Ladies and gentlemen, good morning, and welcome to the Civeo Corporation Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead..

Thank you. And welcome to Civeo's second quarter 2024 earnings conference call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Barclay Brewer, Civeo's Interim 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 anything 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 and uncertainties disclosed in our Forms 10-K, 10-Q and other SEC filings. I'll now turn the call over to Bradley..

Thank you, Regan, and thank you all for joining us today on our second quarter earnings call. I'll start with some key takeaways on the second quarter, and then give a brief summary of our second quarter 2024 performance.

And Barclay will provide a financial and segment-level review, and I'll conclude our prepared comments - updated comments on our full year 2024 guidance, and the underlying regional assumptions. Then we'll open the call for questions.

Key takeaways from our call today are, our second quarter results demonstrate the initiatives that we have undertaken, to position the company for growth that can be seen in our Australian results.

Our second quarter 2024 revenues and free cash flow improved year-over-year, with adjusted EBITDA relatively flat despite the expected headwind on that we experienced from Canadian LNG mobile camp activity, which decreased our adjusted EBITDA by $6.9 million year-over-year.

Australian adjusted EBITDA increased by 10%, compared to the second quarter of 2023, due to continued strength in our billed rooms at our own villages, and increased activity in our integrated services business as we expand existing customer relationships.

Our Canadian segment performance was stronger than we expected for the quarter, due to the pull forward of some customer turnaround activity from the third quarter of 2024 into the second quarter of 2024. We also returned $10.3 million of capital to shareholders through our quarterly dividend and share repurchases during the second quarter of 2024.

Lastly, we will maintain our revenue and adjusted EBITDA and CapEx guidance for the full year 2024, I'll discuss that later in our prepared comments. We take a brief moment to provide a business update across our two segments.

Australian segment performed well during the quarter, and the team continues to execute on our previously stated goal to grow Australian Integrated Services revenues to AUD500 million by 2027. We experienced year-over-year growth in both our own villages business and the Integrated Services business.

Our Integrated Services business growth was particularly strong due to the impact of recent competitive wins as well as expansion, the expansion of an existing customer relationship.

In Canada, as expected, our Canadian segment revenues and adjusted EBITDA decreased year-over-year, due to the wind down of LNG-related activity, specifically the mobile camp activity in the second quarter of 2024.

Our second quarter Canadian results were actually stronger than we expected initially, due to the shift again of the timing of turnaround activity in the Oil Sands region. And with that, I'll turn it over to Barclay for some financial review and segment level comments..

Thank you, Bradley, and thank you all for joining us this morning. Today, we reported total revenues in the second quarter of $188.7 million, with net income of $8.2 million, or $0.56 per diluted share. During the second quarter, we generated adjusted EBITDA of $31.3 million, operating cash flow of $32.4 million, and free cash flow of $30.9 million.

Second quarter adjusted EBITDA increased year-over-year, due to increased activity at our Canadian Lodges, Australian own villages and Australian Integrated Services business, partially offset by the expected wind-down of LNG-related Canadian mobile camp activity, which decreased adjusted EBITDA by $6.9 million year-over-year, including $1.4 million in mobile camp demobilization costs.

Let's now turn to the second quarter results for our two segments. I'll begin with the review of the Australian segment performance, compared to its performance a year ago in the second quarter of 2023. Second quarter revenues from our Australian segment were $108.6 million, up from $82.5 million in the second quarter of 2023.

Adjusted EBITDA was $21.6 million, up 10% from $19.6 million last year. The increase to revenues and adjusted EBITDA was due to the increased billed range at our own villages and increased integrated services activity relating, to recent competitive wins as well as the expansion of existing client activity.

This shows our continued and steady growth in this segment. Australian billed rooms in the quarter were 625,000 rooms, up 6% from 588,000 in the second quarter of 2023. This is due to increased customer demand and our own villages as demonstrated by our recent contract awards. The daily room rate for our Australian own villages in U.S.

dollars was $78, which increased from $75 in the second quarter of 2023, due to CPI escalation in the recent contract. Turning to Canada. We recorded revenues of $79.5 million, as compared to revenues of $95.5 million in the second quarter of 2023. Adjusted EBITDA in Canada was $17.2 million, a decrease from $19.8 million in the second quarter of 2023.

The year-over-year revenue and adjusted EBITDA decrease, was primarily driven by the expected wind down of LNG-related mobile camp activity. During the second quarter, billed rooms in our Canadian Lodges totaled 752,000, which was up from 724,000 in the second quarter of 2023, despite the sale of the McClelland Lake lodge.

This increase was primarily driven by stronger turnaround activity, during the quarter related to a shift of customer activity from the third quarter of 2024, into the second quarter of 2024. The daily room rate for the Canadian segment in U.S.

dollars was $96, which decreased from $100 in the second quarter of 2023, due to the mix of occupancy between lodges and contracted rate incentives for increased occupancy at select lodges. On a consolidated basis, capital expenditures for the second quarter of 2024 were $5.3 million, compared to $6.9 million during the same period in 2023.

Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. Our net debt on June 30, 2024, was $40.1 million, a $21.8 million decrease into March 31, 2024. Our net leverage ratio for the quarter decreased to 0.3 times as of June 30, 2024.

As of June 30, 2024, we had total liquidity of approximately $159 million and $151.5 million available under our revolving credit facilities, and $7.4 million of cash on hand giving us the strength and flexibility, to opportunistically pursue growth factors in 2024, and beyond while maintaining prudent leverage ratios. Turning to capital allocation.

In line with our previously stated goals for 2024 in the second quarter of 2024, we've repurchased approximately 274,000 shares through our share repurchase program for a total of approximately $6.6 million.

As Bradley mentioned, we recorded $10.3 million of capital to shareholders through the quarterly dividend and share repurchases in the quarter, bringing our total year-to-date return of capital to shareholders to $17.2 million. This morning, we announced that our Board of Directors has declared a quarterly dividend payment.

Shareholders of record as of August 26, 2024, will receive a $0.25 per share cash dividend payable on September 16, 2024. With that, I'll turn it over to Bradley to discuss guidance for the full year 2024.

Bradley?.

Thank you, Barclay. I'll now talk about our full year 2024 guidance on a consolidated basis, and look into the outlook for each of the two regions. We are maintaining our full year 2024 revenue and adjusted EBITDA guidance ranges of $625 million to $700 million revenue - for revenues and $80 million to $90 million for adjusted EBITDA.

We are maintaining our full year 2024 capital expenditure guidance of $30 million to $35 million. Based on these adjusted EBITDA and CapEx guidance, coupled with net proceeds related to the McClelland Lake lodge dismantlement and sale, which totaled about $6 million in the first quarter. Expected full year cash interest expense of $6 million.

Expected working capital inflow for the full year of $10 million and expected Australian cash taxes of $10 million for the full year. We are maintaining our 2024 free cash flow expectation of $45 million to $60 million. I'll now provide the regional outlooks and corresponding underlying assumptions.

In Canada, I'd like to acknowledge the force fires that are impacting Western Canada, including our Canadian operating region. I want to thank our employees who have been working around the clock, to ensure the safety of our guests, the first responders staying with us, and the safety of our assets.

While this is a fluid situation, we do not currently anticipate any material financial impact positive or negative from the current fires. Wildfire situation around Fort McMurray and our operations has significantly improved over the last few days, but we will remain vigilant throughout the balance of the fire season.

Prior to second quarter, in Canada, as we discussed earlier, our quarter was stronger than expected, due to planned third quarter customer turnaround occupancy shifting in the second quarter. We expect more modest results in the latter half for Canada, due to that shift around activity.

But overall, our full year Canadian forecast is largely in line with what we expect to come into this year. Starting on mobile camps. The majority of our mobile camp rental activity is complete, and we're continuing the demobilization process.

We expect the demobilization to be completed in the third quarter, earning our third quarter adjusted EBITDA by approximately $1.5 million for the final demob costs. As a reminder, this was all contemplated in our full year 2024 guidance. Turning to Australia.

Customer activity in our own villages remains very strong, and we expect that to continue at similar levels moving forward. We are currently full at three of our five Bowen Basin villages and very healthy occupancy through the balance of the portfolio in Australia.

As it relates to our Integrated Services business, we are continuing to experience the increased demand from recent contract wins, as well as expanding existing customer relationships.

We have continued to see substantial growth in recent years in the integrated services business, and we're excited about further growth potential in Western Australia for that business. Now that we have made strides in our inflation mitigation plan, we can now ship back to winning work and growing the business.

Again, to repeat, our team has set of goals, growing our Australian Integrated Services Business to AUD500 million by 2027. Before I wrap up our prepared comments, I'd like to thank Barclay for stepping into the Interim Financial Officer role for the past few months. Thank you for all your efforts and working seamlessly over this transition period.

As previously announced, Collin Gerry will transition into the new - into his new role as CFO on August 1, and Barclay will serve as Chief Accounting Officer moving forward.

Collin has been with Civeo since May of 2014, serving at the various executive positions across our Canadian operations and our corporate development and business development teams. I look forward to working with him in this new role.

So in closing, we continue to execute operationally and on our strategic growth initiatives and our results are demonstrating solid progress, on these initiatives as we have laid out previously this year. With that, we're happy to take questions..

Thank you. [Operator Instructions] Our first question comes from the line of Stephen Gengaro with Stifel. Please go ahead..

Hi. Thanks. Good morning, everybody. And Congrats, Collin on the new role. So I think a couple of things from me, probably.

First, can you talk a little bit about what you're seeing in Australia as far as to the back half of '24, '25? And kind of what we should be paying most attention to kind of from a potential growth perspective in Australia right now?.

Absolutely. In terms of the back half of the year in Australia, I expect occupancy in our own villages to remain relatively consistent, through the third quarter. And then as always, we'll see a slight downtick in occupancy in the fourth quarter with holiday downtimes.

But generally speaking, expecting occupancy in our own villages in Australia to remain fairly consistent throughout the year. On the Integrated Services side, I've been very pleased -- we've been very pleased with the operational execution of the team.

You can see that in the margins of the Integrated Services business, and the expectation is that will continue through the balance of the year. You saw a big uptick in terms of top line in the Integrated Services business, Q1 to Q2 in 2024.

And then I expect performance from a top line perspective in Integrated Services, to remain fairly consistent through Q3 and Q4. So then the attention for that business kind of transitions to winning additional work. So, the team had several prospects that we're working on.

And again, this is all moving towards our goal of $500 million top line by 2027, and believe there's a tangible pathway to achieving that. And so, as we look into 2025 for Australia, I expect the trends to continue. We see selective opportunities to enhance our existing operations, and they're really twofold by the business lines.

And the own villages, looking to potentially add a little bit of capacity on the order of magnitude of maybe 100 rooms to the Bowen Basin. That's convincing on a couple of things. One, we get the customer commitments to support the investment; and two, we get through the permitting process.

So hopefully, we can get that teed up in the second half of this year and benefit us in 2025. In the Integrated Services business - sorry, go ahead, Steve..

Oh, no, go ahead. Please go ahead..

And then in the Integrated Services business, it's continued what the team is doing. We've got to go out there and win additional work. I think we've established ourselves as a Tier 1 operator in Australia, where the customers own the assets, and we provide hospitality services for them.

And I think the team has done a great job there, and so now it's just what's next. And so, a handful of opportunities we're working on right now, and we'll have to see how those play out..

Great. Thank you. And the other big question was really your leverage is down again. Your cash flow is really strong. You're obviously buying back stock. But when you think about the M&A landscape or the potential, at least, how should, we think about sort of what you're looking for kind of from a financial term perspective.

But also, should we be thinking about it geographically? I mean, is Canada, Australia better or worse than the other in your mind, or how do we just sort of think about what kind of could happen over the next three, four, five quarters?.

Sure. So I'll start with Australia. On the own villages side, there are a handful of opportunities to acquire additional villages that are owned by third parties, that would augment our portfolio and would be additive to our portfolio. So, we're looking at a handful of opportunities there.

In the Integrated Services business, it would be similar to what we did with the Action acquisition. We will be buying a market position in a geography, or end market that we don't currently serve.

And building off of that based on what we see is starting to build some critical mass in that business where we're starting to get some efficiencies in terms of having the overall volumes, the overall top line support the back office and the infrastructure to effectively be serving over 10,000 people a day.

And so that's really the focus for Australia. In Canada, the base Oil Sands, or our Western Canadian business, remains very steady, but there's not a ton of growth in that market.

So, we're looking to leverage our assets and our capabilities across North America to serve a broader group of industrial projects, both in markets and geographies with our current asset and service delivery model.

You've heard us talk about it in the past, the process of marketing the McClelland assets really opened up our eyes to the value of modular combinations. And our core competency of owning them, installing them, running them for customers where it's not their core competency.

So cautiously optimistic we'll see some growth opportunities there in the next 12 months..

Great. Thanks. I'll turn it over and get back in line here. Thank you, Bradley..

Thanks, Stephen..

Thank you. Our next question is from the line of Steve Ferazani with Sidoti & Company. Please go ahead..

Good morning, Bradley, Barclay. The strength in 2Q on the Canadian billed rooms. I think you indicated a couple of times, so there was a clear pull forward from 3Q. So I'm trying to figure out how lopsided turnaround season might be this year, or how turnaround season in general is playing compared to a year ago, which was also very, very healthy.

Considering your billed rooms were up even though you've sold McClelland Lake.

I mean it was extremely strong?.

Yes. So a couple of things there. Second quarter of '24, second quarter of '23 - in the second quarter of '23, we had the full benefit of McClelland, we sold that or dismantled that in July of 2023. So this is kind of the last clean quarter historically of having McClelland in there.

The replacement assets the customer is putting to work is in the process of getting commissioned. So we had some overflow benefit from the Fort Hills project into other Civeo locations in the second quarter. So, we'll see the full impact of the sale of McClelland in the back half of 2024. In terms of turnaround activity.

Quite frankly, 2024 is playing out generally in line with what we expected on a full year basis. Some of the timing, as we indicated, shifted from Q3 to Q2. But in general, overall turnaround activity in 2024 is up probably about 150,000 room nights from 2023 on a full year basis.

So it's playing out as we expected, just timing between Q2 and Q3 has shifted. So that coupled with we had expected all the demob costs to be completed in the first half of 2024. And as we mentioned, we've got about $1.5 million slipping into the second half, specifically in the third quarter. So, we've got some turnaround activity pulling forward.

We've got the demob costs being pushed back and net-net, a stronger second quarter and full year in line with what we're expecting to flat to up from our expectations for Canada, but the back half will be softer for sure..

Fair enough, it's helpful.

Even if I consider that and the 3Q will be down from 2Q in Canada, given your guidance for Australia, fair to say that your outlook sort of gets you to the higher end of your guidance range right now unless something were to go - would have changed on the revenue side?.

Well, I would say that there are probably two major factors - three major factors that could influence kind of the breadth of the guidance range.

First and foremost, while I think the most important takeaway is that all the fire intensity in Alberta has been significant, and more broadly speaking, Western Canada, particularly over the last three weeks has been a 24/7 effort for operations, safety and HRTs. With some rain over the weekend, it's getting better.

And while we don't think there's a material impact, it could swing positive or negative a little bit. That's why we didn't tighten the guidance range overall, which we typically would do around this time every year. So while we don't think it's material, it could swing things 1 million or 2 million, either direction. So that was part of it.

Secondly, we could - I would say, occupancy in Australia to be upside. But to your question, could move us to the upper end of the guidance range. And likewise, occupancy and margin performance in CIS can move us to the upper end of the range. I don't say the demob costs would -- they're fully baked.

I don't see - that's just a matter of timing, I don't see that impacting full year guidance. So I think overall, those are the kind of two or three factors that would influence, where we end up on the range..

That's really helpful. Could you get one more in just on the Australian margins? Obviously, you have these new and upgraded contracts revenue well above what we were thinking. Margins not moving a lot yet.

Do you see some room? Are you seeing any kind of reduction in labor costs? Anything you can do to move margins up a bit here? Are you comfortable with where margins came in?.

I've been comfortable with where margins have come in. We are kind of running on a contribution basis at the own - they're really cheap inputs, right, these own villages and the integrated services. On the own village's side, I'd say margin performance has been good.

We still haven't gotten the labor situation to pre-COVID efficiencies, but we've made some improvements. I would say pricing on the own villages has - clearly has an upward bias. Overall, given that the overall Bowen Basin is running pretty full. We're full in three of our five locations and overall occupancy in the Bowen Basin is strong.

So, we'll see how that plays out. In integrated services, I would say that pricing is steady, and it's an issue of volume and execution..

Great. Thanks, Bradley..

Thank you..

Thank you. Our next question is from the line of Dave Storms with Stonegate. Please go ahead..

Good morning..

Hi Dave..

Good morning. I thought I had heard in the prepared remarks that one of the suppressors of the Canadian room rates was incentives.

I was hoping you could give us a little more color on maybe the duration of the incentives, and if we might see a little bit of a rebound in Canadian prices in the back half of the year?.

Yes. So most of the contracts in Canada will have tiered pricing. And so as volume goes up, there are lower prices. So it will just be - you actually - net-net, we're better off with lower prices and higher volumes. So net-net, this is a better situation. It was turnaround related.

So as we see turnaround volumes start to decrease in the second half of the year, prices will go up. But net-net, we want the volumes, we're better off the volumes and some discounted pricing. It's all contracted. It's not a movement in pricing. It's really just a tiered pricing structure that we've always had..

Understood. Very helpful. And then just one more for me. You're about a third of the way to the low end of your CapEx guidance, and already halfway through the year.

Can you give us a sense on what the kind of cadence for CapEx through 3Q and 4Q might look like?.

permitting and customer commitments. If those fall into place, I'd really love to launch that project this year, but all that spending will get spent.

And then, we're also looking at reactivating some rooms in the Oil Sands region that will allow us to capture, some smaller clients that we can always serve, because of the commitments we have to some of our larger clients.

So, we'd like to get that kicked off and spend before the winter season, so that we can get those commitments from the smaller players, to move them into the village, the Fort McMurray Village..

That's very helpful. Thank you for taking my questions. And good luck in 3Q..

Thank you..

Thank you. Our next question comes from the line of Sean Mitchell with Daniel Energy Partners. Please go ahead..

Good morning, guys. Thanks for taking the question.

Bradley, can you take a minute maybe, I know Stephen at the beginning of the call, talked about Australia, but could you take a minute potentially to frame what the opportunities kind of two to three years out for the next couple of years maybe on supporting kind of future LNG expansions like Cedar LNG?.

Great question. So I think there are a handful of pieces to it. To the extent that there is additional pipeline work for additional LNG projects that would support opportunities for our mobile camp business. There'll be coastline opportunities for our Sitka Lodge. So it would be a nice return to activity for our British Columbia operations.

We've had a strong first half in terms of occupancy at Sitka relative to our expectations. But the LNG Canada project is getting very close to first production. So our activity at Sitka is winding down. As we mentioned in the prepared comments, the mobile camp activity. We're just in demob at this point.

So additional LNG projects, if we saw pathways, pathways project move forward, would add occupancy in Western Canada to existing assets and present opportunities for mobile camp deployment..

Got it. Thanks. I'll turn it back. Appreciate it..

Thanks, Sean..

Thank you. Our next question is from the line of Stephen Gengaro with Stifel. Please go ahead..

Thanks for taking the follow-up as well. And just one quick one. I don't know if you want to talk about this or not. But when we think about '25, like when we're at end of '24, we kind of understood there are some puts and takes that you entered the year, with coastal gasoline pipeline work and some other things.

What are the kind of very high-level puts and takes as we think about '25?.

Well, let's see here. I would say that in Australia, it's going to be capital investment on the own villages, whether that's buying additional locations, or activating or expanding Bowen Basin capacity on the billing side, how much of that comes to fruition. As I mentioned, there's some awkward bias potentially on pricing on the own villages.

In CIS, it's going to be winning work. In our Australian Integrated Service, it's going to be finding or winning the next contract. We've - as we set out about 18 months ago, the opportunities we wanted to win, and we've won plus some. And you really saw the first whole quarter that flow through in 2Q '24.

But right now, as I mentioned in the comments, kind of I think to your earlier question, Stephen, kind of expect integrated services to be on a quarterly basis flat from here through the balance of '24, and it will be depending on new contract. In Canada, I think in '24 to '25, there'll be some puts and takes.

As always in Canada, it will depend on turnaround activity. We don't see any major changes to base level occupancy in the Oil Sands region. We'll have some headwinds in terms of occupancy, in terms of comparables for - first half of '25 versus first half of '24 at Sitka.

But net-net, I would expect without any additional strategic wins in the Canadian business kind of a flat '24 to '25..

Great. Thank you. And then just one quick follow-up, and that is around. We've talked about this in the past a bit, the source gas opportunity for LNG Canada.

What's the status of that as far as the combinations? And is there still a shift that there could be involvement on your side or - I don't have a good update on kind of where that stands?.

I would say on the source gas side, our entry would require an acquisition. Unlikely, we move into it on an organic or Greenfield basis..

Okay. Great. Now, thanks for all the details..

Thank you. Thanks for the interest. Thanks for your questions..

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now hand the conference over to Bradley Dodson for his closing comments..

Thank you, Ryan, and thank you, everyone, for joining the call today. Really appreciate your interest in Civeo, and we look forward to speaking to you on our third quarter earnings call, which we expect to happen late in October..

Thank you. The conference of Civeo Corporation has now concluded. Thank you for your participation. You may now disconnect your lines..