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

Blake Hancock - Scotia Howard Weil Steven Gengaro - Sterne Agee Jeff Spittel - Clarksons Platou Securities.

Welcome to the Civeo Corporation Third Quarter 2015 Earnings Conference Call. My name is John, I'll be operator for today's call. [Operator Instructions]. Now I will turn the call over Collin Gerry..

Thank you, John. Welcome to Civeo's third quarter 2015 earnings conference call. Our call today will be led by Bradley Dodson, Civeo's President and CEO 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 risks disclosed in our Form 10-K, 10-Q and other SEC filings.

Also remember that statements today November 2, 2015 may no longer be accurate at the time of the replay. I will now turn the call over to Bradley.

Thank you, Collin. Good morning to all of you and thank you for joining us. I will begin with an overview of our three quarter performance. Frank will then walk you through detailed financial results and provide an update on our much improved liquidity position. Then I will discuss each segment and the near term outlook.

For the third quarter we delivered our third quarter guidance. Third quarter revenues were within our guidance range and we gave our adjusted EBITDA guidance despite weaker than expected Canadian and Australian dollars.

These results reflected our continued cost containment efforts and conservative capital spending plan in the face of occupancy levels that remain challenging. We were in line with our expectations for Canada from a margin perspective and margins were a little better than expected in Australia.

I would like to emphasize the following two results from the quarter, the first is cash flow from operations after capital expenditures which totaled $61 million, given our depressed occupancy levels in all three of our operating regions generating that kind of free cash flow demonstrates solid execution as well as operating and capital discipline.

I'm very proud of our team for delivering it. The other is our debt balance, since June 30, we have taken our debt level down by 46% from 775 million to 416 million. Frank we'll talk more about our balance sheet and liquidity position in a moment.

We know investors are very focused on the leverage and liquidity positions in every company that has exposure to commodity prices these days. I can't underscore enough the strong progress that we have made and rightsizing our overhead and CapEx to match the difficult market environment and the very positive impact it has had on our liquidity.

Now I'd like to turn it over to Frank to take you through the details of our consolidated results and our financial position.

Frank?.

Thanks Bradley. Good morning everyone, I will start with going through some of the financial results for the quarter. During the third quarter of 2015 we reported a net loss on a gap basis of 108 million or $1.01 per diluted share on revenues of 107 million. This included two categories of charges.

The largest with 111 million of pretax impairment expense related to all three of our operating regions. About half of the good will write down in Canada and the remainder was spread between properties in the U.S., Canada and Australia. Combined, these amounted to $0.84 per share against net earnings. As of today goodwill [ph] in our books is zero.

We also had additional pre-tax expenses related to our migration to Canada of about $3 million which accounted for $0.02 per share against earnings. Excluding all these charges we had an adjusted that last 15 million or a negative $0.15 per share and adjusted EBITDA of a positive 25 million for the quarter.

Our financial results which are stated in U.S. continue to be disadvantaged by devaluations of both the Canadian and Australian dollars against the U.S. dollar, the Canadian dollar was down 17% against the U.S. dollar year-over-year and the Australian dollar was down about 22%.

If you adjust our foreign exchange rate impact as well as the one time charges, revenues would have been $22 million higher and adjusted EBITDA would have been $7 million higher. Cash flow from operations was $81 million for the quarter and $175 million year-to-date.

During the latest quarter we recognized that income tax benefit of 23 million which resulted in effective tax rates of 17.5% compared to an income tax provision of 9 million last quarter -- previous quarter of 2014 which resulted in effective tax rate of 21.6 million in the third quarter of 2015.

Our effective tax rate for the quarter was impacted by unrecognized tax benefits and the impairment of goodwill which is not deductible for tax purposes offset by certain tax benefits. We expect the effective tax rate will be approximately 18% in the fourth quarter of 2015.

We invested 20 million of CapEx in the third quarter of 2015 with the majority of the spending going towards routine maintenance, coupled with spending for our Sitka Lodge, for the full year 2015 we have lowered our CapEx projection by $20 million to the range of $60 million to $70 million.

This compares to 251 million in 2014 which largely construction of the [indiscernible] in Canada. On our second quarter earnings call we talked about the impact of on our migration to Canada which we completed in July. I'd like to provide a little refresher of few important items related to the migration.

First we moved the majority of our outstanding debt to Canada and we efficiently reduced our debt level using existing cash balances. Simply put our debt and cash flows are now in the same currency so you can use Canadian dollars to pay down Canadian dollars debt.

Going forward we will not only benefit from the lower effective tax rate but a more efficient movement of capital, among our three primary operating regions. Second, in connection with the migration.

We also amended our credit facility providing for increased Canadian borrowing capacity as well as covenant relief to manage through this difficult market. Our total debt to EBITDA covenant expands to four times for the fourth quarter of 2015, 4.25 times in the first quarter 2016 and 4.5 times for the remainder of 2016.

As of September 30th, our debt balance is 460 million with cash on hand of 13 million, we have liquidity of approximately 312 million, As a reminder the majority of our debt and cash balances are now denominated in Canadian and Australian dollars. So reported debt balances in U.S. dollars will fluctuate as foreign exchange rates change.

Shortly we will be filing our third quarter form 10-Q with the SEC which will include additional details about our current liquidity position borrowing availability and debt outstanding. Now I turn the call back over to Bradley who will provide a more detailed look at our segments and an update on our strategic initiatives.

Bradley?.

Thank you, Frank. I'll start with our Canadian segment which is our largest segment. Now I'll generally compare our third quarter 2015 performance to the second quarter of 2015. Canadian segment revenues were down $19 million from the second quarter of 2015 to $72 million. Adjusted EBITDA decreased $5 million to $19.5 million over the same period.

The decline in the Canadian dollar reduced Canadian segment revenues by $14 million and adjusted EBITDA by $4 million, revenue per available room decreased on a sequential basis from $59 per day to $45 per day in Q3 due to lower overall occupancy which also contributed to lower lodge revenues and EBITDA for the quarter.

Our average occupancy in our Canadian lodges last quarter was 57% versus 63% in the second quarter. The environment in Canada continues to be challenging but we see opportunities to drive occupancy in our oil sands lodges.

While we don't expect a meaningful contribution from the new Sitka lodge facility until the first quarter of 2016, reopening of the Mariana lodged to support a pipeline customer will provide additional revenue in Q4 2015 and Q1 of 2016.

Assuming our Canadian dollar exchange rate of 0.754 in the fourth quarter our guidance for the Canadian segment is 64 million to 69 million of revenues and adjusted EBITDA of 30 million to 50.5 million. This assumes 9700 rentable rooms.

We expect a large occupancy to be between 53% and 55% with an average daily rate of approximately $158 to $160 per night in Canadian dollar terms. Our outlook for Canada is for moderately lower activity sequentially.

We expect pockets of opportunities in oil sands region, for example with pipeline related activity at our Conklin and Mariana lodges we expect to stay busy through the end of the first quarter of 2016. In addition we're fully contracted on our McClelland lake lodge location and I've seen strong casual occupancy at our Beaver River location.

This will be partially offset by lower occupancy at Wapasu sequentially and holiday downtime at all locations in December. We continue to pursue market share in Canada to drive occupancy and at the same time look for labor efficiency and process improvements to reduce costs.

Our capital spending will be focused primarily on maintenance capital and any growth capital will continue to be underpinned by solid contractual commitments. Now moving to the Australian segment, third quarter revenues declined by $9 million versus second quarter to $29 million And adjusted EBITDA decline by $8 million to $12 million.

The decline in the Australian dollar reduced Australian segment revenues by $8 million and adjusted EBITDA by $3 million. Revenue per available room decreased on a sequential basis from $45 per day to $35 per day in the third quarter for our Australian Villages. Occupancy was 50% down from 61% in the second quarter of this year.

The Bowen Basin in Queensland in Eastern Australia accounted for most of the decline as the market for met coal continues to be weak. The 40% decline in met coal prices since beginning of 2013 due to higher well production and slowing demand growth for steelmaking from China and India continue to weigh on the outlook for our Australian operations.

Our customers are cost conscious and deferring capital investment until the market firms. As we approach year end we expect that activity to be flat to down slightly in the fourth quarter due to met coal price weakness and holiday downtime.

Assuming an Australian dollar exchange rate of $0.70 for the fourth quarter we are guiding to $23 million to $30 million of revenues and adjusted EBITDA of $10 million to $12 million from Australia.

This is based on 8790 rentalable rooms and village occupancy of 45% to 48% with average daily range of approximately $100 to $102 in Australian dollar terms. Lastly looking at the U.S.

revenues continue to be impacted by the drilling slowdown in the Bakken, Rockies and Permian Basin in our well site business coupled with lower activity for our offshore fabrication business. U.S. revenues for the quarter were 5.9 million and adjusted EBITDA was negative 1 million.

Looking at the fourth quarter we expect these markets to continue to be solved. To summarize our guidance on a consolidated basis our revenue guidance for the fourth quarter is now in a range of $90 million to a $104 million and adjusted EBITDA in a range of $15 million to $20 million.

I'd like to conclude our opening remarks with some overall observations about the opportunities we see in front of us. Oil sands projects are still very much alive despite current oil prices, some of our most active customers have recently increased their exposure or their investment in the oil sands region.

And the fact is we are still winning new business in Western Canada from existing projects. Outside the old sands market, we’re actively pursuing lodging mobile camp contracts to support LNG activity in British Columbia. Our Sitka lodge which opened in October 2015 is the first accommodations contract to be awarded in British Columbia.

We wanted because our land banking strategy provided us the first mover advantage. Our integrated developed and operate business model allowed us to support our customers initially needs through one company and one facility. We’re optimistic that this will just be the beginning of a new marketing in Canada to diversify our portfolio.

In Australia, the met coal market remains challenged, I should point out that the Bowen Basin in Eastern Australia is the largest market with our largest market in Australia and is one of the world's lowest cost sources of metallurgical coal used for steel making several. Several U.S.

met coal mines have closed in the last couple of years because they can't compete with supplies from the Bowen Basin which has production and transportation cost advantages to serve the largest Asian markets.

While we expect to see weakness in Australia in 2016, the longer term fundamentals of this industry and this mining location remain very favorable in our view. In the meantime we will navigate through the downturn and position ourselves to benefit when the met coal market stabilizes.

That completes our prepared comments, John we’re ready for questions..

[Operator Instructions]. And our first question is from Blake Hancock from Scotia Howard Weil..

Bradley looks like you guys -- clearly you’re seeing some seasonality here and some turn around work.

Just trying to get an idea if you can help us understand maybe '15 and '16, did you guys see some of the customers pull some maintenance and turn around earlier this year? So do less and then as we pick up towards the end of this year and into next year you guys having the conversation that you know guys need to play some catch-up here so there's some more opportunities and I guess maybe just trying to get the typical magnitude you guys have always been historically [indiscernible] contracted in Canada so if you could help couch what you guys see on a typical turnaround season from an uptick from your standpoint, that will be helpful..

Absolutely, well we did I guess to the early part of your question we did see several customers defer turn around or that was initially slated for 2015 to a later date. We are actively pursuing this turnaround work for '16 and '17.

What this could be helpful for us is if we win this work that will allow us to be fairly nicely occupied, both at Athabasca Lodge which is currently closed as well as at the Beaver River Executive Lodge. Principally it is in the middle part of 2016, so Q2 and Q3.

If we win this work and we can get the timing correct that would keep those locations nicely occupied through the middle half or middle part of 2016. A typical turnaround is anywhere from 60 to 90 days with a head count ranging probably 1200 to 2000. So if we can line up two or three of those that can keep us nicely occupied at those two locations.

That coupled with, as we talked about in some of the prepared comments. The casual occupancy or short term occupancy that we're currently seeing a Beaver River, that's a positive for us.

Now we're still working through -- obviously we still need to win that work, we haven't completed the contracting for that and still need to win it, but as we complete our budgeting process and we get to the next earnings call we'll be able to give a much clearer picture of that..

You guys have done a great job on the cost side in Canada.

You know Bradley what more is there to do right now at the current activity level or do we more or less just you know are you guys done everything you can do at this point? Well we done some more in the fourth quarter here both in Canada and Australia, just trying to streamline our operations.

It's the unfortunate reality that we face that we do need to make some overhead adjustments to reflect the reality of the occupancies in both locations.

My hope is that once we get through the headcount reductions that we have either RDX [ph] repeated here in October or plan to execute in the next couple weeks that we should be past all of that and have this business at the size we need for 2016..

And last one here for Frank, as we think about working capital how much more is there left for you guys to -- how much work is left there as we think about 4Q?.

I think you can see that we've made significant -- you can see from the cash flow statement the reduction in the working capital basis, a lot of that obviously is a run-off of the receivable balances as we went into this period of slower demand.

I think we're probably out of position now where going forward it will be about at the position it is right now..

I will add on that, but we probably have a little bit more but not to the magnitude that we've seen second quarter to third quarter. And then hopefully if we start to see Sitka come online, Mariana's online, and hopefully start to see a trend upward next year you know there'd be an investment next year but right now I think we're at the low point..

Our next question is from Steven Gengaro from Sterne Agee..

A couple of things, first Frank how should we think next year from a CapEx perspective if you assume there's no incremental LNG work, what does that look like?.

So we've been saying around 30 million to 40 million basically is kind of the range that we have been thinking Steven, with that being predominantly almost exclusively maintenance capital, first probably there will be about $3 million to $4 million of spending at Sitka in all reality will probably slip into '16, we're getting most of the work done here in the fourth quarter, we're open on time, we serve first meals in October, but we may have some of the final spending for Phase 1 of Sitka fall into '16 that would be at least today the only growth or discretionary capital that would be in the budget..

That's right. So you're right that it's largely the maintenance CapEx and we feel those levels are the right level you need to maintain the facilities in the right way..

And as you'll recall I think going into this year we had estimated that maintenance capital spending is in the $50 million to $60 million range, in reality I think the team has done a very good job of managing to the current environment and as we come out of this year.

The 2015 maintenance spending is likely in that thirty $30 million to $40 million range and we'll continue to stay focused on maintaining the assets to the current occupancy levels and the team is being very prudent in terms of how we’re spending our money..

And as I look at, at our sort of expectations it appears based on our numbers that you're by the middle of next year your EBITDA coverage should be more than sufficient to me to cover the needs.

Are you guys seeing it the same way?.

We are, we have the debt reduction particularly in this quarter has exceeded our internal expectations. So we're pleased with the cash flow we generated this quarter as we kind of previewed to the market with the migration completed we knew we have reduced it significantly but then since July 27th has obviously significantly reduce it further.

But based on our current forecast maintain a cushion of quarter turn to half turn, each quarter going into 60 [ph]. Now that’s all on the basis of kind of where we're projecting right now we still need to complete our budgeting process.

And obviously [indiscernible] in the fourth quarter but based off the preliminary thoughts that's where we think it will..

And two other quick ones, on the interest expense obviously there is a lot of moving pieces here with the debt levels. The interest expense in the quarter I think it was like $7.5 million.

Is that a reasonable number going forward based on how we should obviously as you delever that should go down a bit but that I assume reflects the higher rates from the amendments or how should we think about that one?.

Well the interest was like 6 million for the quarter, we did have the loss in there for extinguishment of debt. So 6 million was really the number I think that’s probably a reasonable number and it does have the current interest rates in there from the standpoint of the new credit agreement because that went into effect in July..

We have a question from Jeff Spittel from Clarksons Platou Securities..

Maybe if we could startup Bradley I guess following up on Blake's question about seasonal work in Canada. Can you share with us a little bit and I think you did provide some color around the fourth quarter as we think about the winter drilling season and pipeline work and maybe even some deep gas development out there.

What's the near term outlook on that?.

Well for us the seasonal work will be primarily focused at Mariana and Conklin around to a couple pipeline contracts that we've gotten, so that that will keep those two locations in good stead for occupancy. Obviously we have in the fourth quarter as I mentioned in the prepared comments compared to the third quarter.

We have a step down at occupancy at Wapasu as our main customer there has shifted from construction into operations and some ancillary projects. And then McClelland is still nicely fully occupied. There's no change there. We've actually seen as I’ve mentioned a casual occupancy improvement at Beaver River.

So I would say that that's the overall comments there, we're not seeing outside of Conklin and Mariana a ton of pipeline work outside of those two locations but then obviously are very focused on winning the pipeline work that comes out of the LNG projects, the main focus for the fleet work right now..

Okay. And I guess shifting gears, balance sheet certainly you continue make progress there.

Business is spinning off free cash flow even in an environment like this, so to imagine that there are some interesting consolidation opportunities out there but I guess if you give us some flavor of qualitatively for how you rank ordering those priority uses of capital and if selling expectations are remotely realistic at this stage of the game..

Well the M&A part of the focus is really and the story is really remains the same throughout this year. You know we've been waiting for I guess -- debt did spread to narrow, it hasn't quite gotten there yet but for us the focus is really on our core markets.

So are there companies that compliment us from either a customer exposure or a market exposure. Potentially if they have a land bank that could be interesting but it really has to be the strategic focus and fits with us in order for us to really want to advance those discussions. So we remain focused on it.

It could be interesting and quite frankly in any of our three markets and so we're looking at opportunities in all three at this point but nothing significantly advanced, at this point..

We have another question from Steven Gengaro from Sterne Agee..

Just one or two quick follow ups guys. The first, when we look at your current contracted rooms in Canada. Nothing I assume is changed materially from the last quarter. Is that fair? Because Wapasu rolls off and then--.

No, Wapasu rolled off in the quarter and then we add -- helpful -- as we look going into next year we really need to complete the budgeting process. But I suspect that the general teams will remain consistent and that is the that the Canadian occupancy that we got to be predominantly albeit at lower levels, will be predominantly contracted.

Presuming that we were successful in these turnarounds, we would include that in in the contracted piece.

Australia, we've got a few contracts rolling off mid-year and we have some renewals that we expect to get off of those but there is going to be a larger component in Australia the casual use has been which is consistent with what we have seen ion 2015..

And then the only other follow up was when your EBITDA margins in the third quarter in Canada, I think you might have said that they were in line with your expectations actually a little better than our expectations given the utilization drop-off and the ability to keep margins flat there.

I guess do cost savings and some of the consolidation you had done.

Can you give us a little more color as to what went on there and how should we think about that going forward?.

Well generally we had our guidance -- even they are brand of our guidance on the occupancy side and generally we're continuing to look for the ability to cut some of the cost. Now quite frankly some of the Canadian cost cutting was actually executed in the fourth quarter not in the third quarter.

So generally I think it was just operational cost containment and occupancy levels that were in line or at the upper end of what we're expecting..

Okay I actually didn’t do the math on the fourth quarter but I was expecting you to assume a small dip it should recover in the first quarter because of the seasonality?.

Yes it should..

Okay. Thank you..

I mean just to add some color Steven, on the on the fourth quarter margins you basically have the impact of the holiday downtime where the second half of December the occupancy really starts to drop as people go home for the holidays..

[Operator Instructions]. I'm showing nothing further at this time. I'll turn it back over to you Collin for any closing remarks..

Thank you, John. In closing we are continuing to face challenging market conditions in all of our markets. But the fact we've generated significant free cash flow demonstrates that we are able to adjust our business quickly and strategically to meet the realities of the marketplace.

We also believe our recent performance demonstrates the competitive strength of our integrated approach to providing accommodations that is our developed, own, operate model and the strength of our teams execution.

The migration of our company to Canada and the restructuring of our credit agreement provides us with the flexibility to manage this market and operationally our focus remains on generating free cash flow through maximizing occupancy in existing assets but carefully managing our costs and staying disciplined in our CapEx outlays.

As a result of all of the strategic actions we expect to come out of this downturn, be well positioned to compete in our markets and return to growing the company. Thank you for joining us today and thank you for your interest in Civeo. That concludes our comments..

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