Good day, everyone, and welcome to the Civeo Corporation's Fourth Quarter 2020 Earnings Call. Today's call is being recorded. And at this time, I would like to turn the conference over to Regan Nielsen, Director, Corporate Development and Investor Relations. Please go ahead, sir..
Thank you, and welcome to Civeo's Fourth Quarter 2020 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Carolyn Stone, Civeo's Senior Vice President, Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding forward-looking statements.
To the extent that our remarks today contain 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.
I'll now turn the call over to Bradley..
Civeo's business continues to generate cash, which is furthering our ongoing debt reduction efforts. For the full year 2020, Civeo generated $111 million of free cash flow, an increase of 119% year-over-year; and reduced our total debt during 2020 by $108 million to end the year at $251 million of total debt.
This is really the key point from the press release and this earnings call. Our fourth quarter results were modestly better than we were expecting. In the fourth quarter, Civeo delivered $23.7 million of adjusted EBITDA and $33.2 million of free cash flow.
We reduced our total debt by $21.5 million in the fourth quarter, bringing our leverage ratio down to 2.1x as of December 31, 2020. De-levering our balance sheet remains our top financial priority, and this quarter is the seventh straight quarter that the leverage ratio has come down.
We also had another successful quarter in terms of new contract awards and extensions. Today, we announced three contract renewals in our Australian business. With the expected total revenues of AUD101 million over the two year terms.
Our Australian business had another good quarter, delivering adjusted EBITDA of $17.2 million, a 9% improvement year-over-year on robust room demand and our team's operational execution.
Despite typical holiday downtime in the fourth quarter, our operations in Canada are showing early signs of normalization from the negative impacts of the lower oil prices. Our customers are gradually mobilizing employees and contractors as the worst of the impacts of the pandemic appear to be abating.
In total, our team put together a solid fourth quarter despite the challenges of the pandemic and the weaker oil price environment in 2020. I'll now take a moment to provide a business update on our three segments.
In Canada, our revenues and adjusted EBITDA softened both sequentially and year-over-year, given the lingering constraints on occupancy from the volatile oil prices the pandemic to typical holiday downtime.
And a strong -- unusually strong turnaround schedule in the fourth quarter last year, this segment's performance was consistent with our expectations.
Our Australian results were in line with our expectations as our Bowen Basin occupancy was slightly better than expected, but did reflect some typical holiday downtime, coupled with lower occupancy at our Carapa location as LNG-related occupancy declined.
Adjusted EBITDA in the fourth quarter was up year-over-year as a result of stronger customer activity in the Bowen Basin and in our Western Australian Integrated Services business. In the U.S., conditions for our U.S. business continue to be extraordinarily challenging.
And we are not counting on a meaningful improvement in the business in the first half of 2021. Although we are encouraged by the recent improvement in drilling and completion activity, independent of disruptions from the recent arctic blast, activity remains subdued, and we expect E&P customers in the U.S.
to continue to live well within their cash flows, constraining overall activity. Turning to the balance sheet, our leverage rate declined at 2.1x at year-end from 2.16x at the end of the third quarter, proactively dedicating cash flow to reducing debt remains our key financial priority.
2020 presented a series of unprecedented obstacles, and 2021 is often a similarly atypical start with the continued Chinese-Australian trade dispute, slow vaccine rollout in North America and the impacts of the recent arctic weather in the Southern U.S.
At Civeo, we adhere to our battle tested playbook, when these unexpected crises present themselves.
Keep our employees, guests and vendors safe and comfortable as possible, operate responsibly in our communities, continue to focus on what we control, and rely on the consistent strategic priorities to maximize free cash flow generation, reduce debt to enhance financial flexibility and contained costs without compromising service quality.
And with that, I'll turn the call over to Carolyn..
Thank you, Bradley, and thank you all for joining us this morning. Today, we reported total revenue in the fourth quarter of $133.4 million, with a GAAP net loss of $2.3 million or $0.16 per diluted share. During the fourth quarter, we generated adjusted EBITDA of $23.7 million, operating cash flow of $36.7 million and free cash flow of $33.2 million.
The lower adjusted EBITDA we experienced in the fourth quarter of 2020 as compared to the same period in 2019, was largely due to lower build rooms in our Canadian oil sands lodges and, to a lesser extent, lower occupancy due to decreased drilling and completion activity in the U.S.
These items were partially offset by CEWS proceeds as well as by the continued favorable performance of our Australia business. For the full year 2020, we reported revenue of $529.7 million and a net loss of $136.1 million or $9.64 per share.
In 2020, we generated adjusted EBITDA of $108.1 million for the full year, which was consistent with our 2019 full year adjusted EBITDA of $108.4 million. Weaker activity in Canada and the U.S. related to the pandemic and lower oil prices was almost completely offset by stronger activity in Australia as well as CEWS proceeds.
Let's now turn to the fourth quarter results for our three segments. I'll begin with a review of the Canadian segment performance compared to its performance a year ago in the fourth quarter of 2019. Revenue from our Canadian segment was $65.5 million as compared to revenue of $89.7 million in the fourth quarter of 2019.
Adjusted EBITDA in Canada was $13.8 million, a decrease from $20.9 million in the fourth quarter of 2019. The negative impact on revenue and adjusted EBITDA was largely caused by a meaningful reduction in build rooms in 2020.
Related to the protracted decline in oil prices, and the effects of the COVID-19 pandemic, especially in our oil sands lodges, coupled with unusually high fourth quarter turnaround activity in 2019. Adjusted EBITDA in the fourth quarter of 2020 for our Canadian segment included $3.3 million related to proceeds from the CEWS.
During the fourth quarter, build rooms in our Canadian lodges totaled 469,000, which was down 44% year-over-year from 837,000 in the fourth quarter of 2019 due to the factors I just mentioned. Our daily run rate for the Canadian segment in U.S. dollars was $98, up slightly with a 7% year-over-year increase.
Turning to Australia, during the fourth quarter, we recorded revenue of $63.7 million, up from fourth quarter of 2019. Adjusted EBITDA was $17.2 million, up from $15.7 million during the same period in 2019.
These results represent a 22% period-over-period top line increase on a constant currency basis and were driven by increased activity in our integrated services business, and our increased occupancy of Bowen Basin lodges. Our U.S. dollar results further reflect the impact of the strengthened Australian dollar.
Australian build runs in the quarter were $480,000, up from $463,000 in the fourth quarter of 2019, due again to the continued improvement in metallurgical coal activity across the Bowen Basin. The average daily rate for our Australian villages in U.S. dollars was $77 in the fourth quarter, up from $72 year-over-year.
As Bradley mentioned, we are very pleased to announce our new contract in Western Australia to provide hospitality services through our Integrated Services business, with estimated revenues of AUD62 million over its two year term.
We also announced the renewal of two contracts to provide accommodations in hospitality services in our Bowen Basin villages with expected revenues under these contracts totaling AUD39 million over a currently two year terms. Moving to the U.S., revenue for the fourth quarter was $4.2 million as compared to $10 million in the fourth quarter of 2019.
The U.S. segment saw a negative adjusted EBITDA of $1.4 million in the fourth quarter, a reduction from negative adjusted EBITDA of $0.2 million during the same period of 2019.
These year-over-year declines were primarily related to broadly lower drilling and completion activity, largely due to lower oil prices as well as the impact of the COVID-19 pandemic. On a consolidated basis, our capital expenditures for the full year 2020 were $10.1 million, down from $29.8 million during 2019.
This decrease is primarily due to the completion of the Sitka Lodge expansion in 2019 as well as capital discipline employed during 2020 due to the pandemic and resulting global economic environment. Our total debt outstanding on December 31 was $251.1 million, which was a $21.5 million decrease since September 30.
The decrease consisted of $34.6 million in payments during the quarter from free cash flow generated by the business and was partially offset by an unfavorable foreign currency translation impact of $13.1 million. Our leverage ratio for the quarter decreased to 2.11x as of December 31, 2020, from 2.16x as of September 30.
And finally, as of December 31, we had total liquidity of approximately $105.4 million, which consisted of $99.3 million available under our revolving credit facilities and $6.2 million of cash on hand. Bradley will now discuss our outlook for the full year 2021.
Bradley?.
we will prioritize the safety and well-being of our guests, employees and vendors. We'll manage our cost structure in accordance with the occupancy outlook across all three regions.
We will continue to enhance our best-in-class hospitality offerings and we'll allocate capital prudently to maximize free cash flow generation while we continue to reduce debt.
Before we proceed to the questions section of the call, I'd like to thank our incredible employees around the world for their dedication, selflessness and professionalism that they bring to work every day. 2020 presented our team with unprecedented challenges and we predictably rose to the occasion at every turn.
On behalf of the Civeo management team and Board of Directors, thank you again for making us so proud to work with you. With that, we'll take questions..
[Operator Instructions] We do have a question from Stephen Gengaro with Stifel. Please go ahead..
I hope everybody is doing well and recovering from the weather. So a couple of things I wanted to hit on, but I just want to start off. You gave a lot of detail on 2021 guidance, but a couple of things I want to ask about. The first is just seasonality. And I think most of the time you'll see kind of a normal drop-off in 1Q and then a ramp.
How should we think about the seasonal patterns in '21 given your guidance?.
Yes. We will see -- it's been a slower start to the year, really, both in Canada and Australia. In Canada, the limitations on headcount and industrial projects, is negatively impacting our activity in British Columbia, and so that's negatively impacting things. And it's been a little bit of a slow start in the oil sands region.
We do, as you mentioned, see, particularly -- well, both in Canada and Australia, the maintenance season is typically Q2 and Q3.
And so, if you think about our $90 to $95 million EBITDA guidance, about 65% of that happens in the middle of the year, so 2/3 of the earnings are in the middle half of the year, and then we'll have a slower start and then the fourth quarter, at least at this point, looks to be fairly normal, fairly consistent with the fourth quarter of this year.
So, that's what we're seeing thus far, Stephen..
And it sounds like you adjusted -- you look at 2020 with $13 million of benefit from the CEWS program. I'm assuming your guidance doesn't have anything in it for '21.
And I also think does that suggest 1Q EBITDA is down year-over-year before growing and rising year-over-year going forward?.
That is correct. We do not have any CEWS proceeds in the guidance we just gave, and we do expect EBITDA to be down year-over-year in the first quarter..
Okay. Two other things, if you don't mind. The first is....
So, Stephen to add one additional point to that, it's a difficult comp year-over-year because January and February of 2020 were actually pretty good months and did not have a COVID impact. And so that's a tough comp, given that we're not out of the pandemic yet..
Yes. No, if I recall, 1Q '20 was actually very strong even relative to expectations..
Yes..
The -- you mentioned kind of a cautious shorter-term outlook in the U.S. business. If we start to see a ramp there and activity starts moving higher.
Is that a business you would think about divesting over time?.
Well, we took a lot of costs out of the business. Last year, we consolidated our activity into the more active basins. We've got it so that our district offices are now each on a contribution basis, positive. So, I feel like we've really right-sized the business, so it shouldn't -- we expect it to improve year-over-year.
If we see a ramp-up in activity and can get it to where it's making money, which certainly, I think you know us well, would be pragmatic with anything in our portfolio. It's a business that with the way the cycles have worked over the last 5 to 10 years, it's never been -- U.S.
business for accommodations has never been in a position where someone could consolidate it. It does need consolidation. But it's never gotten a long enough runway, if you will, where consolidation was feasible. But if we were to get to a point where it was worth making money and there was an attractive offer, we'd certainly take a look at it..
Great. And then just one final one for me and that is when you walked through the guidance, and you laid out, I think, some of the parameters around your expectations. When I think about it, what are the -- what could be drivers of upside because I think you talked about some of the risks to the guidance.
But as you think about the potential upside, what could move the needle in that direction?.
Well, certainly, if we can get, I think, number one would be the Chinese Australian labor -- or I'm sorry, trade dispute. If that starts to abate then I think there's upside to Australia. We are -- if we can start getting better availability of labor in Australia, with some of the social safety net programs, both in Canada and Australia.
There is less of an incentive for people to want to work in remote environments because they can stay at home and receive the safety net checks. If those programs start to phase out, then that might help with the labor situation and primarily in Australia, but we're also feeling it in Canada as well. So that would be upside on the margin side.
And then the third one would be turnaround activity. In Canada, I think we've -- it is -- we are planning for it to be up but I think there's hopefully an opportunity for that to be higher than our initial expectations, our current expectation. And then the last one would be scope and breadth of pipeline accommodations.
If we -- those -- if our camps in our section of -- the section that we're supporting of particularly the CGL pipeline, if we see our scope to expand there, that could be an opportunity for upside.
Carolyn, is there anything else?.
No. That was a good list..
All right. And there are no further questions in the queue. I would like to turn the call back over to Bradley Dodson for any additional or closing remarks..
Well, thank you all for listening to our call today. Thank you for your interest in the Civeo stock. We hope you're all doing well and staying safe, and we look forward to speaking to you on the first quarter earnings call. Take care..
That does conclude today's presentation. Thank you for your participation. You may now disconnect..