Regan Nielsen - Manager, Corporate Development and IR Bradley Dodson - CEO Frank Steininger - EVP and CFO.

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

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

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

I'll begin with an overview of the third quarter before offering some commentary on our three business segments, Frank will then give a detailed financial and segment level review and I'll conclude with our updated guidance for the fourth quarter of 2018 and our preliminary outlook for 2019 before we move to question-and-answer portion of the call.

Our release and highlights include continued improvement in our Australian and U.S.

segments, the announcement of additional room commitments at our Sitka Lodge associated with the recently sanctioned LNG Canada and Coastal Gasoline projects and the completion of an amendment to our credit facility that provide Civeo with additional near-term financial flexibility.

As you likely saw on our press release, Civeo has been awarded additional room commitments with CGL and LNGC's EPC contractor to provide rooms and services at our Sitka Lodge contingent upon notice to proceed which is expected shortly.

This room commitment in addition to the four previously announced awards for mobile camps to support the CGL project solidifies our position as the accommodations partner of choice in the region and we expect to secure more room commitments for our Sitka Lodge.

It also represents a significant commercial opportunity for Civeo, the Sitka Lodge room commitments to-date are expected to generate approximately C$55 million in total revenues over the initial 18 months.

In accordance with this room commitment, CGL will utilize the Sitka Lodge for accommodations required for the construction of the western most portion of the first natural gas pipeline and LNG Canada's EPC partner will also utilize Sitka for the initial construction phases of the LNGC export facility.

The award covers expected room needs over the initial 18 month time period with a minimum room commitment and options for extensions of up to 36 months. We will partner with a local First Nation community at the Sitka Lodge to supply the accommodation needs during the term of the room commitments.

These room commitments at the Sitka Lodge are in addition to the previously announced four contracts totaling a C$100 million of revenues for the mobile camp supporting the CGL pipeline project. Civeo expects to spend approximately C$15 million in capital to expand the Sitka Lodge from its current capacity to 1,100 rooms.

This is in addition to the previously announced $10 million in capital related to the four mobile camp contracts supporting the CGL pipeline project. Our strong performance in Australia and the U.S.

continued into the third quarter with adjusted EBITDA up sequentially for the second quarter in a row, while our Canadian business underperformed guidance due to an unexpected maintenance-related operational issue and turnaround scheduling issues.

In Australia, a constructive price environment for met coal continues to drive steady maintenance activity on the part of our customers, some of whom are now approaching us to discuss term commitments for 2019 and 2020 as they evaluate expansion projects. Meanwhile in the U.S.

we are delivering strong quarterly EBITDA as our West Permian and Acadian Acres facilities continue to be nearly full during the third quarter and we saw the benefits of the repositioning of wellsite assets into the MidCon and the Permian regions, capturing additional utilization without the burden of the previously incurred mobilization cost.

Our Canadian business generated softer than expected performance in the third quarter. The two primary negative impacts to the third quarter of 2018 were overlapping turnaround-related room demand by two customers and a maintenance issue at our Fort McMurray Village which took occupied rooms offline during the quarter.

The aforementioned challenges notwithstanding the Noralta assets continue to drive significant year-over-year revenues in Canada. We remain on track to generate C$10 million of annualized synergies by year end 2018.

Although we anticipate continued softness in the fourth quarter in Canada and into the first quarter of 2019, we are encouraged by the relatively steady occupancy related to oil sands operations coupled with the benefit from the LNG Canada construction and CGL work ramping up in mid-2019.

During the third quarter, Civeo generated revenues of a $121.5 million was modestly lower than the revenue guidance of $122 million to $127 million and reported net loss attributable to Civeo of 14.3 million or $0.09 a share, which includes roughly $2 million in fees related to third party consulting to support a variety of strategic projects.

Adjusted EBITDA for the third quarter was $22.4 million which was below guidance of $27 million, due primarily to issues related - issues mentioned regarding Canadian occupancy and consulting and professional fees at corporate and in Australia totaling $2 million.

Importantly, if we exclude the consulting and professional fees I mentioned, the third quarter adjusted EBITDA was $24.4 million which falls within the range of our anticipated forecast.

Despite these challenges, we are pleased to report that Civeo generated $9.8 million in free cash flow during the third quarter, which is an indicative of our strategic commitment to capital discipline in any commodity price environment.

In our Canadian segment, revenues were $76.8 million, sequentially down from $86.5 million in the second quarter, but still up sharply on a year-over-year basis as the legacy Noralta facilities contributed to our results.

Adjusted EBITDA of $16.5 million was below our guidance of $18 million to $19 million, impacted primarily by the turnaround scheduling impact on our occupancy and maintenance-related operational issues which took 400 rooms offline at the Fort McMurray Village for part of the quarter. We expect to have the maintenance issue resolved by year end.

In our Australian segment, third quarter benchmark met coal prices settled unchanged from Q2 near $197 per tonne as spot demand associated with restocking in China and India remained robust.

Although we continue to closely monitor the potential ramifications on China's stricter focus on pollution controls and the steel market, the current pricing environment is clearly boosting our customers' financial performance and outlook. Our U.S.

segment continues to generate improving operational and financial performance driven by robust occupancy in our West Permian and Acadian Acre Lodges, the redeployment of our wellsite assets into the Permian and the MidCon and steady activity offshore.

Although we anticipate a modest drag from the typical holiday down time in Q4, the outlook remains very promising for 2019 for our U.S. segment. As we had indicated on previous earnings calls, we are currently not seeing any evidence of slowdown in activity from the highly publicized Permian takeaway constraints.

As our customers put together their 2019 budgets over the next few months, our overall outlook for the business remains very constructive.

We expect to achieve relatively steady state EBITDA in Canada from operations and turnaround work in 2019 coupled with the accelerating contributions from the LNG Canada related work and the CGL pipeline project starting in the second half of next year.

In Australia we anticipate 2019 will likely be a year of transition to a substantially healthier environment as customers revisit expansion projects.

In the U.S., assuming drilling and completion activity remains consistent with the 2018 exit rate, we believe we will continue to see stronger benefits from our repositioned wellsite fleet without bearing the burden of the mobilized cost that experienced in 2018.

Regardless of how these various moving parts shake out in 2019, we remained steadfastly focused on our strategic commitment to generate free cash flow, invest capital judiciously in the highest return opportunities, strengthen the balance sheet and continuously improve on the unsurpassed service quality that we deliver to our customers.

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

Thank you, Bradley. And thanks everyone for joining us this morning. I'll begin with a review of our third quarter results across our three segments. Today, we reported revenues in the third quarter of a $120.5 million with the net loss on a GAAP basis of $14.3 million or $0.09 per diluted share.

During the third quarter, the company generated adjusted EBITDA of $22.4 million, operating cash flow of $11.9 million and free cash flow of $9.8 million.

We also recently completed the amendment to our credit facility to provide flexibility and capital availability to fund our growth initiatives, including those related to LNG Canada in 2019 as we manage through an expected softer fourth quarter and 2019 first quarter in the Canadian Oil Sands.

We view this as an important opportunity for our company and this amendment to our credit agreement will allow us to strategically maximize the potential impact of the LNG project. Now turning to the fourth quarter results of our segment, I'll begin with the review of the Canadian segment performance performed compared to the prior quarter.

Revenues from our Canadian segment were $76.8 million, decreasing from $86.5 million in the second quarter.

Revenues for the quarter were primarily impacted by overlapping turnaround schedules between two customers, related - operations related - sorry, the reduced operations related room demand from an outage at a customer's project and a favorable impact from exchange rate fluctuations.

Adjusted EBITDA in Canada was $16.5 million for the quarter, down from $18.6 million in the second quarter. The decrease is attributed to the lower turnaround activity captured as well as a temporary shutdown of a lodge due to maintenance related issues that Bradley mentioned earlier.

During the third quarter, build rooms in our Canadian lodges totaled 816,295, down 12% sequentially due to the aforementioned issues. Our daily room rate for the Canadian segment in U.S. dollars was $89 per day compared to $86 in the second quarter, largely driven by our occupancy mix.

Turning now to Australia, during the third quarter, we recorded revenues of $31.1 million, up from $30.6 million in the second quarter. Adjusted EBITDA was $12.4 million and that increased sequentially from $11.5 million last quarter.

We were pleased to drive another strong quarter in Australia which was driven by increased build rooms across the Bowen Basin.

The average daily rate for our Canadian - sorry, our Australian villages decreased to $77 in the third quarter compared to $80 in the second quarter, which primarily related to a weakening Australian dollar relative to the U.S. dollar. Village build rooms increased roughly 6% sequentially in the quarter to nearly 397,000 room nights.

Moving to the U.S., revenues for the third quarter decreased slightly sequentially from $13.1 million to $12.7 million, primarily due to lower offshore fabrication revenue. We continue to experience healthy market conditions which are driven by increased drilling and completion activity in the Permian and MidCon markets. Adjusted EBITDA in the U.S.

increased from $2 million to $2.4 million due to increased revenue and decreased mobilization costs related to our wellsite fleet. This was the second consecutive sequential improvement in U.S. EBITDA which underscores the strengthening of this segment and the benefit from our initiatives to manage this business through the downturn.

Now a few comments on capital expenditures and our current liquidity position. During the third quarter, we invested $2.7 million, down $500,000 sequentially in capital expenditures with both quarters primarily related to routine maintenance.

Our total debt outstanding as of September 30, 2018 was $423.1 million, a $7.1 million decrease since June 30, 2018. We repaid $13.8 million of debt through cash flow generated, which was primarily offset by translation adjustments.

As of September 30, 2018 and prior to accounting for the impact of the bank amendment, we had total liquidity of approximately $44.4 million consisting of $39.9 million available under our revolving credit facility and $4.5 million of cash on hand. As Bradley mentioned earlier, we've recently amended our credit facility.

For the terms of the amendment, our leverage ratio, which is measured at adjusted EBITDA to total debt has a maximum of 4.5 times in the fourth quarter of 2018 before stepping up to a maximum 4.75 times in the first quarter of 2019.

From there, it steps down to 4.5 times again in the second quarter of 2019, 4 times in the fourth quarter of 2019 and 3.5 times in the fourth quarter of 2019 and beyond. Amortization on the term loan facility was also increased from 10% per annum to 12.5% per annum beginning at December 31, 2018 through maturity.

We believe this is an attractive structure that will allow us to manage to an expected softer fourth quarter and first quarter in the Canadian oil sands regions, while we continue to pursue the strategic growth opportunities in our business, specifically related to LNG Canada and the Coastal GasLink pipeline.

Looking ahead, we continued to focus on generating free cash flow and delivering our balance sheet. I will now turn the call back over to Bradley who will provide some closing comments and talk about our guidance for the fourth quarter, the remainder of 2018 and give us his look into 2019.

Bradley?.

Thank you, Frank. I'll now outline our guidance for the fourth quarter and full year of 2018 and give a preliminary outlook for 2019, provide a brief outlook for our business segments and make some closing remarks before we open up the call for questions and answers.

In Canada, the delay of the Trans Mountain Pipeline project and softness in SAGD drilling activity potentially due to the current WCS discount are expected to impact the occupancy for our Southern oil sands lodges and equate to modestly sequential declines in revenues and EBITDA during the fourth quarter of 2018.

For the fourth quarter we are assuming the Canadian dollar exchange rate of 0.76 and we anticipate segment revenue of $71 million to $75 million and adjusted EBITDA of $11.5 million to $13.5 million for the fourth quarter of 2018.

These expectations are based on a range of approximately 720,000 to 740,000 room nights and a room rate of approximately C$119 per night in the fourth quarter.

For the full year in Canada, we are assuming a Canadian dollar exchange rate of 0.77 and we anticipate segment revenue of $298 million to $302 million and adjusted EBITDA of $55.5 million to $57.5 million for 2018.

These expectations are based on a range of approximately 3.04 million to 3.06 million room nights at a room rate of approximately C$115 per night.

Moving to Australia, fourth quarter results will be impacted by the typical holiday downtime and the unfavorable foreign exchange rate movement experienced so far in 2018, which in light of and otherwise healthy commodity price environment.

We remain very encouraged that customers will continue to utilize rooms above their base commitments for maintenance and turnaround work as we finish 2018 and move into 2019.

For the fourth quarter of 2018 we are assuming an Australian dollar exchange rate of 0.74 and we are guiding to segment revenue of $30 million to $32.5 million and adjusted EBITDA of $10.5 million to $12 million for the fourth quarter of 2018.

These expectations are based on 395,000 to 418,000 room nights at a room rate of approximately AUD 101 per night. For the full year in Australia, we are assuming an Australian dollar exchange rate of 0.76 and we anticipate segment revenues of $119.5 million to $122 million and adjusted EBITDA of $43.5 million to $45 million for 2018.

These full year expectations are based on a range of 1.51 million to 1.53 million room nights at a room rate of approximately AUD 103 per night. On a consolidated basis for fourth quarter we expect revenues to be in the range of a $113 million to a $119 million and adjusted EBITDA in the range of $17 million to $20 million.

For the full year 2018, we are projecting revenues of $466 million to $472 million and adjusted EBITDA of $74 million to $77 million. As much as we've liked to see consistent trajectory of results from quarter-to-quarter that has not always a realistic expectations as the business continues to recover across our three distinct business segments.

However, we remain encouraged that the stable and healthy commodity price fundamentals in Australia and the U.S. and improving customer cash flows and the forthcoming contributions from the LNG Canada project and the related pipeline project work in Canada signify improving performance for Civeo in 2019.

And with customers in Australia contemplating expansion of new projects for the first time in several years and the occupancy related to LNG Canada related work and CGL growing into 2020, we are focused on positioning the company to capitalize as activity trends towards a full cyclical upturn.

As we head into the fourth quarter of 2018 and prepare for another positive transition into 2019, we continue to execute on our strategic priorities to work safely and efficiently, pursue the highest financial return from investment opportunities, deliver unmatched service for our customers and allocate capital prudently with the goal of maximizing free cash flow and reducing debt.

While our fourth quarter guidance is negatively impacted by weaker pipeline and SAGD activity in Canada, we believe that annualizing fourth quarter guidance is unreasonable. We are still in the midst of budgeting for 2019 and we remain in discussions with our key customers to better understand the room needs for 2019.

We expect that budgeting process to continue for another month or so and discuss the budget with our board in December as usual. However, we wanted to provide some color on 2019 based on what we see today. In Canada, we will continue to - we have continuing positive influences to our outlook.

One is a positive impact from higher occupancy at our Sitka Lodge in Kitimat DC related to LNG Canada project, particularly in the second half of 2019 after we have expanded the lodge to 1,100 rooms. We will also benefit from better mobile camp results as the CGL project kicks off.

Secondly, we'll benefit from four full quarters from legacy Noralta assets, also full year's impact from the synergies related to the Noralta acquisition, partially offset by the higher labor cost related to the unionization of the Noralta workforce.

These positive impacts will be partially offset by a lower occupancy from the Fort Hills project at our McClelland Lake Lodge as that project moves purely into operational activity and headcount. Overall, we expect Canadian room nights to be up from 2018 to 2019 by 5% to 7%.

In Australia, we expect continued improvement in occupancy primarily through our Bowen Basin locations, generating a 10% plus year-over-year increase in EBITDA in local currency. In the U.S., we have moved our assets primarily out of our legacy Northern markets of the Rockies and the Bakken into the Permian and the MidCon.

Those mobilization cost negatively impacted our 2017 and 2018 results. However, we expect to have all of those fleet movements completed by year end 2018. Lower mobilization cost coupled with strong exit rate utilization of the wellsite units foreshadows a stronger 2019. For our U.S.

segment, we expect EBITDA to be up 70% to 90% year-over-year 2018 to 2019. Overall, we are currently estimating that our 2019 EBITDA guidance will be in the $100 million to $110 million range. And we expect to provide a full and our typical annual guidance for 2019 on our fourth quarter earnings call. With that, we're happy to take the questions..

Thank you. [Operator Instructions] We will now take our first question from Stephen Gengaro of Stifel. Please go ahead..

Thanks. Good morning, gentlemen. Thanks for the color on 2019. That helps. So, I just wanted to clarify a couple of things quickly.

When you talk about the room needs and the new C$55, the estimated revenues of $55 over the first 18 months of this contract that is in addition to the CGL project, but are those rooms at Sitka that you're expanding being used for part of these contracts?.

We have been occupied or the project has been using rooms at Sitka since July. We expect them to continue to use rooms under a nomination basis through year end.

Once we get notice to proceed, we expect that that will trigger the commitments that we have so far from the EPC contractor and CGL and those will be in addition to the room needs of the mobile camp contracts that we previously announced for CGL..

Okay. That makes sense. And second, as you look at the third quarter numbers, would you say, and I might have missed it on the call, but the overlapping turnaround schedules of two customers.

Was that a logistics issue or did you not have room availability, like what was exactly the dynamic there?.

It was a timing and location issue for the two customers. They're primarily using rooms what we call the base plant region which is the vast majority of the Noralta assets plus Athabasca and Beaver River. Based on the loading curves, we couldn't accommodate all the people that they needed us to.

So, we lost out on about 800 rooms for about 30 to 40 days..

Great. And then just one final, when you think about this massive shale LNG project that's about to start and you start thinking about the overall impact that it has on you.

When you look at your JV, I think from - was it Bird, when does the impact of that start to kick in?.

Again, while we've had positive FID or they've had positive FID on the project, all of us that are hoping to serve the project are waiting on notice to proceed. And so, we've been involved in the discussions around the Cedar Valley Lodge which is the contract for the Bird-Civeo JV.

We are still waiting for a positive notice to proceed before really any activity would be. In general, they're going to get started pretty quickly because they will want to start to construct those rooms and get those up and running for the overall labor curves of projects..

Of the projects, right..

And is that contemplating all in your 2019, your initial 2019 thoughts?.

Not at this point, no..

Okay, good. Thank you..

We'll now take our next question from Mike Malouf of Craig-Hallum Capital Group. Please go ahead..

Great. Thanks for taking my questions. I'll start with Australia just real quick. It sounds like there are some preliminary indications of some strength there; we've obviously been waiting for that for a while.

Can you contrast that with where you were in 2014 and 2015 and are you getting any indications that if you get this cycle headed into maybe the direction that perhaps the commodity would indicate?.

Sure. Well, Mike, I think we share your comment which is met coal prices have been constructed for a fair amount of time.

I think the thing that is possibly since the last earnings call is we're starting to see customers submit environmental impact studies and is trying to move tangibly towards a position where they get positive FID and expansionary project.

I think for our Australian business it is fairly straight forward in terms of the projects that would be impactful to gaining some construction related or expansion related occupancy. Again, the projects that we have on our radar screen will utilize existing assets and latent capacity.

So, there wouldn't be a CapEx component to it with maybe minor exceptions, but it's BMA expansions, it's Whitehaven expansions, it would be a new project for the Chinese firm [ph] Shinwell and then potentially a partnership with Woodside. So, those are kind of the big four that are on our radar screen that would materially impact our operations.

That being said, I would say that we've seen kind of a steady march, albeit not at maybe the slope that we would like, but a steady march up and occupancy for that operation and I think they're delivering good results as relates to margins as well.

So, I think Australia, we'd like that shot in the arm of getting one of these expansion projects kicked off.

But I think that right now as we see it, the 2019 guidance that we've provided and we'll kind of fill that out as we get into the fourth quarter earnings call, the 2018 guidance doesn't anticipate any major project influencing that occupancy for Australia. That at this point looks like more of a 2020 story if they get a positive FID sometime in 2019.

It could be upside, but at this point, based on timing, we think that that's more of a 2020 story..

Okay, good. That's helpful. And then just a question on CapEx, you got C$10 million related to the mobile camps, four that you announced and then of course the C$15 million for the Sitka operation.

That C$25 million, can you give us a sense of how that will be paid? I mean what will be the schedule of that CapEx over the next quarter?.

Sure. That's a great question. The Sitka piece will be paid assuming we get notice to proceed here shortly. We'll be in the fourth quarter going into the first half of 2019. And then there will be some spending of the C$10 million of the CGL CapEx in 2019, but a portion of that will be spent in 2020. So, I would say half and half on that one..

Yeah. Spread across both years..

And by the way both of those numbers are Canadian dollar numbers not U.S. dollar numbers..

Got it. Okay, great. Thanks for the help. I appreciate it..

Thanks Mike..

[Operator instructions] It appears we have no further questions. So, - my apologies. Stephen Gengaro from Stifel. Please go ahead, your line is open..

Hi. Thanks. Just as a follow up. As I sort of think about the impact of LNG Canada, so just to be clear, so the CGL revenue stream of a $100 million that starts up in 2019, but the bulk of it is 2020.

Is that right?.

We'll have a portion in 2019 let's call it C$8 million to C$10 million - first of all C$100 million is Canadian. I would say C$8 million to C$10 million assuming we get notice to proceed in 2019. Then you'll have - then the other part will be split between 2020 and 2021..

Okay great.

And have you --I know it's still early, have you had any indications of incremental work around this outside of what we've heard about so far?.

So, in the press release we talk about a commitment from - and we're talking about Sitka primarily. The work for CGL has been led up from an accommodation standpoint. So, they….

Both [Indiscernible] pipeline and our Sitka Lodge..

Right..

So, we have the work for CGL from the four mobile camp locations plus they'll be utilizing CGL, I mean to say Sitka for that project. So, the incremental work would be situated at Sitka. We have the commitment again from CGL, we have it from the EPC contractor and we are working for additional commitments at that location. We've got 646 rooms today.

We expect that once we get notice to proceed that we will expand that location to 1,100 rooms. We have - we are in the process of seeking approval from the local district to expand that to as large as 2,000 rooms subject to the need and obviously customer commitments to substantiate that expansion.

The expansion of Sitka will be largely using existing Civeo assets both mobile camp and other assets that will be relocated to Kitimat. So, while we'll be expanding by roughly 500 rooms, $50 million is a capital light, I think smart way to expand that asset in anticipation of clearly 18 months of commitment, but then hopefully longer than that..

Good. Thank you. And then just one final. When you think about the U.S. market and obviously there has been really nice traction there over the last several quarters.

Are there larger awards that are out there that are in discussion around some of these needs in the Permian or other basins that could show up and that you've looked out and talked about pursuing or should we think about the existing infrastructure as kind of the way the U.S.

market will be for a while?.

Well, I think on the U.S. market by year end we'll have the wellsite assets we won in the Permian and in the MidCon and that mobilization cost has been run through the P&L for the balance of the last two years, 2017 and 2018 will be complete.

I mean the teams have done a very good job of mobilizing those assets, getting them to work, using customers that we - historical customers we've had in our legacy market of the Rockies and the Bakken who have moved into West Texas and Oklahoma and leveraging those relationships to get those assets to work.

So, we're seeing good results out of our El Reno and in Pecos locations on wellsite side. We do have an existing location that's more of a lodge location in Pecos. We expanded that in the second and third quarter. We are seeing good occupancy at that location. And I think we're all cognizant of the fact that the U.S. market can pivot on a dime.

And so, we're trying to be looking for growth opportunities and assets and expansion assets similar to Pecos or similar to Louisiana location we acquired in February in the West Texas market if we can make the economics work and get comfortable with where activity is going to be over the next two to three years..

Got you. That's very helpful. Thank you..

It appears there are no further questions at this time. Mr. Dodson, I would like to turn the conference back to you for any additional or closing remarks..

Thank you very much. Thank you all for joining us today. We think we've positioned the company very well for what looks like to be an improving environment certainly in Australia and the U.S. and with LNG activity picking up in Canada and an improving environment in Canada as we move into 2019.

We look forward to speaking to you on the fourth quarter of 2018 conference call. And thank you very much..

This concludes today's conference call. We thank you for your participation. You may now disconnect..