.25 per share cash dividend payable on September 16, 2024. With that, I'll turn it over to Bradley to discuss guidance for the full year 2024. Bradley? Thank you, Barclay.

I'll talk about our full year 2024 guidance on a consolidated basis and look into the outlook for each of the two regions. We are maintaining our full year 2024 revenue and adjusted EBITDA guidance ranges of $625 million to $700 million for revenues and $80 to $90 million for adjusted EBITDA. We are maintaining our full year 2024 capital expenditure guidance of $30 to $35 million. Based on these adjusted EBITDA FX guidance, coupled with net proceeds related to the McFallon Lake Lodge that's made on-line sale, which totaled about $6 million in the first quarter, expected full year cash interest expense of $6 million, expected working capital inflow for the full year of $10 million, and expected Australian cash taxes of $10 million for the full year. We are maintaining our 2020-2024 free cash flow expectation of $45 million to $60 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Canada, I'd like to acknowledge the four spires that are impacting Western Canada, including our Canadian operating region. I want to thank our employees who have been working around the clock to ensure the safety of our guests, the first responders staying with us, and the safety of our assets. While this is a fluid situation, we do not currently anticipate any material financial impact, positive or negative, from the current fires. The wildfire situation around Fort McMurray and our operations has significantly improved over the last few days, but we will remain vigilant throughout the balance of the fire season. Starting the second quarter in Canada, as we discussed earlier, our quarter was stronger than expected due to planned third quarter consumer turnaround occupancy shifting into the second quarter. We expect more modest results in the latter half for Canada due to that shift of activity. Overall, our full year Canadian forecast is largely in line with what we expect to come into this year. Starting on mobile camps, the majority of our mobile camp rental activity is complete and we're continuing the demobilization process. We expect the demobilization to be completed in the third quarter, burdening our third quarter adjustability by approximately $1.5 million for the final demode costs. As a reminder, this was all contemplated in our full year 2020 guidance. Turning to Australia, customer activity in our own villages remains very strong and we expect that to continue at similar levels moving forward. We are currently full at three of our five bone-basin villages and very healthy occupancy through the balance of the portfolio in Australia. As it relates to our integrated services business, we are continuing to experience the increased demand from recent contract lens as well as expanding existing customer relationships. We have continued to see substantial growth in recent years in the integrated service business and we're excited about further growth potential in Western Australia for that business. Now that we have made strides in our inflation mitigation plan, we can now shift back to winning work and growing the business. Again, to repeat, our team has set a goal, growing our Australian integrated services business to $500 million Australian by 2027. Before I wrap up our prepared comments, I'd like to thank Barclay for stepping into the interim financial officer role for the past few months. Thank you for all your efforts and working seamlessly over this transition period. As previously announced, Kyle and Gary will transition into his new role as CFO on August 1st and Barclay will serve as Chief Accounting Officer moving forward. Kyle has been with Civia since May of 2014, serving in the various executive positions across our Canadian operations and our corporate development and business development teams. I look forward to working with them in this new role. So in closing, we continue to execute operationally and on our strategic growth initiatives and our results are demonstrating solid progress on these initiatives as we laid out previously this year. With that, we're happy to take a question.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd 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 keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Stephen Gengaro with Stiefel.

Thanks. Good morning, everybody, and congrats, Colin, on the new role. So I think a couple of things for me, Bradley. First, can you talk a little bit about what you're seeing in Australia as far as to the back half of 2024, 2025, and kind of what we should be paying most attention to kind of from a potential growth perspective in Australia right now?

Absolutely. In terms of the back half of the year in Australia, I expect occupancy in our own villages remain relatively consistent through the third quarter. And then, as always, we'll see a slight downtake in occupancy in the fourth quarter with the holiday down times. But generally speaking, expecting occupancy in our own villages in Australia to remain fairly consistent throughout the year. On the integrated services side, I've been very pleased, we've been very pleased with the operational execution of the team. You can see that in the margins of the integrated service of business. And the expectation is that will continue through balance of the year. You saw a big uptick in terms of top line in the integrated services business, Q1 and Q2 in 2024. And then I expect the performance from a top line perspective in integrated services to remain fairly consistent through Q3 and Q4. So then the attention for that business kind of transitions to winning additional work. So the team has several prospects that we're working on. And again, this is all moving towards our goal of $500 million top line by 2027 and believe there's a tangible pathway to achieving that. And so as we look into 2025 for Australia, I expect the trends to continue. We see selective opportunities to enhance our existing operations. And they're really twofold by the business line. And the own villages looking to potentially add a little bit of capacity on the order of magnitude of maybe 100 per inch to the bone bases. That's contingent upon a couple things. One, we get the customer commitments to support the investment. And two, we get through the process. So hopefully we can get that teed up in the second half of this year and benefit us in 2025. In the integrated services business, sorry, go ahead,

Steve.

Then in the integrated services business, it's continued with the team is doing. We've got to Australia where the customers own the assets and we provide hospitality services for them. And I think the team's done a great job there. And so now it's just what's next. And so we've got a handful of opportunities we're working on right now. And let's see how those play out.

Great. Thank you. And the other big question was really your leverage is down again. Your cash flows really strong. You're obviously buying back stock. But when you think about the M&A landscape or the potential, at least, how should we think about what you're looking for from a financial terms perspective? But then also should we be thinking about it geographically? Is Canada or Australia better or worse than the other in your mind? Or how do we just think about what could happen over the next three, four, five quarters?

Sure. So I'll start with Australia. On the own villages side, there are a handful of opportunities to acquire additional villages that are owned by third parties that would all have been our portfolio and would be added to our portfolio. So we're looking at a handful of opportunities there. In the integrated services business, it would be similar to what we did with the action acquisition. It would be buying a market position in a geography or in market that we don't currently serve and building off of that based on what we see is starting to build some critical mass in that business where we're starting to get some efficiencies in terms of having the overall volumes, the overall top line support, the back office and the infrastructure to effectively be serving over 10,000 people a day. And so that's really the focus for Australia. In Canada, the base oil sands or Western Canadian business remains very steady, but there's not a ton of growth in that market. So we're looking to leverage our assets and our capabilities across North America to serve a broader group of industrial projects both in markets and geographies with our current asset and service delivery model. You've heard us talk about it in the past. The process of marketing the McClellan assets really opened up our eyes to the value of modular accommodations and our core competency of owning them, installing them, running them for customers where it's not their core competence. So cautiously optimistic, we'll see some growth opportunities there in the next four months.

Great. Thanks. I'll turn it over and get back in line here. Thank you,

Bradley. Thank you, Stephen.

Thank you. Our next question is from the line of Steve Farazani with Sidoti and Company. Please go ahead.

Good morning, Bradley Barkley. The strength in QQ on the Canadian build rooms, I think you indicated a couple of times, there was a clear pull forward from 3Q. So I'm trying to figure out how lopsided turnaround season might be this year or how turnaround season in general is playing compared to a year ago, which was also very, very healthy considering your build rooms were up even though you've sold the McClellan Lake. I mean, that was extremely strong.

Yeah. So a couple of things there. Second quarter, 24, second quarter, 23. In the second quarter of 23, we had the full benefit of McClellan and we sold that or dismantled that in July of 2023. So this is kind of the last clean quarter historically of having McClellan in there. The replacement asset the customer is putting to work is in the process of getting commissioned. So we had some overflow benefit from the Fort Hills project into other city locations in the second quarter. So we'll see the full impact of the sale of McClellan in the back half of 2024. In terms of turnaround activity, quite frankly, 2024 is playing out generally in line with what we expected on a full year basis. Some of the timing, as we indicated, shifted from Q3 to Q2. But in general, overall turnaround activity in 2024 is up probably about 150,000 rim nights from 2023 on a full year basis. So it's playing out as we expected, just timing between Q2 and Q3 had shifted. So that coupled with we had expected all the demo costs to be completed in the first half of 2024. And as we mentioned, we've got about a million and a half slipping into the second half, specifically the quarter. So we've got some turnaround activity pulling forward, we've got some demo costs being pushed back and net-net a stronger second quarter. And a full year in line with what we're expecting to flat up from our expectations for Canada. But the back half will be softer, for sure.

Fair enough. That's helpful. Even if I consider that in the 3Q, we'll be down from 2Q in Canada. Given your guidance for Australia, fair to say that your outlook sort of gets you to the higher end of your guidance range right now, unless something would have changed on the revenue side?

Well, I would say that there are probably two major factors, three major factors that could kind of influence the breadth of the guidance range. First and foremost, while I think the most important takeaway is that while the fire intensity in Alberta has been significant, and more broadly speaking, in western Canada, particularly over the last three weeks has been 24-7 effort for our operations, safety and HR teams. With some rain over the weekend, it's getting better. And while we don't think there's a material impact, it could swing positive or negative a little bit. That's why we didn't tighten the guidance range overall, which we typically would do around this time every year. So while we don't think it's material, it could swing things a million or two either direction. So that was part of it. Secondly, I would say occupancy in Australia could be upside to your question, could move us to the upper end of the guidance range. And likewise, occupancy and margin performance and CIS can move us to the upper end of the range. I don't think the demode costs, they're fully banked. That's just a matter of timing. I don't see that impacting full year guidance. So I think overall, those are the kind of two or three factors that would influence where we end up on the range.

That's really helpful. Could you get one more in just on the Australian margins? Obviously, you have these new and upgraded contracts, revenue well above what we were thinking. Margin's not moving a lot yet. Do you see some room? Are you seeing any kind of reduction in labor costs? Anything you can do to move margins up a bit here? Are you comfortable with where margins came in?

I've been comfortable with where margins have come in. We are kind of running on a contribution basis of the own, the really two components, the own villages and the integrated services. On the own villages side, I'd say margin performance has been good. We still haven't gotten the labor situation to pre-COVID efficiencies, but we've made some improvements. I would say pricing on the own villages clearly has an upward bias overall, given that the overall Bowen Basin is running pretty full. We're full in three of our five locations. Overall, if you see the Bowen Basin, it is strong. We'll see how that plays out. Integrated services, I would say that pricing is steady. It's an issue of volume and execution. Thank you.

Our next question is from the line of Dave Stomps with Stonegate. Please go ahead.

Good morning. I thought I had heard in the prepared remarks that one of the suppressors of the Canadian room rates was incentives. I was hoping you could give us a little more color on maybe the duration of the incentives and if we might see a little bit of a rebound in Canadian prices in the back half of the year.

Most of the contracts in Canada will have tiered pricing. As volume goes up, there are lower prices. You actually network better off with prices in higher volumes. Net net is a better situation. It was turnaround related. As we see turnaround volumes start to decrease in the second half of the year, prices will go up. We want the volumes. We're better off with the volumes and discounted prices. It's all contracted. It's not a movement in pricing. It's really just a tiered pricing structure that we've always had.

Understood. Very helpful. Thank you. Then just one more for me. You're about a third of the way to the low end of your capex guidance and already halfway through the year. Can you give us a sense on what the cadence for capex through 3Q and 4Q might look like?

Yeah. If you'll allow me to rough numbers, we did about 10 million of capex in the first half. The low end of the range is 30. I expect that we'll be 15ish in the third quarter based on forecasts and then between five and 10 in the fourth quarter. Some of it is going to be timing. As I mentioned, we'd like to add 100 grams to the ball and basin. That's dependent on two things, permitting and customer commitments. If those fall into place, I'd really love to launch that project this year, but all that spending will get spent. Then we're also looking at reactivating some rooms in the oil sands region that will allow us to capture some smaller clients that we can't always serve because of the commitments we have to some of our larger clients. We'd like to get that kicked off and spent before the winter season so that we can get those commitments from the smaller players to move them into the village,

the Fort

Brawley

Village. That's very helpful. Thank you for taking my questions and good luck in 3Q.

Thank you. Thank you. Our next question comes from the line of Sean Mitchell with Daniel Energy Partners. Please go ahead.

Good morning, guys. Thanks for taking the question. Bradley, can you take a minute maybe? I know Stephen at the beginning of the call talked about Australia, but could you take a minute potentially to frame what the opportunities two to three years out for the next couple of years maybe on supporting future LNG expansions like Cedar LNG?

A great question. I think there are a handful of pieces to it. To the extent that there's additional pipeline work for additional LNG projects that would support opportunities for mobile camp business. There will be coastline opportunities for our CITCO lodge. It would be a nice return to activity for our British Columbia operations. We've had a strong first half in terms of occupancy at CITCO relative to our expectations, but the LNG Canada project is very close to first production. Our activity at CITCO is winding down. As we mentioned in the prepared comments, mobile camp activity, we're just in demope at this point. Additional LNG projects, if we saw pathways, the Pathways Project move forward would add occupancy in western Canada to existing assets and present opportunities for mobile camp deployment. Got it. Thanks. I'll turn it back. Appreciate it. Thanks, Sean.

Thank you. Our next question is from the line of Stephen Gangaro with Stiefel. Please go ahead.

Thanks for taking the follow up as well, Bradley. Just one quick one. I don't know if you want to talk about this or not, but when we think about 2025, when we were entering 2024, we kind of understood there were some puts and takes as you entered the year with the coastal gasoline pipeline work and some other things. What are the kind of the very high level puts and takes as we

going to be capital investment on the young villages, whether that's buying additional locations or activating or expanding low and basin capacity on the village side, how much that comes to fruition. As I mentioned, there's some upward bias potentially on pricing on the young villages. In CIS, it's going to be winning work. In our Australian Engrade services, it's going to be finding or winning the next contract. As we set out about 18 months ago, the opportunities we wanted to win, we've won plus some. You really saw the first quarter of that flow through in 2Q24. But right now, as I mentioned in the comments, I think to your earlier question, Stephen, kind of expect integrated services to be on a quarterly basis flat from here, 2Q24, and it'll be dependent on a new contract list. In Canada, I think, in 2024 to 2025, there'll be some puts and takes. As always, in Canada, it'll depend on turnaround activity. Don't see any major changes to base level occupancy in the oil sands region. We'll have some headwinds in terms of occupancy, in terms of comparables for 2020, first half of 2025 versus first half of 2024 at Zika. But net-net, I would expect, without any additional strategic win in the Canadian business, kind of a flat 24 to 25.

Great. Thank you. And then just one quick follow-up, and that is around, we've talked about this in the past a bit, the source gas opportunity for LNG Canada. What's the status of that as far as accommodations? And is there still a chance that there could be involvement on your side? I don't have a good update on where that stands.

I would say on the source gas side, our entry would require an acquisition. Unlikely, we would move into it on an organic or greenfield basis.

Okay. Great. Nah, thanks for all the details.

Happy to. Thanks for the interest. Thanks for your questions.

Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to Bradley Dodson for his closing comments.

Thank you, Ryan. And thank you, everyone, for joining the call today. I really appreciate your interest in CBO, and we look forward to speaking to you on our third quarter earnings call, which we expect to happen late in October.

Thank you. The conference of CBO Corporation has now concluded. Thank you for your participation. You may now disconnect your line.