Collin Gerry - IR Bradley Dodson - President & CEO Frank Steininger - SVP & CFO.

Steven Gengaro - Sterne Agee.

Welcome to the Civeo Corporation Second Quarter 2015 Earnings Conference Call. My name is Chris, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr.

Collin Gerry, Senior Director of Corporate Development and Investor Relations. You may begin..

Thank you, Chris. Welcome to Civeo's second quarter 2015 earnings conference call. Our call today will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Frank Steininger, Senior Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements.

To the extent that our remarks today contain information 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 those risks disclosed in our Form 10-K and other SEC filings.

I will now turn the call over to Bradley..

Thank you, Collin. Good morning to all of you and thank you for joining us today on Civeo's second quarter 2015 earnings conference call. On the call today, I will provide an overview of the second quarter results; Frank will walk through the specific results of the quarter and provide an update on our current debt and liquidity position.

Then I will discuss each segment and the near-term outlook. Our second quarter results were in the upper range of our revenue guidance and exceeded our EBITDA guidance for the quarter.

Relative to guidance, our second quarter results reflected continued cost containment efforts in our Canadian segment despite continuing challenging occupancy levels resulting higher than expected EBITDA margins.

Stronger than expected occupancy in our Australian segment driven by increased shorter term occupancy at certain villages, this resulted in higher than expected revenues and EBITDA on the quarter. And finally our U.S. segment benefited from strong manufacturing revenues in our offshore division.

On a consolidated basis, we reported revenues of $143 million, $41 million of adjusted EBITDA and adjusted EPS loss of $0.05 per diluted share which excludes the impairment charge related to an Australian village and our migration costs.

At this time, I'd like to turn it over to Frank to take you through the details of our consolidated results and our financial positions.

Frank?.

Thanks, Bradley. During the second quarter of 2015 we reported an operating loss of $14.1 million on revenues of $143 million. Our net loss for the second quarter of 2015 totaled $13.5 million or $0.13 per diluted share.

This included an after-tax loss of $0.06 per diluted share due to impairment of an Australian village and $0.02 per diluted share for cost incurred in connection with our completed migration to Canada. These results compared to operating income of $16.2 million on revenues of $247 million in the second quarter of 2014.

Our net income for the second quarter of 2014 totaled $13.9 million or $0.13 per diluted share.

We recognized an income tax benefit of $5.9 million which resulted in an effective rate of 13.6% in the second quarter of 2015, compared to an income tax benefit of $4.9 million, and an effective tax rate of the benefit of 52.4% in the first quarter of 2014.

The change in the effective tax rate for the prior year was in part the result of a change in the earnings mix between different tax jurisdictions. In addition, our 2015 tax benefit includes a $2.7 million charge related to an increase in the statutory tax rates in Alberta, Canada.

Finally, the negative effective tax rate for the second quarter 2014 was the result of the impact of reduction in the company's estimated annual effective tax rate. Our gross and net debt levels totaled $775 million and $416 million respectively at June 30, 2015, representing a debt to capitalization ratio of approximately 51%.

Our leverage ratio was 2.81X at June 30. For the second quarter of 2015 we reported solid operating cash flows of $55.4 million. For the first half of 2015, we reported cash flow from operations of $94 million, and we invested $24 million in capital expenditures.

For 2015, we are projecting $80 million to $90 million of capital expenditures, compared to $251 million in 2014. This includes amounts related to our recently announced Sitka Lodge in British Columbia for which revenues from the contract are expected to largely be recognized in 2016.

I now would like to take a few minutes to provide a summary of our recently completed migration to Canada, as well as give you current – view of our current debt and liquidity positions. We completed the migration in Canada on July 17, at which time our amended credit facility became effective.

In addition to permitting the rebalance selling to Canada, the amendments in the credit facility provided additional lending capacity in Canada, reduced both the existing U.S. term loan and U.S. revolver and increased the maximum leverage ratio allowed under the credit facility.

As a reminder, our total debt to EBITDA covenant expands to 4X in the fourth quarter 2015 to 4.25X in the first quarter 2016, and to 4.5X for the remainder of 2016.

The amended credit agreement gives us the necessary borrowing capacity in excess to capital in the same jurisdiction as the majority of our business, and allows better operating flexibility. Subsequent to the completion of the migration reduced our total debt balance by $275 million.

And as of Monday, July 27, our total debt balance was $500 million and our cash on-hand was $50.6 million. As a reminder, the majority of our debt on our cash balances are now denominated in Canadian and Australian dollars and will fluctuate as foreign exchange rates move.

Later today we will be filing our second quarter Form 10-Q with the SEC which will include further details in our management's discussion and analysis section regarding our amended credit agreement, our current liquidity, borrowing availability, and debt amount outstanding.

At this time, I would like to turn the call over to Bradley who will begin with a discussion of our segments and more comprehensive outlook for the second quarter and an update of our strategic initiatives.

Bradley?.

Thank you, Frank. I'll start with our Canadian segment. Our Canadian segment revenues were down sequentially by $27 million from the first quarter of 2015 to $90 million. Adjusted EBITDA decreased from $37.5 million in the first quarter to $24.5 million in the second quarter of 2015.

The revenue decrease is primarily due to the closure of the Hende [ph] lodge negatively impacting second quarter revenues by approximately $8.1 million; lower contract camp revenues with spring breakup and lower occupancy at several of our other lodges.

The EBITDA decrease was primarily driven by lower earnings from our Athabasca lodge, lower contract camp EBITDA and lower occupancy at many of our other locations. RevPAR decreased on a sequential basis from $74 per day to $59 per day due again to the closure of Hende and a lower overall occupancy.

Lower occupancy and RevPAR sequentially drove the decrease in lodge revenues for the quarter. Turning to the outlook, the environment in Canada continues to be challenging with lower oil prices and constrained customer spending in the oil sands region.

As we exited the second quarter our outlook remains driven by anchored tenants at two of our larger oil sands lodges, while assume in the pond [ph] continued shorter return on occupancy at Biva River and other lodges bolstered by contracted occupancy at our recently announced new facilities, our Mariana location which we opened up in the third quarter, and our Sitka location which opens up in the fourth quarter.

As a result, we are tightening our full year expectations for the Canadian segment. Assuming a Canadian dollar exchange rate of 0.77 for the third quarter, our guidance for the Canadian operations is $70 million to $75 million of revenues, and EBITDA of $16 million to $19 million.

This third quarter guidance assumes 9,000 rentable rooms which is down sequentially due to the reclosure of Athabasca for the third quarter. Lodge occupancy for third quarter is assumed to be between 57% to 59% with an average daily rate of approximately CAD145 to CAD147.

Assuming the full year exchange rate of 0.79 for the Canadian dollar, our full-year 2015 guidance for our Canadian operations is $360 million to $370 million of revenues and EBITDA of $92 million to $100 million.

Our operational focus remains capturing market share to drive occupancy in our lodges and a continued vigilance on operating costs and discipline on capital spending. We have taken many steps to address the challenges of this market and will continue to pursue incremental revenue.

Now moving to Australia, in Australia the second quarter revenues needed down margin were both slightly lower sequentially. Our Australian segment revenues were down by $3.6 million which was attributable to reduced occupancy, as well as marginally lower rates.

Adjusted EBITDA was $19.5 million, a decrease of $1.2 million sequentially which was attributed reduced occupancy as well as marginally lower rates. We continue to manage our operational and capital spending in Australia in light of the current met coal pricing and customer spending outlook.

Our outlook for our Australian operations for the full year is modestly higher with the second quarter performance despite the weakness in the Aussie dollar and met coal prices. The Bowen Basin continues to be oversupplied for rooms relative to the current met coal mining activity.

As such we are forecasting marginally lower occupancy for the balance of 2015. Occupancy in the New South Wales locations continues to decline as customers move from two operations from construction. We are forecasting our occupancy in this area to stabilize in the second half of 2015.

Moving to the outlook, assuming an Australian dollar exchange rate of $0.75 for the third quarter, our guidance for our Australian operations is $27 million to $30 million of revenues and EBITDA of $10 million to $12 million.

This third quarter guidance assumes rentable rooms of 8,790, and village occupancy of 46% to 49% with an average daily rate of approximately $98 to $100, and that's in Australian dollars.

Assuming a full-year exchange rate of $0.76 for the Australian dollar our full-year 2015 guidance for the Australian operations is $133 million to $140 million of revenues and EBITDA of $60 million to $64 million.

Lastly moving to the U.S., revenues were up $2.6 million sequentially in the second quarter, and adjusted EBITDA was up approximately $1.9 million due to fabrication jobs in our offshore business. Lower U.S. drilling activity coupled with competitive pricing impacted our U.S. well site business in the second quarter.

Looking at the second half of 2015, we expect some modest increase in our well site utilization as the U.S. rig count stabilizes. However, this will be offset by lower fabrication revenues. On a consolidated basis, we are estimating the third quarter guidance of revenues to be $104 million to $112 million, and EBITDA of $20 million to $25 million.

We are tightening our full year 2015 guidance for revenues to $530 million to $545 million, and EBITDA for the full year of $131 million to $143 million. In conclusion, our operating results in the second quarter exceeded our quarterly EBITDA guidance. We have set our third quarter 2015 guidance and have tightened our full year 2015 guidance.

We've made substantial progress to position Civeo, to address and succeed in this very challenging market. We identified and addressed a difficult macro environment early and quickly. We accordingly made difficult but immediate reductions to our operated overhead costs including a 38% reduction in headcounts in September of 2014.

We reduced overheads in Canada by 35% this year and in Australia by over 20% over the past two years. We consolidated our North American onshore accommodations, manufacturing capacity into one location Edmonton coupled with closing our U.S. and Australian manufacturing locations.

In addition, we've reduced working capital by 14% through the first half of this year. We completed the migration to Canada which positions the company for long term efficient allocation of capital, as well as lower consolidated tax rate.

And with the support of our long term relationship banks we amended our credit facility which accomplishes several banks, reduces our U.S. term loan from $775 million to $50 million, funded by existing cash and new borrowings in Canada. We drew $325 million on new Canadian term loan and $100 million on the new Canadian revolver.

So in aggregate, we have approximately $500 million of total debt today, down 35% from the $775 million at June 30th. The amendment also provides additional cushion on our leverage covenant which increases to 4X by year end and 4.5X by the second quarter of 2016, providing us with the flexibility to manage through to this difficult market.

Operationally we also augmented our management team in Canada with the addition of Mike Ridley to lead our North American team, and Mike has already gotten started in augmenting our team as we focused on winning work in our existing market and the emerging BC LNG market.

We are now solely focused on managing through this downturn and returning the company on its growth path. Operationally, our focus remains on generating free cash flow through maximizing occupancy in existing assets but diligently managing our costs and remaining disciplined in deploying capital.

To that end, demonstrating our discipline, during the second quarter we were able to secure two contracts to support development of new lodges. The first are Mariana Lake's location, it's a 526 room lodge to support pipeline construction in the Athabasca oil sands region.

The second contract is our 436 room Sitka lodge in Kitimat, BC, to support LNG Canada and its associated work with the potential LNG development. Both of these contracts are testaments to our strong land banking strategy, as well as our capital discipline of investment supported by customer commitments.

Likewise, both of these contracts should contribute nicely to our 2016 revenue and EBITDA. Longer term, we expect to capitalize on additional organic growth opportunities in Australia.

We remain a leader in workforce accommodations in our markets and have a plan to improve our financial positions to whether this downturn in activity, as well as capitalize on opportunities for growth as they present themselves. That completes our prepared comments. Chris, please open the call up for questions at this time..

Absolutely, thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Steven Gengaro. Your line is open, please go ahead..

Thanks, good morning guys. I guess two things, one is, as we look at sort of the exit of 2015 in Canada, could you give us a sense for what is contracted? I think I have a pretty good sense for – with Wapasu and Maclin [ph] Lake, and then the two new contracts.

Is there anything else in Canada that kind of gives us visibility into 2016?.

Those four contracts would be the vast majority; the contracted lodges were going into 2016. We have given the difficult environment up there; I think we've been fairly conservative in our lodge revenue guidance.

The question will be again, continuing to manage the cost structure on that side since the team has done a very good job of managing the costs but we've not been overly aggressive in giving guidance on the lodge revenue side. To frame that, our second half lodge revenues, over 90% of that is contracted in terms of what we're guiding to.

The lodge revenues in the fourth quarter, we have built some seasonal uptake which we don't have contracted today but again, given this difficult environment we thought the appropriate thing to do in terms of setting expectations and giving guidance was to stick to the contracts as it's been a difficult market..

But those contracts which were in place, taking too long, there has been no change in that, the customers haven't come back – very much in line with what we had expected as far as duration and contribution..

The answer to that Steven is yes, we obviously, as we came into this year with precipitous fallen oil prices, there was pressure from customers to adjust existing contracts.

As we mentioned on the last call, I think the team did a very good job of managing – working with our customers to either look a place that we could work together to reduce their overall costs.

If they needed to reduce commitments, we looked at shifting those commitments out, obviously if they are looking for straight pricing concessions, we look for additional volume.

So that net-net, we maintain the overall earnings that we expected to get from those contracts, potentially in some cases over a longer period of time or by giving additional work at other locations to effectively keep us hold..

Okay, now that's helpful. Thank you..

But just to be clear, that was all kind of a January/February phenomenon, not something we see in any additional pressure here recently..

No additional pressure at this time..

Okay. I think that's all for me for now but I may jump back in the queue. Thanks..

Absolutely, thank you Steven..

[Operator Instructions] And our next question comes from Dimitri Gerna [ph] from Nester Capital. Your line is open, please go ahead..

Hi, it was only if you can comment – if you give some guidance – what do you expect EBITDA and revenues from these four contracts for next year, just kind of rough estimates?.

Which I meant the two new contracts at Mariana and Sitka?.

Yes, but also if you combine those with the two that you have currently for next year..

We have not publicly disclosed the contracts in those specific. The contracts notably gone into any guidance for 2016 and there will be something that we will be developing as we go to the budgeting this fall. We have prepared to then discuss that with investors as we report..

Okay, thank you..

Thank you. And our next question comes from Blake [ph] from Howard Will. Your line is open, please go ahead..

Good morning..

Good morning, Blake.

How are you?.

Good, good. I wanted to follow-up on the Steven's question, just to be clear, you pointed towards stronger occupancy for Mariana and Sitka, probably some seasonality in Q4 that keeps results relatively steady for the back half quarters.

There – this does contemplate the fact that the contract hits a wall and utilization drops off there or is there some staggering in terms of occupancy coral, does that contract whines down?.

The contract is lying down – about the construction contract for coral at our locations. We continue to have a second contract with the coral project, housing their operational staff, that contract continues out through the rest of the year and actually through the 2022.

So as the construction for Phase 2 of coral starts to line down here this quarter, the third quarter, we did secure as we press released last quarter, additional work with for the house people at Wapasu out past at the end of this quarter.

Say there is implicit into guidance, a ramp down at Wapasu as that construction contract rolls off that is offset by two things; one, seasonal activity and the contract camp area in the fourth quarter as wanted growing season and activity season kicks off, and then to your point, the additions of activity at Mariana and Sitka.

Sitka is of course ramping up in the fourth quarter, so it's addition in the fourth quarter is fairly marginal. Again, as Frank said in his prepared comments that the majority of the benefit of the – particularly the Sitka lodge is 16 [ph]..

Okay.

And then as long as we're on the Sitka subject, is the potential scale up of that just due to way the project is likely to unfold at the end of that kind of 18 months original term or if the project continues to get green lighted and pace picks up, would potential scaling likely happen before that?.

Well the scaling upto the 436 rooms in the fourth quarter. So that's the initial plan, now that are we permitted for more than 436 rooms, we are. We typically would not publicly said that extendable [ph] ramp up but typically, for all of our locations we're looking for a facility in the 1,500 to 2,500 room size.

Now some of them we can go larger or have additional land and could expand it even further than that but typically our ideal size is in that 1,500 to 2,500 room range. So this is for the preliminary part of that project to the customer.

To your point if they continue to green light the project, we feel like we're in well position to continue to serve them, and without the ability to expand that locations but we don't have any current – we don't have the customer commitment to do that now and don't currently have any plans to do that until we get that commitment..

But I guess my question is more around the way the project plays out, if it does go ahead, I mean the original contract, it wouldn't necessarily be – 18 months, you're not going to have more than 400 rooms for that 18 month period because that wouldn't entail having more personnel on it..

Not currently, no. The current contract does not extend to more than 400 rooms..

Okay.

And then I guess just a question with regard to the spot market in RC that you called out as beneficial to the quarter, I guess as I'm looking at the impact, should we be thinking about that as something that needed utilization for the quarter maybe by 5% to 10%? And try to size that as we think about stable run rate for the back half of the year..

Right, so coming into the second quarter, the guidance was then – I believe 55% to 57% range for occupancy in Australia, we came in at 61%. So we did do better than anticipated.

We continue – I would say our guidance for the third quarter, we – as we continue to get more comfortable with that shorter term casual, if you will take up a rooms where we can get customers coming in for 5 and 10 and 30 rooms at a time for a month or two months, we're expecting more comfortable forecast in that, so we've tried to build that into our third quarter guidance.

So we don't have the delta that we saw between guidance and actual like we saw in the second quarter, so we've tried to built some of that in. But what we are seeing and obviously met coal prices ticked down again, from second quarter to third quarter contract prices, we've tried to reflect that and what we expect in our Bowen Basin occupancy.

We're not – at this time on a consolidated basis seeing significant pricing pressure and that's evident in the fact that we guided to effectively fairly flat pricing on an ADR basis in Australia, in Aussie dollars of course.

But – so it's more of trying to be appropriate but recognize the fact that the occupancy levels, particularly in some of our Bowen Basin locations are going to be challenging in the second half of the year.

Now what I'm hoping is that when we get to this as we guided to high 40s, occupancy levels in the third quarter, we think that's sustainable for the balance of the year..

Okay, great. And I guess you've touched on that briefly, as we think about the potential for in either major market for a short term occupancy, that the rates you quote are kind of base contracted rates, the more occupants we get, we get utilizations up but the rate we have to be thinking about would be lower.

Is that correct? I'm just saying your spot market pricing or casual pricing is below kind of your – what your base contract pricing would be..

It's fairly in line, I mean if we have idle assets, obviously selling them event at reduced pricing is beneficial. So if we see opportunities to drive occupancy at marginally lower prices, we will.

But thus far on balance, the pricing has been fairly stable, I think the thing that you have to way is that the longer term pricing that is at contracted levels would reflect.

At the time we signed the contract, lower pricing then spot, what we're seeing now is, the spot price in which technically we try and charge casual rates, that's slightly higher than longer term rates, is in line with contract pricing that was set several years ago.

Does that make sense?.

Yes, absolutely. Just, as we get a little more granularity into business to shut if all along that's going on there. So I appreciate that and now I'll turn it back..

And at this time we have no further questions. I will now turn the call over to Mr. Bradley Dodson for closing remarks..

Well, in closing, we appreciate the call today and participation.

We continue to focus on driving the business, we're very proud of the accomplishments that we've made including getting the migration done, completing the amendment of credit facilities, we're working on free cash flow through occupancy, cost containment and capital discipline but do see opportunities for growth in the near term.

We're very focused on the LNG market in British Columbia. We're pleased to get the Sitka contract and demonstrate that our land banking strategy and our sales effort in our original engagement is working but look forward to potentially further growth in that market. And I look forward to speaking to all of you on the next quarter call. Thank you..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..