Civeo Corporation (NYSE:CVEO) Q1 2024 Earnings Call Transcript

Civeo Corporation (NYSE:CVEO) Q1 2024 Earnings Call Transcript April 26, 2024

Civeo Corporation misses on earnings expectations. Reported EPS is $-0.26 EPS, expectations were $-0.2. CVEO isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Civeo Corporation First Quarter 2024 Earnings 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. Thank you. You may begin.

Regan Nielsen: Thank you and welcome to Civeo’s first 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.

Bradley Dodson: Thank you, Ragan, and thank you all for joining us today on our first quarter earnings call. I’ll start with the key takeaways for the first quarter, then provide a brief summary of our first quarter 2024 performance. Then Barclay will go through the financial and segment level review and I’ll conclude with our updated comments on full year ‘24 guidance and the underlying regional assumptions. We’ll then open the call for questions. The three key takeaways, one, the first quarter and the full year outlook for 2024 were in line with expectations. As a result, there’s no change to our full year guidance. Secondly, Australia adjusted EBITDA was up 43% compared to first quarter of 2023 due to a particular strength in our billed rooms in our owned-villages.

We also benefited from recent contract wins and year-over-year improvement in Australian owned-villages and integrated services business in terms of margin. Lastly, we continue to return capital to shareholders through our quarterly dividend and opportunistic share repurchases. Let me take a moment to provide a business update across the two segments. Our Australian segment performed exceptionally well during the quarter and our team continues to execute on our plan to grow our Australian integrated services business to $500 million of top line by 2027. We experienced year-over-year growth in both our owned-villages business and our integrated services business, including the benefit of our recent contract wins that reflect improved customer spending across Bowen Basin villages and our integrated services business.

During the quarter, our Australian owned-villages continued to experience significant year-over-year growth, while metallurgical coal prices have recently declined. Prices remain at very healthy levels that support these customer activity levels. Additionally, we are seeing the impact of metallurgical coal mines being sold to producers who are more focused on increasing production levels. These macro factors, coupled with the impact of our recent contract wins in the region, have driven this substantial year-over-year growth. In the first quarter, our Australian integrated services business experienced year-over-year margin improvement as our inflation mitigation plan continues to demonstrate positive results. We should continue to see this benefit from our team’s efforts throughout 2024.

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Q&A Session

With the improved margins, we believe the integrated services business is particularly attractive given contract terms and the outlook for additional opportunities in this area. As expected, our Canadian segment revenues and adjusted EBITDA decreased year-over-year due to the planned wind down of LNG-related activity, particularly in our mobile camp business, including $1.8 million of mobile camp demobilization costs in the first quarter. As we touched on our – during our February earnings conference call, we completed the sale of our McClelland Lake Lodge in Canada earlier this year and received all proceeds. The majority of the net proceeds were recognized in the fourth quarter of 2023, with the remainder recognized in this quarter. As a reminder, the entirety of the sale proceeds and associated costs, as well as other related reimbursements are excluded from our adjusted EBITDA calculation.

As a result, the sales transaction does not impact our full year 2024 adjusted EBITDA guidance. The transportation of these assets is now complete and we continue to pursue other business-related opportunities related to the assets. I’ll now turn it over to Barclay Brewer, our Interim CFO. I would like to thank him for stepping up into the Interim CFO role. Barclay?

Barclay Brewer: Thank you, Bradley and thank you all for joining us this morning. Today, we’ve reported total revenues in the first quarter of $166.1 million with a GAAP net loss of $5.1 million or $0.35 per diluted share. During the first quarter, we generated adjusted EBITDA of $17.3 million. Again, this is exclusive of the financial impact of the dismantlement and sale of the McClelland Lake Lodge asset. Operating cash flow of $6 million and free cash flow of $7.2 million. First quarter adjusted EBITDA increased year-over-year due to the increased billed rooms at our Australian owned-villages and improved margins in the Australian integrated services business, partially offset by the expected wind down of LNG-related Canadian mobile camp activity, including $1.8 million in mobile camp demobilization costs.

Let’s now turn to the first quarter results for our two segments I’ll begin with a review of the Australian segment performance compared to its performance a year ago in the first quarter of 2023. First quarter revenues from our Australian segment were $91.7 million, up from $77 million in the first quarter of 2023. Adjusted EBITDA was $20.3 million, up 43% from $14.2 million last year. The significant increase to adjusted EBITDA was due to increased billed rooms at our owned-villages, increased integrated services activity and improved margins. Results for the quarter were strong despite the headwind of a weakened Australian dollar relative to the US dollar was decreased revenues and adjusted EBITDA by approximately $3.7 million and $800,000, respectively.

Australian billed rooms in the quarter were a source of strength with 614,000 rooms up 17% from 523,000 in the first quarter of 2023. This is due to increased customer demand at our owned-villages as demonstrated by our recent contract awards. The average daily rate in Australian dollars was up 3% year-over-year. Due to the weakened Australian dollar, the average daily rate for our Australian villages in US dollars was $77 in the first quarter of 2024, down modestly from $78 in the first quarter of 2023. Turning to Canada. We reported revenues of $67.2 million as compared to revenues of $89.5 million in the first quarter of 2023. Adjusted EBITDA in Canada was $5.5 million, a decrease from $12 million in the first quarter of 2023. The year-over-year revenue and adjusted EBITDA decreased was primarily driven by the sale of the McClelland Lake Lodge and the expected wind down of LNG-related mobile camp activity, including $1.8 million of mobile camp demobilization costs.

During the first quarter, billed rooms in our Canadian lodges totaled 610,000, which was down from 643,000 in the first quarter of 2023, primarily due to the sale of McClelland Lake Lodge, our daily room rate for the Canadian segment in US dollars was $98, which increased slightly from $96 in the first quarter of 2023. On a consolidated basis, capital expenditures for the first quarter of 2024 were $5.6 million, compared to $4.8 million during the same period in 2023. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages coupled with spending to activate mothballed Australian village rooms with increased customer demand. Additionally, the first quarter of 2024 included $2.4 million in capital expenditures on the Australian customer funded infrastructure upgrade that we had discussed on prior quarter conference calls.

Our net debt on March 31st, 2024 was $61.8 million, which was down slightly since December 31st, 2023. Our net leverage ratio for the quarter remained flat at 0.6 times as of March 31st, 2024. As of March 31st, 2024, we had total liquidity of approximately $136.9 million, consisting of $120.1 million available under our revolving credit facilities and $16.8 million 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 the first quarter of 2024, we repurchased approximately 133,000 shares through our share repurchase program for a total of approximately $3.2 million. This morning, we announced that our Board of Directors has declared our fourth quarterly dividend payment.

Shareholders of record as of May 27th, 2024 will receive a $0.25 per share cash dividend payable on June 17th, 2024. With that, I’ll turn it over to Bradley to discuss our guidance for the full year 2024. Bradley?

Bradley Dodson: Thank you, Barclay. I’d like to now turn our discussion to our full year 2024 guidance on a consolidated basis, including, after which, the updated outlook for each of the reasons. Despite the weakening Australian dollar versus the beginning of the year, we are maintaining our full year 2024 revenue and adjusted EBITDA guidance of $625 million to $700 million for revenues and $80 to $90 million for adjusted EBITDA. We are maintaining our full year 2024 capital expenditure guidance of $30 million to $35 million. Based on this adjusted EBITDA and CapEx guidance, net cash proceeds related to McClelland Lake Lodge dismantlement and sale of approximately $6 million, adjusted cash interest expense of $6 million and an expected working capital inflow of $10 million and expected Australian cash taxes of $10 million, we are maintaining our 2024 free cash flow expectation of $45 million to $60 million.

I will now provide the regional outlooks and corresponding underlying assumptions by region. In Canada, we are in the early stages of the turnaround season for our Canadian oil sands lodges, but early activity is shaping up as expected. We will provide further updates on the second quarter call. The billed rooms across our portfolio is consistent with our previous 2024 guidance. Regarding our mobile camps, the majority of our mobile camp rental activity is complete and we are continuing the demobilization process. We expect demobilizations to be completed in the second quarter 2024, burdening our second quarter adjusted EBITDA by approximately $4 million of demobilization costs. As a reminder, this is contemplated in our full year 2024 guidance.