Regan Nielsen - Manager, Corporate Development and Investor Relations Bradley Dodson - Chief Executive Officer Frank Steininger - Executive Vice President and Chief Financial Officer.

Michael Malouf - Craig-Hallum Capital Group LLC Stephen Gengaro - Stifel, Nicolaus & Company.

Good day and welcome to the Civeo Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Regan Nielsen, Manager, Corporate Development and Investor Relations. Please go ahead, sir..

Thank you and welcome to Civeo's second quarter 2018 earnings conference call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer, and Frank Steininger, Executive 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 are 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.

I will now turn the call over to Bradley..

Thank you, Regan, and thank you to everyone for joining us today on our second quarter 2018 earnings call. I'll begin the call today with an overview of the quarter and some commentary on our three business segments.

Frank will then provide a detailed financial and segment level review, and I'll conclude with our updated outlook and guidance for 2018 before we move on to question-and-answer portion of the call. We made several significant accomplishments in the second quarter.

We closed the Noralta acquisition, we integrated the Noralta operations into our Canadian business and we amended the credit agreement. Operationally, we generated solid quarterly results in Australia and the U.S. In Canada, the second quarter operating results were good, but not as good as were initially expecting.

However, the outlook for our Canadian operations is approving therefore, LNG activity as well as ongoing activity in our core business.

On the LNG side, in Canada, we were pleased to announce four conditional contract awards for the Coastal GasLink pipeline project in Canada, these contracts are expected to collectively occupy over 2,000 mobile camp rooms at peak activity and generate approximately CAD100 million revenues from 2019 to 2021, and they are subject to positive final investment decision from the LNG Canada joint venture, which is expected later this year.

Perhaps as importantly, the long way and commencement of activity related to proposed LNG Canada development in Western Canada presents Civeo with a potentially sizable new commercial opportunity.

While we are pleased to get these initial Coastal GasLink contracts, we are actively pursuing additional conditional contract awards related to LNGC, including additional contracts for our existing Sitka Lodge in Kitimat, British Columbia. For our Australian and U.S.

businesses, they performed well in the second quarter while our Canadian business was negatively impacted by shorter-than-expected turnaround activity. Highlights in the quarter included strong sequential improvements in revenues and adjusted EBITDA for all three segments, as well as free cash flow of $8.6 million on a consolidated basis.

In Australia, increased maintenance and shutdown activity at customer mines and the Bowen Basin drove a 10% sequential increase in aggregate room nights. Our U.S.

business achieved positive EBITDA for the quarter as higher drilling and completion activity in the Permian basin increased offshore fabrication works and contributions from our recently acquired Louisiana facility contributed to continued momentum for that segment.

Our Canadian business experienced softer-than-expected occupancy during the second quarter, primarily due to the early completion of seasonal turnaround activity by two customers. Occupancy related to turnaround work is fluid and in this case lower-than- expected.

However, the overall outlook for the business remains very positive as evident from the recent conditional LNG contract awards and are expected third quarter turnaround activity in the Oil Sands region.

We were pleased with the swift and successful integration of the Noralta operations into our Canadian business, and as of the end of the second quarter, we're substantially complete with those integration efforts. Our Canadian segment generated revenues of $86.5 million, a sharp increase as the Noralta acquisition contributed to our results.

Adjusted EBITDA was $18.3 million, which was below our expectations. Although, the occupancy wasn't as strong as we initially expected for the quarter at both the Legacy, Civeo and Noralta locations, customer discussions and estimates regarding third quarter turnaround activity are improving relative to our initial expectations earlier in the year.

Our Australian segment, the met coal prices averaged $190 per tonne for the second quarter, which is the constructive level for our Australian business.

Met coal prices have been remaining above $175 per tonne for the last 18 months and that is providing our mining customers with healthier financial performance, stronger cash flows and hopefully, larger spending appetites.

We anticipate marginally higher third quarter revenues in Australia in accordance with the increasingly supportive macroeconomic environment. Our U.S. business continued to resilient – meaningfully better operational and financial performance as a result of robust occupancy in the U.S.

oil shale plays, a full quarter's contribution from our lodge and Lake Charles, Louisiana and the completion of an offshore fabrication project. As a result and as anticipated, we achieved positive EBITDA for the second quarter in the segment.

As we assess the second half of the year, we expect strong occupancy driven by drilling and completion activity in the Permian and into the Mid-Con. As a result, we added 160 beds in our West Permian Lodge to satisfy that growing demand. Overall, we're excited about our business heading into the second half of 2018.

The two acquisitions we closed in the beginning of this year are making meaningful contributions to our results.

Commodity price fundamentals remain considerably healthier than in recent years, and we continue to generate free cash flow consistently to strengthen our balance sheet – and strengthen our balance sheet while we seek to organically and inorganically grow our business.

With that, I'll turn the call over to Frank for a detailed review of our financial performance..

Thank you, Bradley, and thanks everyone for joining us this morning. I'll start with a review of our second quarter results across our three segments. Today, we reported total revenues in the second quarter of $130.2 million, with a net loss on a GAAP basis of $48.3 million or $0.29 per diluted share.

During the second quarter, the company generated adjusted EBITDA of $24.5 million, operating cash flow of $11.1 million and free cash flow of $8.6 million.

The second quarter net loss includes the impact of the accretion of a net beneficial conversion feature on the outstanding preferred shares totaling $48.5 million, shown as a preferred dividend on the second quarter statement of operations. Let me put some further color around the $48.5 million preferred dividend recorded during the second quarter.

Under generally accepted accounting principles or GAAP, a convertible instrument contains a beneficial conversion feature when the conversion price is less than the fair value of the shares, the instrument is convertible into at the commitment date.

As part of the consideration paid to acquire Noralta, we issued convertible preferred shares to the sellers.

As fair value of the Civeo common shares, into which the preferred shares are convertible into, was greater than the effective conversion price at the closing of the Noralta acquisition, therefore resulting in a beneficial conversion feature under GAAP – under U.S. GAAP.

Since preferred shares were convertible at the date we closed the Noralta transaction, we will require, under GAAP to immediately recognize the accounting impact of the non-cash beneficial conversion feature as a team dividend, therefore, impacting our second quarter loss for the quarter.

Turning to the second quarter results for our segments, I'll begin with a review of the Canadian segment performance compared to the prior quarter. Revenue from our Canadian segment were $86.5 million, increasing from $63.4 million in the first quarter.

Revenues for the quarter were primarily driven by the Noralta acquisition as well as a pickup in our mobile facility rental activity. Adjusted EBITDA in Canada was $18.6 million, almost double sequentially from $9.3 million. The increase was driven by the expanded revenue from the Noralta acquisition.

During the second quarter, build rooms in our Canadian lodges totaled 930,828, up 62% sequentially, driven by the strong turnaround work by our customers and the addition of the Noralta operations.

Our daily room rate for the Canadian segment in US dollars was $86 compared to $88 in the first quarter, primarily driven by the addition of Noralta's two large contracts with major operations with slightly lower rates. Turning to Australia. During the second quarter, we recorded revenues of $30.6 million, up from $27.9 million in the first quarter.

Adjusted EBITDA was $11.5 million and that increased sequentially from $9.1 million. We were pleased to drive performance above expectations, to increase the occupancy levels in our Bowen Basin villages. The average daily rate for our Australian villages decreased marginally to $80 in the second quarter compared to $81 in the first quarter.

Village build rooms increased 10% sequentially in the quarter to over 376,000 room nights. Now moving to the U.S. Revenues for the second quarter improved sequentially from $10.2 million to $13.1 million.

Revenue increase was driven by increased E&P activity in the Bakken, Rockies and Texas markets, as well as the benefit from a fourth quarter of contribution of our new Louisiana facility, which we acquired in the first quarter. During the quarter, we had adjusted EBITDA of $2 million in the U.S.

versus a loss of $700,000 in the first quarter of this year. We were very pleased to generate a positive adjusted EBITDA contribution from our U.S. segment this quarter, which is a testament to the health of this market and our continued efforts to manage our business throughout the industry's downturn.

Now I will comment on capital expenditures and our current liquidity position. During the second quarter, we invested $3.2 million, up about $500,000 from $2.7 million in the first quarter, both of which primarily related to routine maintenance.

In the second quarter of 2018, our total debt outstanding increased by $106.4 million to $430.2 million, primarily resulting from borrowings to fund Noralta acquisition. Subsequent to our closing of the acquisition, debt repayment of $11.5 million were made during the quarter.

As of June 30, 2018, we had $78.2 million of available capacity on our revolving credit facility and cash on hand of $4.8 million, or total liquidity of approximately $83 million. Looking ahead, we remain focused on generating free cash flow and delevering our balance sheet.

Our increased scale from the recent acquisitions will allow us to pay down our debt more quickly and remains one of our key strategic priorities. I will now turn the call back over to Bradley, who will provide some closing comments and talk about our guidance for the third quarter and the remainder of 2018.

Bradley?.

Thank you, Frank. I’ll now line our guidance for the third quarter and the full-year of 2018, and provide a brief outlook for our business segments and make some closing remarks before we open up the call for questions and answers. As you saw in the press release, we adjusted our full-year guidance.

We adjusted full-year EBITDA expectations down by approximately $8 million. This is related to the EBITDA mix in the second quarter, which was largely due to the Canadian Oil Sands occupancy being lower in the second quarter and expected weaker Canadian and Australian dollar exchange rates in the second half of 2018.

Overall, our outlook for the second half of 2018 is consistent with our prior expectations. Moving on to the segments, in Canada, we expect to experience continued turnaround work in the third quarter, however, not to the magnitudes seen in the second quarter.

This third quarter turnaround work includes the temporary shutdown activity of a major customers' facility, which should provide some additional occupancy to both the legacy Noralta assets as well the legacy Civeo assets.

Ultimately, we expect third quarter room nights in Canada to be down 7% to 9% sequentially from the second quarter, primarily due to again, lower turnaround activity and lower occupancy at our McClelland Lake Lodge as the Fort Hills project moves into operations.

For the third quarter, we are assuming our Canadian dollar exchange rate at $0.76, and we expect segment revenues to be between $78 million and $81 million with adjusted EBITDA of $18 million to $19 million for the third quarter of 2018.

These expectations are based on a range of $850,000 to $865,000 room nights and a room rate of approximately CAD 112 per night in the third quarter.

For the full-year in Canada, we are assuming a Canadian dollar exchange rate of $0.77, and we anticipate segment revenues of $309 million to $317 million and adjusted EBITDA of $66 million to $69 million for the full-year 2018.

These expectations are based on a range of 3.175 million room nights to 3.210 million room nights – an room rate of approximately CAD 113 per night. Moving to Australia, short-term activity continues to be strong and is expected to improve.

Several customers have been flexing up their respective room nights on a short-term basis in 2018, and this should bode well for occupancy in the third quarter.

For the third quarter, we're assuming an Australian dollar exchange rate of $0.74, and we're guiding to segment revenues of $32 million to $34 million with adjusted EBITDA of $12 million to $13 million for the third quarter of 2018. These expectations are based on 400,000 to 408,000 room nights with a room rate between AUD 104 and AUD 106 per night.

For the full-year in Australia, we're assuming an Australian dollar exchange rate of $0.76 and segment revenue of $124 million to $130 million and adjusted EBITDA of $43.5 million to $46.5 million for the full-year 2018.

These expectations are based on 1.497 million room nights to 1.596 million room nights at a room rate of approximately AUD 104 per night. On a consolidated basis for the third quarter, we expect revenues to be in a range of $122 million to $127 million and adjusted EBITDA in the range of $24 million to $27 million.

For the full-year 2018, we are projecting $478 million to $495 million of revenues and adjusted EBITDA of $85 million to $92 million. In summary, we remain assured by the stable constructive commodity price fundamentals in our core geographic markets.

With the Noralta and the Louisiana integrations complete, opportunities related to Canadian LNG development are back on our radar screen, and our global customer base continues to benefit from improving financial performance. And we are optimistic about the rest of 2018.

As we head in the second half, we will focus on what we can control and continue to make progress on our strategic mandates to work safely and efficiently, take care of our clients and our guests, receive organic and inorganic opportunities that generate strong financial returns, deliver unmatched service to our customers and allocate capital prudently with the goal of maximizing free cash flow, reducing debt and generating shareholder returns.

With that, I'll turn the call over for questions..

Thank you. [Operator Instructions] We’ll go first to Mike Malouf at Craig-Hallum Capital Group..

Great. Thanks guys for taking my questions. If we could just focus a little bit more on the LNG opportunity, I was wondering – I had two questions on that.

First off, have you been able to guard any sort of increased color with regards to the FIDs and if you could give us any insight on that? And then second of all, can you go into a little bit more about some of the ancillary and additional work that you might once that – if that FID does come through and you get these initial contracts starting to ramp? Thanks..

Thank you, Mike and thanks for the question. In terms of any further color on FID, I think we're all expecting or looking out in the same fashion, we're expecting it to be sometime later this year, either late third quarter, early fourth quarter.

And don't really have any further color beyond that, as it relates to additional opportunities, we certainly were very pleased when the four conditional contracts related to mobile camp accommodations for the Coastal GasLink pipeline that was four of the multiple camps that are necessary to construct that pipeline.

We're also hoping to put potentially some pipeline personnel into our Sitka location, and then we – as it relates to the Sitka location, we also hope to have both the joint venture personnel as well as their EPC contractors in Sitka. So we're working on that.

And then lastly, we continue to work forward on the Cedar Valley Lodge contract, that is the one we previously announced and had one related to building with our joint venture partner Bird Construction, a 4,500 room facility on the LNGC site. The last piece of the puzzle would be operating that asset.

So for us, the focus is on securing some work for the Sitka Lodge, it is the near-term focus and continue to assist LNGC and their EPC contractors as it relates to the Cedar Valley Lodge..

Okay. Great. That’s helpful.

And then just a follow-up question, on Noralta, do you have maybe an update on how the expense savings that you've reached so far, as you look to counter 2019 for example, how much do you think you'll end up saving internally with regards to consolidation of their facilities?.

Thanks for the question. I think the team as a whole, the combined team as a whole has done a very good job and very quickly executing that. It's always a piece of work and difficult to integrate two companies. I think the team has come together very quickly and efficiently.

We feel very comfortable with the CAD10 million that we initially estimated and hope, as we get a few more months underneath our belt, given that we only have had 90 days of integrated operations, that we'll be able to raise that.

So I'd say there is an upper bias to the $10 million, but let us get another 90 days under our belt and we'll update the investors..

Okay. Great. Look forward to that. And thanks for taking the questions..

[Operator Instructions] We'll go next to Steven Gengaro at Stifel..

Good morning, guys.

Bradley, could you give us a little more color on what you're seeing in Australia as far as customer interest and obviously, you've given us guidance for the next quarter and for the year, but just to kind of get a sense of what you're seeing as far increase go? And how you think that maybe plays out over the next several quarters?.

Sure. Well I think, if you look at how things have progressed and if you let me Stephen, I'll kind of talk from our quarterly room nights, which is a number of rooms occupied or built for the given quarters. So in the first quarter, we had [341,600] room nights in Australia for the first quarter, we gone up to [376,400] in the second quarter.

We think we expect to grow closer to 400,000 in the third quarter. So things are progressing nicely. We're starting to see increased turnaround work and as we expect it throughout the year, we thought we kind of pace upwards throughout the year. Right now, we expect to have a strong fourth quarter. We're trying to firm up what that looks like.

As we've talked about in the past, what we've seen is customers are securing a block of rooms, kind of their base load needs, knowing that they are definitely need more than that and they're not committing to that. They're paying for that flexibility in higher rates but they're not committing to it.

So we're trying to do our best to forecast for the market what we think the occupancy is going to be, but there is a component of it every quarter that's going to be more flexible because it all relates to maintenance work.

So I would say we're more optimistic today than we were a quarter ago in terms of trying to secure larger blocks of base load work, if you will, but it continues to be a highly fluid market, an improving market, but a higher fluid market..

Yes. And there's some – I mean, there's some discussions in the market there with regards to new mines and expansion from some of our customers but nothing has been – we haven't reached FID nor announced any of those plans, but there are discussions.

So if the prices continue to stay hold – to hold, we could see as we move into 2019, later I could be there too Stephen..

Okay, great. Thank you.

And then second – and I know there was a question earlier on the LNG side in Canada, if this thing was to get the complete go ahead, when would you see revenue? Would it be a night – I mean, I guess – when you're going to get, let's say by September 1 or at the end of the third quarter, would you get a revenue stream flowing through in the first half of 2019, second half 2019, any way to think about that? I mean, obviously…?.

Sure. Well, I think there are a couple of pieces to it. One, we need to work – win the work for Sitka. If we win the work for our Sitka Lodge in Kitimat, then even if it's conditional on FID, I would expect that they would need to use that asset ASAP, at that point, because we are the largest and most available asset in the region.

And they've used this in the past. If you recall, prior to them delaying the project in 2016, they had been staying at the Sitka Lodge, and obviously, we have to win the work, and we have to perform well in terms of meeting their expectations, but I think the Sitka asset is very well positioned..

You can see in revenues in 2018 related to that asset..

We’re assuming we have FIDs this year, you will have 2018 revenue. There'll be some 2019 revenue – well, and then obviously, it will continue into 2019 and 2020. As it relates to the Coastal GasLink pipeline projects, the most of that is going to be 2020 and 2021. We'll have some in 2019.

We’ll have mobilization revenues and some occupancy revenues, but that is largely 2020 and 2021..

Okay, that’s helpful.

And then if I could just throw in one more, you're giving us more detail, which is helpful but when I think about the Canadian margins and I think about the catering operations, I mean, I think they're – if I'm right, there's low capital intensities, so the returns are good, but there is a margin impact there? Are you guys thinking about this, if I was to break it out that your core combinations margins are relatively sticky, and the overall margin is just impacted by other business lines?.

Largely that's the case, Stephen.

Haven't seen a degradation either and from a margin perspective, either in the Civeo legacy assets or the Noralta assets, they're quite frankly performing as we expected to slightly – from a margin perspective slightly better, where we missed in the second quarter was quite frankly on volumes where we were expecting higher occupancy levels related to turnaround work from two of the major operators out there.

That just didn't come to fruition. And really kind of came to an end about mid to late May. So at any rate, the mix will play a role as we move into capital-wide operations, that will play a role both in Canada and Australia, as we try and operate our – we win work to operate customer owned assets, where the margins are mid- to high single digits..

Okay, great. That’s very helpful. Thank you. End of Q&A.

And that does conclude the question-and-answer session. At this time, I'll turn the conference back over to Mr. Dodson for any closing remarks..

Thank you. Thank you all for joining us today. We look forward to the second half of 2018. There are some good things happening in our core businesses and obviously some things we all looking forward to should Canadian LNG move forward. So we look forward to reporting on that later this year. Thank you..

And that does conclude today's conference. Again, thank you for your participation..