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Civeo Corp (CVEO) Q1 2019 Earnings Call Transcript


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Civeo Corp (NYSE: CVEO)
Q1 2019 Earnings Call
April 26, 2019 , 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Civeo First Quarter 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Regan Nielsen, Manager of Corporate Development and Investor Relations. Please go ahead.

Regan Nielsen -- Investor Relations

Thank you. And welcome to Civeo's first quarter 2019 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'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 will now turn over the call to Bradley.

Bradley J. Dodson -- Chief Executive Officer and Director

Thank you, Regan, and thank you all for joining us today on our first quarter earnings conference call. I'll began with the summary of our first quarter performance before offering some commentary on our three business segments. Frank, will then provide a detailed financial and segment level review. And I'll conclude the call with our updated outlook and guidance before we moved to the question-and-answer portion of the call.

We delivered a first quarter that was broadly consistent with our expectations and highlighted by robust performance in the Australian and the US segments, as well as sequentially larger contributions from our LNG related activities in British Columbia, Canada.

During the first quarter of 2019, we generated revenues of $109 million, an increase from $102 million generated in the first quarter of 2018, and $16 million of adjusted EBITDA, up from $10 million last year. Both revenue and adjusted EBITDA results were in line with our expectations.

Turning to our cash flow and debt reduction, we generate $6 million in operating cash flow during the quarter. We also repaid $3 million in debt during the first quarter, offset by a native foreign currency translation impact of $8 million.

Let me now take a minute to walk through the performance of each of our segments. The challenging market conditions we experienced in our Canadian segment were generally consistent with our expectations heading into the quarter. Occupancy was negatively impacted by softening room demand from major customers at our McClelland Lake and Fort McMurray Village locations due to extended holiday downtime and the continued impact of provincially imposed oil production curtailments.

Our Southern Alberta lodges and mobile camps were also affected by the severe year-over-year decline in the active drilling rig count in Canada. These headwinds were more than offset by the $145 million proceeds from an insurance claim related to legacy Noralta Lodge assets, as well as the acceleration of LNG related occupancy, which was highlighted by an almost doubling of room nights sequentially at our Sitka Lodge in British Columbia.

We will continue to actively monitor curtailment dynamics in the Canadian oil sands and other policy developments in Alberta following the recent provincial elections. Although these issues have potential impact on our business in the short-term, we remain very confident that our Canadian segment is well positioned competitively to provide hospitality services across the oil sands, LNG and midstream infrastructure markets.

Moving to Australia, first quarter results were in line with our expectations and the outlook continues to improve in the region. We continue to believe that the current met coal prices are conducive to continued improvements in activity in both the Bowen and Gunnedah basins.

Our US segment continued to generate improved financial performance in the first quarter despite moderating drilling and completion activity across the US, and challenging winter weather, both in West Texas and the Mid-Con during the quarter. First quarter highlights -- first quarter results were highlighted by strong contributions from our well side assets and continued healthy occupancy levels in both our West Texas and North Dakota lodges.

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

Frank C. Steininger -- Executive Vice President, Chief Financial Officer & Treasurer

Thanks, Bradley, and appreciate everyone joining us this morning. Today, we reported total revenues in the first quarter of $108.6 million, with a net loss on a GAAP basis of $17.5 million, or $0.11 per diluted share. During the first quarter, we generated adjusted EBITDA of $15.9 million and operating cash flow of $6.3 million.

Turning to the first quarter results for our three segments, I'll begin with a review of the Canadian segment's performance compared to the prior quarter. Revenue from our Canadian segment was $66.8 million, declining modestly from $69.4 million in the fourth quarter of 2018. Adjusted EBITDA in Canada was $10.2 million, down from $11.8 million from last year's fourth quarter. Revenues and adjusted EBITDA were both primarily impacted by lower room demand in the Canadian oil sands related to extended holiday downtime and Alberta oil production curtailments, partially offset by growing contributions from LNG related occupancy in British Columbia and our previously announced new hospitality services contract. Additionally, adjusted EBITDA was negatively impacted by increased stock-based compensation expense in the first quarter, offset by $1.5 million of proceeds from an insurance claim.

During the first quarter billed rooms in our Canadian lodges totaled 625,992, which was down from 687,217 rooms sequentially, which were impacted by the aforementioned dynamics. Our daily room rate for the Canadian segment in US dollars was $92 compared to $91 in the fourth quarter due to changes in occupancy mix.

Turning to Australia, during the first quarter, we recorded revenues of $28.4 million, down slightly from $29.7 million in last year's fourth quarter, and adjusted EBITDA was $9.9 million, down sequentially from $11.7 million. Revenue and adjusted EBITDA were both impacted by lower room demand related to extended holiday downtime. Adjusted EBITDA was also negatively impacted by higher stock-based compensation in the first quarter of this year.

The daily room rate in US dollars for our Australian villages was relatively flat sequentially at $74 in the first quarter. Village rooms declined from 397,335 in the fourth quarter to 382,580 due to the aforementioned holiday downtime.

Now, moving onto the US, revenues for the first quarter declined sequentially to $13.4 million from $15.5 million primarily due to a large offshore fabrication project being completed in the fourth quarter of 2018. Adjusted EBITDA in the US improved to $2.8 million from $1.9 million in the fourth quarter, primarily due to improved performance in our well site and large divisions, partially offset by the reduction in offshore fabrication activity.

On a consolidated basis, during the first quarter. We generated operating cash flows of $6.3 million. Capital expenditures of $10 million, were up $2 million from $8 million in the fourth quarter, primarily related to the expansion of our Sitka Lodge in Canada to support LNG sea related contracts, as well as selected room of reactivations in Australia in anticipation of increased customer demand in the second half of 2019 and going into 2020.

Our total debt outstanding as of March 31st, 2019, was $383.5 million, a $4.3 million increase since December 31st, 2018. The increase resulted primarily from a negative foreign currency translation impact of $7.5 million, partially offset by debt repayments of $3.2 million during the quarter. As of March 31st, 2019, we had total liquidity of approximately $66 million, consisting of $58 million available under our revolving credit facilities and $8 million of cash on hand.

Looking ahead, we continue to focus on generating free cash flow, executing on our contract-based investments -- contract-backed investments in the Canadian LNG space, and opportunistically deleveraging 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 second quarter and full-year. Bradley?

Bradley J. Dodson -- Chief Executive Officer and Director

Thank you, Frank. I'll now outline our guidance for the second quarter and reiterate our full year guidance for 2019, provide brief outlook on our business segments and make some closing remarks before we open up the call for the question-and-answer section.

Operationally, our outlook for 2019 remains largely unchanged from our previous earnings call . In Canada, we expect the cadence of turnaround and maintenance activity to begin to steadily increase starting in the second quarter, continue through the third quarter of 2019, with the largest turnaround impact this year in the third quarter.

On the LNG front, billed room should continue to improve through the rest of 2019 with the Sitka Lodge of expansion to 1,100 rooms forecasted to be complete by the end of the second quarter of 2019. It is likely that our revenue from the Coastal Gas Link project will be pushed from late 2019 into the first half of 2020. However, this has already been contemplated in our 2019 full year guidance.

Overall, we expect our Canadian billed rooms to increase sequentially in the second quarter from the first quarter and then again in the third quarter from the second quarter with both increased turnaround activity and accelerated occupancy related to BC LNG, but we are moderating fourth quarter due to normal holiday downtime.

In Australia, the outlook remains encouraging for the remainder of 2019. Strong met coal and iron ore prices are driving healthy cash flows and growing export volumes for many of our clients. During the balance of the year, met coal demand growth, driven by ongoing expansion of India's steel sector and similar initiatives in China, should continue to underpin a very constructive macroeconomic environment for our Australian business.

Accordingly, as we indicated on our fourth quarter earnings call, we are selectively allocating capital to reactivate existing rooms in the Bowen Basin in anticipation of increased demand in the second half of 2019 and going into 2020. In terms of occupancy, we expect billed rooms in Australia to also sequentially improve in the second quarter from the first, and then, the third from the second as met coal prices -- as met coal related activity remains strong.

In the US, we are pleased with our first quarter results despite modestly softer drilling and completion activity as takeaway constraints abate and the E&P customers deploying a larger percentage of their 2019 capital budgets, we expect market conditions to improve. We have seen a recent recovery in West Texas hotel pricing, which is a reasonable proxy for room accommodation demand suggesting that the activity is already beginning to recover modestly.

On a consolidated basis, for the second quarter of 2019, we expect revenues of $113 million to $118 million and adjusted EBITDA of $21 million to $23.5 million. For the full year of 2019, we expect revenues of $475 million to $485 million and adjusted EBITDA of $95 million to $101 million. The majority of the reduction in the upper end of our annual EBITDA guidance can be attributed to the 2% to 3% weakening in both the Canadian and Australian currencies relative to US dollars since our las t earnings call.

Although our first quarter performance was broadly consistent with our expectations, the fundamental commodity price drivers in our key markets continue to provide us with (Technical Difficulty) to contemplate. As we move through 2019, we remain focused on the impact of international trade disputes the ripple effects on commodities, specifically iron ore and met coal and oil, and policy decisions in the Alberta Province, production curtailments in the Canadian oil sands and the pace of LNG development.

At Civeo, we believe that focusing on what we can control is the best way to navigate through the crosscurrents of the commodity markets. In accordance with this philosophy, we continue to deliver on our strategic priorities, which is: we're committed to the best-in-class service to our customers; generating free cash flow; judiciously we managing our balance sheet; and only investing in the most attractive growth opportunities across our key end markets. These mandates remain consistent as we manage the business through whatever phase the commodity cycle brings.

With that, we'll be happy to take your questions now.

Questions and Answers:

Operator

(Operator Instructions) The first question comes from Mike Malouf at Craig-Hallum Capital Group.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Great. Thanks guys for taking my questions.

Bradley J. Dodson -- Chief Executive Officer and Director

Good morning, Mike.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

There was a little bit of commentary on how maybe some of the LNG activity might switch from sort of late 2019 into 2020. And I'm wondering if -- as we stand now, if you could give us just, at least, your initial thoughts on the incremental impact next year on this activity and just give us a sense of how that's -- how you see that playing out currently?

Bradley J. Dodson -- Chief Executive Officer and Director

Sure, I'll start with kind of what's going on, and then, Frank, can talk about the financial impact. But to be clear, our comments were purely related to -- at this point, related to the pipeline related to LNG Canada, the coastal gasoline pipeline. Some of that activity is expected to shift from 2019 to 2020, but I would say, there was not a lot in our guidance for pipeline activity this year. So, we initially had expected about $8 million or $9 million Canadian revenues in 2019. We expect some of that to shift into 2020, and then, Frank, our 2020 expectations on the pipeline revenues were in the $50 million?

Frank C. Steininger -- Executive Vice President, Chief Financial Officer & Treasurer

That's right exactly. Yes because, there we -- of the $100 million, it's largely split 50-50 between '20 and '21.

Bradley J. Dodson -- Chief Executive Officer and Director

That's right. So we weren't expecting a lot Mike and so -- but we do expect to salvage the ship. There, obviously, have been some very public delays as it relates to some of the pipeline and as a result mobile camp work.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

All Right. Right. Okay. So about a $50 million impact in 2020 and then probably an additional $50 million in 2021 from the pipeline anyway?

Frank C. Steininger -- Executive Vice President, Chief Financial Officer & Treasurer

That's right.

Bradley J. Dodson -- Chief Executive Officer and Director

That's right. In aggregate dollars not incremental, right? So --

Frank C. Steininger -- Executive Vice President, Chief Financial Officer & Treasurer

Yeah. Of the $100 million contract that we announced, that's how it's going to split. And as Bradley said, we had about $9 million in 2019. Some of that will shift into 2020. But it doesn't have a material impact on the year for us.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Okay. And then, when you take a look at the impact of this on your overall occupancy levels, I'm wondering if you could give us a sense of where you think, or how it will affect overall room rate prices? And you sort of look back and you see with that room rate prices at one point just four years ago, we were in sort of $135 area, and obviously, now they're significantly lower than that and I'm just wondering as you look out over the next 12 months to 18 months, what kind of impact you're expecting or maybe even just potential could impact?

Bradley J. Dodson -- Chief Executive Officer and Director

Well, there a couple of things there. If we're speaking about Canada specifically, there certainly has been room night price contraction. We have worked through the downturn with our clients in their efforts to reduce their costs in a lower oil price environment. We've worked with them. There are a lot of things that we can do around the scope of the services that we provide that can lower the cost to us and therefore, lower the cost to them. And as you look at the trend line in room rates in Canada, I would say that, 80% to 90% of the decline in room rates in local currency. Now, there's obviously also been in this downturn a 25% decline in the Canadian dollar. So it depends on which currency you're looking in.

But net-net, yes, we've lost some price through the downturn, but the vast majority of it has been scope changes with our client to reduce our costs, their costs and ultimately, it reduces the room rate. As we look out from 2018 to 2019, I expect that the oil sands pricing for rooms has largely stabilized. That doesn't mean that we don't get consistent requests from customers, continue to sharpen our pencil on pricing, we do, but I think at this point, we we've been able to largely defend the pricing that we have in place. So -- go ahead.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

No. I'll let you finish. I want to go to a different spot. Just go ahead.

Bradley J. Dodson -- Chief Executive Officer and Director

So -- and as it relates to the pipeline work, that's mobile camp work, which we don't include in the large statistics around pricing or room nights.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Okay. Got it. And then, just shifting a little bit to Australia, you, I think for the first time, talked about some increased CapEx in anticipation of revenues in the back half and into 2020. And I'm wondering if you could just get a little bit of color on what has prompted that move that we've been sort of expecting for a while, but now it seems like it's finally starting?

Bradley J. Dodson -- Chief Executive Officer and Director

Well, it's -- I think our team and largely the team across the globe through the downturn we've focused on cash flow. And one of the things you do is you try and minimize the maintenance CapEx and CapEx overall. In doing so, would you need an extra bed or desk or furniture, you take it out of a not utilized room and you put it into one that's being used, if it needs to be replaced. So some of that is catching up with us. I wouldn't by any means say that it's material, it's just it hasn't been done over the last few years.

Reactivation CapEx in Australia is on the order of magnitude of $3 million our guidance. Our total CapEx guidance of $40 million to $45 million is for 2019. So we are reactivating rooms, it's a refresh, I think, it attracts the customers when they see a room that's been recently renovated. And what it does do is, it gives us an inventory at a couple of different Bowen Basin villages where we have blocks of rooms that are available -- recently refreshed that are available to customers that if they launch a new growth project, we can offer them a recently renovated 200 or 300 rooms, 400 rooms that would suit their expansionary project that in conversations with customers we expect to be on the magnitude of two to three years.

So we are -- I think our commentary has been fairly consistent that we're in a good spot. Occupancy continues to pick up. I think underlying your question, we haven't seen that big incremental expansionary project by our customers, which can drive occupancy up materially, but we're preparing for it.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Got it. Okay. Thanks for the help. Appreciate it.

Operator

(Operator Instructions) It appears there are no further questions. Mr. Nielsen, I'd like to turn the conference back to you.

Regan Nielsen -- Investor Relations

It looks like there's one more question Sandy.

Operator

(Operator Instructions)

Bradley J. Dodson -- Chief Executive Officer and Director

Well, operator if there are no further questions, then we'll thank everyone for attending the first quarter earnings call. We appreciate the interest. We look forward to the upcoming calls as we continue to see some tailwinds and benefits in each of our three markets and look forward to talking to you about it on the second quarter earnings call. Thank you.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.

Duration: 26 minutes

Call participants:

Regan Nielsen -- Investor Relations

Bradley J. Dodson -- Chief Executive Officer and Director

Frank C. Steininger -- Executive Vice President, Chief Financial Officer & Treasurer

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see ourTerms and Conditionsfor additional details, including our Obligatory Capitalized Disclaimers of Liability.

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