CVEO - NYSE

Greetings, and welcome to the Civeo Corporation Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you, and welcome to Civeo's Third Quarter 2025 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Collin Gerry, Civeo's 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. These forward-looking remarks speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these forward-looking statements, except as required by 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, and thank you all for joining us today on our third quarter 2025 earnings call. I'll start with some key takeaways for the quarter and then summarize our consolidated and regional performance. After that, Collin will provide further financial and segment level details. And I'll conclude with our prepared remarks -- I'll conclude our prepared remarks with our updated 2025 guidance and preliminary outlook -- qualitative outlook for 2026 by region. We'll then open the call up for questions. There are 3 key takeaways from the third quarter results: one, continued significant progress on the current share repurchase authorization. Two, our Australia business continues to grow both in our owned villages and in our integrated services business; and three, the Canadian cost-cutting measures bear fruit, and our focus now turns to putting our mobile camp assets to work. I'll start with the significant progress we've made toward completing our expanded share repurchase authorization. During the quarter, Civeo repurchased approximately 1 million common shares, bringing our year-to-date return of capital to shareholders to $52 million. With this progress, we've completed 69% of our new buyback authorization as of September 30, 2025. We remain confident that share repurchases are a compelling use of capital, especially during broad equity market volatility. Given the accelerated buybacks and our recently completed acquisition, our net leverage ratio as of September 30, 2025, was 2.1x, and we're comfortable with that. Our accelerated repurchase activity is consistent with our prior commitment to completing the current authorization as soon as practical. As previously stated, we intend to use no less than 100% of annual free cash flow to achieve this goal. We've obviously spent more than that, and we'll continue to spend more than that in our 2025 free cash flow buybacks this year. Turning now to the operational results for the quarter. Overall, the third quarter results were consistent with our expectations and reflected our outlook conveyed on our prior earnings call. In Australia, we remain focused on growing our integrated services business and capitalizing on our newly acquired villages in the Bowen Basin. Revenues in the region increased 7% year-over-year and adjusted EBITDA grew 19%. Notably, we completed the integration of our recently acquired villages in the Bowen Basin. So the third quarter of 2025 was the first full quarter financial impact from these 4 villages. Looking ahead, based on current customer discussions, we expect Australian occupancy in our owned villages to soften modestly in the fourth quarter due to typical fourth quarter seasonality with the holidays and softness in outlook for met coal pricing and demand exhibited by recently announced customer headcount reductions. Despite these near-term headwinds, we are confident in our Australian business. We have a strong contract position in our owned villages that will support good continued cash flow. In our integrated services business, we remain on track to reach our goal of AUD 500 million of revenue by 2027. And we continue to seek opportunities to expand into non-resource natural resource markets. While conditions -- in Canada, while conditions in the region remain challenged given oil prices and ongoing macroeconomic headwinds, our ability to drive year-over-year gross profit expansion in the face of continued pressures is a testament to the success of our cost reduction strategy implemented to date. We have taken decisive action to position our Canadian business to be more profitable in response to changes in oil sands customer sentiment and operational strategies, and we are pleased with the benefits they are seeing as a result. Initial actions have included an overall headcount reduction of approximately 25%, [indiscernible] certain underutilized lodges to reduce carrying costs and streamlining field-level operations to align with current demand levels. In the third quarter, this work allowed us to bring direct field level cost in Canada down 29% year-over-year, reduced indirect operating overhead costs by 23% and as a result, increased gross profit by 35%. From here for our Canadian business, our key focus is to capture the potential increase in demand for mobile camp assets in support of various Canadian infrastructure projects. Overall, we are executing on our strategic priorities in each region. Our Australian business continues to do well with year-over-year growth in both the owned villages and integrated services. And while our Canadian -- while the Canadian headwinds remain, we know this market well, and we're working with our strategic partners to understand how we can continue to support them as they capitalize on evolving opportunities in the country. We are taking decisive action to apply our resources where our customers need them in the region. And as a result, we're positioning Civeo for long-term resilience and cash generation. With that, I'll turn it over to Collin.

Thank you, Bradley, and thank you all for joining us this morning. Turning to the income statement. Today, we reported total revenues in the third quarter of $170.5 million with a net loss of $0.5 million or $0.04 per diluted share. During the third quarter, Civeo generated adjusted EBITDA of $28.8 million and operating cash flow of $13.8 million. The year-over-year increase in adjusted EBITDA was primarily driven by the benefits of cost cutting in Canada, contributions from the Australian acquisition completed in May of 2025 and higher occupancy in the legacy Australian-owned vs. Third quarter revenues from our Australian segment were $124.5 million, up 7% from $116.6 million in the third quarter of 2024. Adjusted EBITDA was $26.7 million, up 19% from the $22.5 million in the third quarter of 2025. The increase in revenues and adjusted EBITDA was primarily driven by the recently completed acquisition of 4 owned villages. The year-over-year increase was offset by the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and adjusted EBITDA by $3 million and $0.6 million, respectively. Australian-owned village billed rooms in the quarter were 763,000 rooms, up 18% from the third quarter of 2024, primarily due to our recently completed acquisition. Our daily room rate for our Australian owned villages in U.S. dollars was $77 which decreased from $79 in the third quarter of 2024, primarily due to the weakening of the Australian dollar. Turning to Canada. We recorded revenues of $46 million compared to revenues of $57.7 million in the third quarter of 2024. Adjusted EBITDA for the segment was $8 million, an increase from $3.4 million in the third quarter of 2024. As noted, the year-over-year adjusted EBITDA increase was primarily driven by the implementation of cost reduction measures offsetting lower billed rooms and revenues. During the third quarter, billed rooms in our Canadian lodges totaled 383,000, which was down from 484,000 in the third quarter of 2024. Our daily room rate for the Canadian segment in U.S. dollars was $100, flat with the third quarter of 2024. Turning to our capital structure. Civeo's net debt as of September 30, 2025, was $176 million, a $22 million increase since the June quarter of 2025, attributable to the significant progress made on our share repurchase authorization in the quarter. Our net leverage ratio for the quarter was 2.1x as of September 30, 2025, with total liquidity of approximately $70 million. We have allocated $48.7 million to share repurchases year-to-date. We remain comfortable maintaining a net leverage ratio in the 2x range on a go-forward basis. As we look at capital allocation, on a consolidated basis, CapEx or capital expenditures for the third quarter of 2025 were $5.6 million, down from $7.5 million during the third quarter of 2024. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. As noted, during the third quarter of 2025, we repurchased approximately 1 million shares through our share repurchase program. We continue to believe that repurchasing Civeo shares presents a value-enhancing opportunity. We've made great progress on our current share repurchase authorization, and we will continue to opportunistically execute on our plan moving forward. With that, I'll turn it back over to Bradley.

Thank you, Collin. I would now like to turn to a discussion of our full year 2025 guidance on a consolidated basis, including the underlying macro and regional assumption. We are tightening our full year 2025 revenue and adjusted EBITDA guidance. Updated 2025 revenue guidance is $640 million to $655 million of revenues and adjusted EBITDA guidance of $86 million to $91 million. We are maintaining our full year 2025 capital expenditure guidance of $20 million to $25 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Australia, occupancy in our owned villages remains strong. 3 of our Bowen Basin villages continue to be effectively operating at full capacity, and we're seeing strong occupancy across the remainder of our owned village portfolio. Even when accounting for the expected impacts of weakening met coal prices and recent customer layoff announcements, we expect healthy, albeit modestly softer occupancy in our owned villages in the fourth quarter. As it relates to our Integrated Services business, we are encouraged by the strong margin performance we have delivered throughout the year, and we will continue to focus on cost-effective execution. We expect to continue building on our strong momentum for the remainder of 2025 and beyond as we work towards our goal of achieving AUD 500 million of integrated services revenue by 2027. In Canada, we continue to navigate the difficult operating environment in the oil sands region, which is exacerbated by lower oil prices and broader macroeconomic uncertainty. As a result, expected billed rooms in the fourth quarter of the year is expected to be relatively in line with third quarter. That said, we remain encouraged by the results of our Canadian cost-cutting initiatives to date and expect to continue to benefit from these going forward. I will now provide a preliminary outlook for 2026. In Australia, our outlook for 2026 is relatively similar to what we experienced in 2025 with potential for modest softness in our owned village occupancy due to commodity price volatility and customer layoff announcements. That said, we expect that any softness in our legacy owned villages will be largely offset by the full year impact of our May 2025 Village acquisition. In our integrated services business, we expect to continue advancing towards our $500 million revenue goal for 2027 through our strong sales pipeline. In Canada, we expect the aforementioned headwinds in the oil sands region to continue to negatively impact lodge occupancy. However, at this point, it feels like occupancy is stabilizing such that we expect next year's lodge occupancy to be flat to slightly up in 2026 when compared to the full year of 2025. In the near term, our focus is on mobile camp deployment. We are optimistic that we will see increased utilization of our mobile camps in North America towards the end of 2026. Our optimism is underpinned by strong bidding activity tied to continued public support at both the federal and provincial levels for infrastructure projects in Canada and increased demand in the U.S. for a wide range of infrastructure projects. Civeo's attractive asset base, demonstrated capabilities and strong relationships position us well to capture these growth opportunities as final investment decisions are made by our customers. While several of these projects we are bidding on have estimated project approvals scheduled for 2026, we would not expect to see a material financial impact from these projects until 2027. In the immediate term, our focus remains squarely on managing what we can control, executing on our cost reduction initiatives, enhancing operational efficiencies and aligning our resource base with demand. We are confident that we have the right plan in place to continue mitigating these headwinds while orienting the business to capitalize on growth opportunities to drive increased cash flow from our Canadian operations. Regarding capital allocation, we will continue to opportunistically repurchase shares and use no less than 100% of our annual free cash flow to complete our current share repurchase authorization. After this authorization is complete, we intend to use no less than 75% of annual free cash flow to buy back shares. We remain comfortable with our net leverage ratio in the 2x range moving forward. With that, we're happy to take questions.

[Operator Instructions] And our first question will come from Stephen Gengaro with Stifel.

So Bradley, you might get mad at me for asking this. But when you package the guidance you gave for '26 together, it feels like it all sort of equates to something that's kind of flattish year-over-year. I mean, is that in the ballpark of what you're seeing?

No. I think it will be up year-over-year. Still working through the budgeting process. Obviously, it remains dynamic in both markets. In Australia, there have been customer announcements of headcount reductions, and that has impacted our outlook for some of our -- for our occupancy in our owned villages. But we have a very strong contract position. And so while we do see some softness in occupancy in our own villages, as I've said to investors previously, Australian-owned villages occupancy is modestly softer to flat year-over-year with the benefit of the full benefit of the 4 villages we acquired in May. So another 4 months of contribution from that. We expect that integrated services will show top line growth [ 25 ] to [ 26 ] and continued strong margin performance. In Canada, as I mentioned, we expect lodge occupancy. It feels like it's stabilizing, but it's pretty dynamic right now. And so we'll certainly give an update in February when we do full year results on the fourth quarter call. But right now, as we sit here today on Halloween, I expect Canadian lodge occupancy to be flat to up [ 25 ] to [ 26 ]. And then the key will be if some of these infrastructure projects, and these are pipelines, LNG facilities, highline transmission projects and some infrastructure projects in the U.S. if these get -- if the projects get greenlighted by our customers and then we win the work, there's opportunity to put our mobile camps to work, which right now are really not contributing to the 2025 results. So overall, I expect '26 to be up and still trying to quantify what -- how much it will be up.

Great. The other question I had, you touched on this a little bit. When you talk about the mobile camp assets and the ability to redeploy, are you talking about Canada and the U.S.? And are you looking at things in the U.S. that are connected to some of these newer energy opportunities around lithium mining and maybe data center related. Are any of those things in your opportunity set?

Yes. I would -- you highlighted it, Stephen, and thank you for doing that. I would say that this is the busiest that I can remember in recent history in terms of our bidding activity in North America. We have approximately 2,500 mobile camp rooms that are readily deployable and another roughly 1,000 that are currently attached to our oil sands lodges that we could redeploy anywhere in North America. In Canada, it's mostly LNG related, pipeline related, infrastructure related in Western Canada and looking to also deploy them in Eastern Canada. We can also deploy them into the U.S., and the team is actively pursuing things like you mentioned, like data centers.

Great. And just one final one. When you think about capital allocation longer term, right, and you've done a great job returning a lot of capital. Is there a preference for incremental expansion/acquisitions versus buybacks? Or is it just going to be kind of on a project-by-project basis?

Well, we've committed to completing the current authorization to buy back 20% of the shares, which is about 2.6 million shares as soon as practicable and using no less than 100% of free cash flow -- annual free cash flow to do so. That being said, if there are opportunities that are economic that are supported by customer contracts and if there are attractive bolt-on acquisitions, we'll continue to look at that, obviously, continuing to weigh the fact that we want to stay around 2x levered or no more than that. And so right now, there are opportunities to deploy incremental capital for growth purposes, but nothing that will overextend the balance sheet.

And our next question comes from Steve Ferazani with Sidoti & Company.

Appreciate the detail on I wanted to ask about the growth opportunities in Australia because you noted the softening of met coal prices and some of the -- I think you highlighted chances to build out integrated services beyond the natural resources market. Can you talk a little bit about the opportunities and challenges in that market to hit that $500 million mark? It seems more difficult than it might have seemed a year ago. And does that need to include M&A? Or are there ways to do it outside of your more traditional met coal or iron ore markets?

Well, I didn't mean to leave you with the impression that it was more difficult. I feel as good about our ability to hit the $500 million target by 2027 today. In fact, I feel better about it today than I did a year ago. The team has done an amazing job of capturing new work with customers, capturing market share in some cases, expanding our customer base, expanding our geographic footprint within Australia and integrated services. Originally, when we bought the Action Catering business, they were in Western Australia. We've now expanded that into South Australia and most recently expanded into Queensland, where our -- the vast majority of our own villages exist. So the ability to leverage that infrastructure is nice and important and to better serve existing Queensland customers. So I believe that we can hit the $500 million target with the kind of funnel of sales opportunities that the team has -- we can hit that hit target by 2027 in the resources market. Right now, I think we can do it organically. Can could it be enhanced by acquisitions? Possibly. But in terms of -- it is going to get more difficult to win additional resources work because we're on the radar screen of bigger competitors now, plain and simple. So what we're trying to do is take what we believe to be our core competency, which is we think we take care of people well. We make sure that they're safe, that they're well fed and well rested and ready for the workday. So are there other verticals that we can do that in. And we're in the early stages of evaluating that. where we've got the team looking at it and hope that in, I'd say, the next year or 18 months, we'll have some progress there.

Excellent. On the mobile camp side, we can certainly see plenty of opportunities that appear to be out there, particularly in Canada, and I'm sure there's a lot we don't see that you're pursuing. The timing of it is always, I know, really challenging, particularly for the larger projects. Realistically, is this probably more of a 2027, 2028 and beyond story? Or are there real chances in 2026?

It will all depend on our customers getting to final -- positive final investment decisions sooner rather than later. Are some of them still striving to get to a positive FID by year-end 2025? Yes. Do you handicap and say that probably slip into the early '26 or the first half of '26, that's probably pretty reasonable. So it depends on when the projects get approved. Sooner is better, then why I'm confident in our competitive positioning, we still got to win the work then thereafter. I think that right now, there will be some contribution from increased mobile camp work in 2026. It's likely second half weighted. And even if you handicap some of the expected timing of project approvals, 2027 looks like a good year. And to your point, beyond, these are largely construction projects that are expected to take 2 to 4 years to complete, and that would be a good utilization opportunity for our mobile camps.

Yes. Great. This looks like it will be your second year in a row where CapEx comes down. That being said, now that you've closed some of the Canadian lodges and you've had some larger investments like adding WiFi accessibility. When we think about CapEx moving forward, should -- outside of winning some large project awards, should this be the high level moving forward that you're investing this year?

No. I think it's always reasonable to think that CapEx is around USD 25 million on a consolidated basis. And to your point, because there's always -- we did some WiFi upgrades in Australia this year. There's still some work to be done there in terms of upgrading our WiFi. There's always one-off projects. I think the team globally is very pragmatic about deploying capital and CapEx. We go through a process that's kind of here's what the have to have are, here's what are the good to have and here's the nice-to-have items, and we prioritize those, both looking first and foremost on maintaining safe operating locations and then enhancing guest experience. So I think [ 25 ] is a safe number to use year in, year out. It would include some discretionary items in that number usually. But from there, higher numbers than that would be dependent on customer commitments and growth projects.

And if I could just supplement on that, what Bradley mentioned the nice to haves. I just want to remind the audience the way that we think about that is today's nice-to-have's are tomorrow's have to have's, and they could be a little bit more expensive if you wait. And so that's the balance.

Great point. Yes. That's a very good point.

When we think about those mobile camp opportunities, particularly if they're 2 to 4 years, does that require significant CapEx?

Great question. To put some numbers around it. We've got, as I mentioned, 2,500 mobile camp rooms readily deployable, another 1,000 that we can pull off that are currently on our oil sands lodges. So of those 3 -- roughly 3,500 rooms, our bidding activity, we bid out those fourfold. Now we don't expect to win all of that work, but we're exceedingly busy. Now there are probably half a dozen to a dozen infrastructure projects that we're tracking that could kick off in the next 12 to 18 months. It all depends on how those get sequenced. If they all hit at the exact same time, yes, we'll need some more CapEx. Will it be warranted? Absolutely. It will be...

I think I would complain about that.

No, I don't think they will. So to put kind of -- if things are evenly spaced, it's probably let's call it, $5 million to $10 million of incremental CapEx. If everything hits at once, it's probably $25 million to $30 million. But I think I am confident that if everything hit at once, people will be more excited about that than worried about the CapEx.

Yes, Steve, if we win a project, there's going to be a de minimis amount of capital but it's marginal relative to the project. The real capital outlay would be required if we had to start going out and buying new rooms in excess of the 2,500 to 3,500 that Bradley quoted.

Which would be a great problem.

[Operator Instructions] And we'll go next to Dave Storms with Stonegate.

Just thinking through your goal of [ 500 ] in integrated services in Australia. How do you feel about your current staffing levels there? Just trying to think through what might be the bottlenecks as you march towards that goal.

Good question. I would say that staffing in Australia continues to be a challenge. Is it better than it was a couple of years ago? Absolutely. I think that's a combination of a general recovery in the country from COVID and the efforts of our team, our people and culture team in terms of recruitment. We're the biggest issue in -- for us is around chefs, but it's around labor in general. And we've had a program for the better part of 5 years to recruit international chefs to come in to Australia. We're making some progress there. So I would say that it is -- continues to be a challenge, but one that is not getting necessarily worse, but it's still not back to pre-COVID levels. So we've made some adjustments to our rosters and our travel allowances that has helped with attracting and retaining people, but it remains a focus for our team. But I don't believe that it would be -- if we win work, we'll find the people.

Understood. That's great color. Thinking about the cost cutting in Canada, specifically the field level streamlining, how much of this could maybe be applicable to Australia? Could we see a similar margin expansion there if some of that was more plug and play? Or is that more specific to Canada, the cost cutting?

It's more specific to Canada. A lot of it is -- we made some big strides with cold closing a couple of locations, which helps the carrying cost there. There has been some streamlining of the operating level headcounts. So this is something, quite frankly, that we started executing on this time last year. As you know us well, Dave, I mean, we started to see occupancy in Canada in the second half of last year just start dropping as customers look to reduce maintenance work, overall cut headcounts and try and localize people as opposed to have them be fly in, fly out. That's -- as I mentioned in our prepared comments, that feels like it's stabilizing at this point. Again, as we sit here today, we think Canadian lodge occupancy will be flat to up 2025 to 2026. And I think Australia there, it's a different cost structure. Obviously, the climate is very different between Northern Canada and Australia, particularly Queensland, and that presents a different cost structure. So always looking for efficiencies in our operations, and that is just always ongoing. It's not a one-and-done type thing. And -- but I don't think it's analogous between what we've done in Canada and what we could do in Australia.

Understood. That makes perfect sense. And that does kind of just bring me to my last question here. With you mentioning in your prepared remarks that it feels like Canada is stabilizing, how much more cost-cutting initiatives should we expect there? And is there, I guess, a potential for any of that margin to be given back as you maybe start getting a little busier in Canada?

Well, being tied to commodities and having cyclical upturns and downturns, cost cutting is something that our team is very -- it's just part of our DNA. You have to be able to make cost-cutting decisions. I think we moved quickly in the last half of last year and early part of this year. You saw how that bore fruit in the third quarter results. There are -- we will continue to work on our cost structure, but the easier things to get accomplished have been done. Are there other things that take more work to implement? Yes, and we're working on those. I would hope we get them done by year-end or close to it, but this is an effort that there is a new reality in the Canadian oil sands in terms of activity levels, spending levels, occupancy levels. And we're adjusting to that. We're not expecting that this is going to be a temporary change. Customers are operating in a different fashion. They're getting rewarded by their investors for cutting costs and reducing CapEx. And ultimately, that means fewer people and fewer opportunities for occupancy in our lodges.

And if I could supplement, the focus for the last roughly year, maybe 9 months has absolutely been on the cost-cutting side. And what Bradley said, we're not done, but we are shifting focus. I mean the fundamental -- the best thing we can do for our Canadian business is grow revenue. On a go-forward basis. And so we do see opportunities, and we are pushing the team to focus on that bid pipeline that we have in place with -- while we round out our cost-cutting initiatives.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Bradley Dodson for closing comments.

Thank you, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo, and we look forward to speaking with you on our fourth quarter earnings call, which we expect to happen at the end of February.