Civeo Corp

NYSE:CVEO

Earnings Call Analysis

Civeo Corporation's Strong Q3 Performance and Future Growth Expectations

In Q3 2024, Civeo Corporation saw a 19% increase in adjusted EBITDA in Australia, attributed to higher activity and demand, while Canadian operations faced declines due to wildfires and reduced LNG activity. The company announced a significant CAD 150 million contract renewal with a major oil sands producer. Full-year 2024 revenue guidance is tightened to $675-$700 million, and adjusted EBITDA to $83-$88 million, anticipating over $90 million EBITDA in 2025. Shareholders benefitted from $17.8 million returned through dividends and buybacks, underlining Civeo's commitment to capital return while positioning for future growth.

Strong Performance in Australia

Civeo Corporation has demonstrated robust growth in Australia, with third-quarter revenues reaching $116.6 million, a remarkable 33% increase from $87.9 million in the same period last year. This surge is attributed to heightened demand, reflected in the 647,000 billed rooms—up 4% year-over-year—and an increase in the daily room rate from $74 to $79 due to CPI escalations in contracts. Adjusted EBITDA for the Australian segment also rose 19%, from $18.9 million to $22.5 million. The firm is striving toward a goal of $500 million in integrated services revenues by 2027, leveraging recent competitive wins and expanding existing customer relationships.

Challenges in Canada

Conversely, Civeo's Canadian operations faced challenges, with revenues plummeting to $57.7 million from $95.1 million, leading to an adjusted EBITDA drop from $23.2 million to $3.4 million. This decline is primarily due to the wind-down of LNG-related activities, the sale of the McClelland Lake Lodge, and adverse impacts from Canadian wildfires, culminating in a reduction of billed rooms from 726,000 to 484,000. The decline resulted in an approximate $12 million reduction in annual adjusted EBITDA from LNG-related services.

Impact of Wildfires and Future Outlook

The wildfires in Canada were a significant factor affecting Q3 results, with an estimated impact of around 30,000 room nights and a potential revenue loss of approximately $3 million. While looking to Q4 2024, Civeo expects some recovery as wildfire-related disruptions diminish, although typical seasonal declines in billed rooms may limit gross increase. The firm forecasts total revenues for the full year 2024 in the range of $675 million to $700 million, tightening its adjusted EBITDA guidance to between $83 million and $88 million.

Capital Management and Shareholder Returns

In terms of capital management, Civeo is focused on maintaining liquidity and returning capital to shareholders. The company successfully returned $17.8 million through dividends and share repurchases in Q3, contributing to a total of $35 million returned year-to-date. Furthermore, it announced a quarterly dividend of $0.25 per share, payable in December 2024. The company also repurchased approximately 515,000 shares for a total of $14.2 million.

Prospects for 2025

Looking ahead to 2025, Civeo anticipates adjusted EBITDA could exceed $90 million, capitalizing on the expected recovery in both Australia and Canada, albeit with flat growth anticipated in Canada due to ongoing transitions in the LNG sector. They expect to see substantial integrated services growth continuing into 2025 from their strong operational execution and customer relationships, with a cautious optimism for new project bidding activities strengthening in the region. The firm remains committed to prudent capital allocation while exploring growth opportunities both organically and through potential acquisitions.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Civeo Corporation Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Regan Nielsen, Vice President, Corporate Development and Investor Relations. Thank you, sir. You may begin.

[Regan Nielsen, executive]

Thank you, and welcome to Civeo's Third Quarter 2024 Earnings Conference Call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer; and Collin Gerry, Civeo's 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, executive]

Thank you, Regan, and thank you all for joining us today on our third-quarter earnings call. I'll start the call today with a few key takeaways for the third quarter and then give a brief summary of our third-quarter 2024 performance. Then Collin will provide a financial and segment-level review, and I will conclude with our prepared comments with updated full-year 2024 guidance with the underlying regional assumptions. I'll also provide our preliminary outlook for 2025. We will then open the call for questions. The key takeaways from our call today are: Australia adjusted EBITDA increased 19% from the third quarter of 2023 due to continued strong build rooms in our owned villages and increased activity in our integrated services business as we expand existing customer relationships. While we anticipated the decline in our Canadian segment, the decline in LNG and mobile camp activity, the segment performance was weaker than expected in the third quarter due to lower lodge billed rooms, which were negatively impacted by Canadian wildfires.



Third key point, today, we announced a 33-month contract renewal for a major Canadian oil sands producer to continue to provide accommodations and hospitality services through June 2027, which is expected to have total contracted revenues of approximately CAD 150 million. During the third quarter, we returned $17.8 million of capital to shareholders through our quarterly dividend and share repurchases. Last key point, we are tightening our revenue and adjusted EBITDA guidance for the full year 2024 to $675 million to $700 million of revenues and adjusted EBITDA of $83 million to $88 million. As we look forward to 2025, our preliminary expectations for adjusted EBITDA will be -- are expected to be in excess of $90 million.



I'll now take a moment to provide some commentary on our business segments. Australian segment performed well during the third quarter, and the team continues to execute on our previously stated goal to grow our Australian integrated services revenues to AUD 500 million by 2027. We experienced year-over-year and sequential growth in both our owned village business and our integrated services business. Our year-over-year integrated services growth was partially -- was particularly strong due to the impact of recent competitive wins as well as the expansion of existing customer relationships.



In Canada, as expected, our third quarter Canadian segment revenues and adjusted EBITDA decreased year-over-year, primarily due to the expected wind-down of LNG-related activity, the sale of the McClelland Lake Lodge and the previously discussed pull forward of customer turnaround and operational activities into the second quarter. This was expected, but was exacerbated by the wildfire-related evacuation and associated delays. With that, I'll turn the call over to Collin, our new CFO. Collin has been with Civeo since our spin-off in 2014 in strategic, financial, operational, and commercial roles. Welcome, Collin.

[Collin Gerry, executive]

Thank you, Bradley. I'm very happy to be here. Today, we reported total revenues in the third quarter of $176.3 million with a net loss of $5.1 million or $0.36 per diluted share. During the third quarter, we generated adjusted EBITDA of $18.8 million, operating cash flow of $35.7 million, and free cash flow of $28.3 million. While third-quarter adjusted EBITDA was down year-over-year for all the reasons Bradley mentioned, the company's cash flow generation was quite strong as we delivered relatively consistent operating cash flows in the same quarter last year. I'll discuss that in more detail a little later in the call. But first, I'd like to provide more context on our 2 segments. I'll begin with a review of the Australian segment performance compared to its performance a year ago in the third quarter of 2023.



Third-quarter revenues from our Australian segment were $116.6 million, up 33% from $87.9 million in the third quarter of 2023. Adjusted EBITDA was $22.5 million, up 19% from $18.9 million last year. The increase in revenues and adjusted EBITDA was due to increased billed rooms at our owned villages and increased integrated services activity related 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 647,000 rooms, up 4% from 623,000 in the third quarter of 2023. This is due to increased customer demand at our owned villages.



Our daily room rate for our Australian-owned villages in the U.S. dollars was $79, which increased from $74 in the third quarter of 2023 due to CPI escalations in recent contracts. Turning to Canada. We recorded revenues of $57.7 million as compared to revenues of $95.1 million in the third quarter of 2023. Adjusted EBITDA in Canada was $3.4 million, a decrease from $23.2 million in the third quarter of 2023. The year-over-year revenue and adjusted EBITDA decrease was driven by the expected wind down of LNG-related activity, including the completion of pipeline activity for our mobile camps, the sale of our McClelland Lake Lodge, and lower billed rooms as a result of the pull forward of turnaround activity into the second quarter of 2024 as well as the evacuations from Canadian wildfires. 



For context, the year-over-year decrease in adjusted EBITDA from our LNG-related business was approximately $12 million. During the quarter, billed rooms in our Canadian lodges totaled $484,000, which was down from $726,000 in the third quarter of 2023 due to the reasons I just mentioned. Our daily room rate for the Canadian segment in U.S. dollars was $100, which increased from $98 in the third quarter of 2023 due to the mix of occupancy between lodges. Next, I'll take a look at our capital structure. On August 13, we announced the completion of an amendment and extension to our credit agreement. The amendment extends the maturity date to August 2028, upsizes the total revolving credit facility capacity to $245 million from $200 million, and reduces our borrowing costs. Our net debt on September 30, 2024, was $32.2 million, a $7.9 million decrease, excuse me, since June 30, 2024. Our net leverage ratio for the quarter remained flat at 0.3x. As of September 30, 2024, we had total liquidity of approximately $212 million, giving us the strength and flexibility to opportunistically pursue growth while maintaining prudent leverage ratios and returning capital to shareholders.



Finally, I'll turn to capital allocation and cash flow. I'll start with cash flow as there's been some nuance this year that is worth pointing out. On a year-to-date basis, adjusted EBITDA of $68.5 million is down 22%. However, operating cash flows of $74 million are up 31% year-over-year. There are 2 primary reasons for this discrepancy. First, with the completion of several of the LNG-related mobile camp projects in Canada, we received payments which were contingent upon the demobilization of those camps. Once those projects completed, these holdbacks were released, which augmented cash flows. Secondly, working capital in Canada provided higher cash flow this quarter due to the compression of turnaround work into the second quarter and subsequent payment in third quarter. 



Both of these have resulted in stronger year-over-year cash flows. On the capital expenditure front, on a consolidated basis, CapEx for the third quarter of 2024 was $7.5 million compared to $9.5 million during the same period in 2023. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. Capital expenditures in the third quarter of 2023 also included $3.6 million related to customer-funded infrastructure upgrades at 3 Australian villages, which were reimbursed by our client. Looking forward, fourth quarter 2024 CapEx includes maintenance CapEx and some discretionary capital related to a lodge optimization project in Canada and projects to refresh some of our Australian village rooms in response to higher demand. In the third quarter of 2024, we repurchased approximately 515,000 shares through our share repurchase program for a total of $14.2 million. 



As Bradley mentioned, we returned $17.8 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 $35 million. On September 11, we announced the renewal of our share repurchase program, authorizing the repurchase of up to 5% of total common shares outstanding over the next 12 months. We will continue to be opportunistic about repurchasing shares. This morning, we also announced that our Board has declared our quarterly dividend. Shareholders of record as of November 25, 2024, will receive $0.25 per share cash dividend payable on December 16, 2024. With that, I'll turn it over to Bradley to discuss our guidance for the full year 2024 and our thoughts moving forward.

[Bradley Dodson, executive]

Thank you, Collin. I would now like to turn our discussion to how we see things playing out in 2024 and our preliminary look at 2025. As mentioned earlier, we are tightening our full-year 2024 revenue and adjusted EBITDA guidance ranges to $675 million to $700 million on revenues and $83 million to $88 million on adjusted EBITDA. We are maintaining our full-year 2024 capital expenditure guidance of $30 million to $35 million. Based on our adjusted EBITDA and CapEx guidance, we expect our 2024 free cash flow to be in the range of $50 million to $60 million. I will now provide the regional outlooks and corresponding underlying assumptions.



In Canada, I'd like to first acknowledge the forest fires and the impact on our Canadian operating regions. I want to thank our employees who worked around the clock to ensure the safety of our guests, the first responders, and our assets. While our assets were not damaged by the fires, our third-quarter financial performance was negatively impacted by customer evacuations and associated delays. We currently do not expect a material impact from the fires to continue into the fourth quarter. On a more positive note, we are encouraged by the multiyear contract renewal by a major Canadian oil sands producer and believe that this is a testament to our solid operational execution and our strong customer relationship.



This renewal was already factored into our 2024 guidance to provide Civeo with more revenue visibility for the future. As we look at the fourth quarter 2024, we expect to experience a sequential decline in billed rooms at our lodges due to the typical seasonality of our customers' operations, partially offset by occupancy recovering from wildfire-related evacuations and delays. Fourth quarter will also be burdened by approximately $1 million of mobile camp demobilizations, which should be the final mobile camp demobilization costs. Turning to Australia. Customer activity in our owned villages remains incredibly strong, and we expect to continue at similar levels going forward.



We are currently full at 3 of our Bowen Basin villages with strong occupancy at the rest of our owned villages in the Australian portfolio. As it relates to our integrated services business, we are continuing to experience increased demand from recent contract awards as well as the expansion of existing customer relationships. We have continued to see substantial growth in recent years in the business, and we're excited about the future growth potential in our Western Australian and our overall integrated services business. I'll now provide a few preliminary comments on our 2025 outlook.



As we discussed throughout the year, the Canadian business is experiencing a transitional period with the LNG-related construction activity winding down, coupled with the sale of our McClelland Lake Lodge. Most of that transition has been completed or will be completed in 2024, and we are expecting a relatively flat year in 2025 for Canada. The growth in Australia, the growth that we experienced this year, coupled with our expectation for continued strong occupancy should translate into year-over-year growth in 2025 for Australia. Taken together, we are preliminarily expecting EBITDA in 2025 to exceed $90 million, and we'll provide more detailed outlook in our 2024 year-end conference call -- earnings conference call in February.



Underpinning our expectations for 2025 are the following observations. In Canada, new project bidding activity continues to strengthen, and we're optimistic that we'll be able to deploy mobile camp assets in 2025 outside our core operating regions. 2025 will also not be burdened by mobile camp demobilizations I mentioned earlier, which impacted 2024 EBITDA by approximately $4 million. We expect 2025 oil sands lodge activity to be relatively flat with this year's levels. And we're deploying limited growth CapEx in the back half of 2024 to optimize our oil sands lodge portfolio backed by customer demand, which should drive modest growth in 2025.



In Australia for next year, despite commodity price volatility, we're encouraged by the outlook for both our owned villages and our integrated services business. We expect our owned villages to remain -- occupancy to remain at strong levels with the majority of our villages at or near peak occupancy. Our integrated services business should continue to benefit from recent contract wins and the expansion of customer relationships that has driven substantial growth in 2024, and we're also seeing opportunities to further expand in 2025. Having outperformed our target leverage ratio, we're positioned to be more opportunistic in 2025 and deploying expansionary capital that we anticipate to drive long-term economic returns and to help safeguard and grow our future cash flows. With that, we're happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

I think two for me. The first, when we think about capital allocation, can you talk about just kind of the M&A strategy and the types of things you might look at and which markets, et cetera? Just kind of give us kind of an overview of how you're thinking about that.

[Bradley Dodson, executive]

Sure. I think there are certainly opportunities to grow our core operations, which would be Western Canada and owned villages in Australia, those two areas. So we'll look to grow the core and continue to expand that. We think there are also growth opportunities in expanding geographically and the end markets that we serve. So we'll look to expand in North America outside of Western Canada, both in Eastern Canada and then back into the U.S. In Australia, it will be continuing to expand our integrated services business, both geographically, which predominantly our integrated services is in Western Australia. We have moved into South Australia, but to expand that further and see if there are opportunities to expand that outside of purely natural resources. That would be both inorganically and organically.

[Stephen Gengaro, analyst]

Okay. That's helpful, Bradley. The other question, and this might be hard to quantify, but I'll ask anyway. When we think about your Canadian business, and you mentioned the mobile camps already. How much of Canada for next year is highly visible? Maybe I won't say quite contracted, but highly visible, right? Outside of the turnaround work, I think most of what we're seeing up there is pretty visible, but could you speak to that a bit?

[Bradley Dodson, executive]

Sure. I guess I'll address the second part first, which is we look at this year, we'll end the year in Canada with approximately 2.2 million billed rooms for the full year, including what's in guidance for the fourth quarter. About 25 -- a little less 20%, 25% of that is turnaround activity. That won't be contracted. It certainly is based on strong customer relationships and the strong portfolio of locations that we have in Canada. But then the balance of it is largely contracted with primarily large operators in Canada. So we see build rooms in 2025 to be relatively flat year-over-year, subject to finalizing our budgets and be prepared to talk in more detail in February. But usually, as we go in, and we'll give you the exact percentages as we're not done with budgeting yet. But typically, as we go into Canada, we have 60% of the build rooms contracted. Some of that will be guaranteed and some of that will be under exclusivity contract.

[Operator]

Our next question comes from the line of Steve Ferazani with Sidoti & Company.

[Steve Ferazani, analyst]

I wanted to ask any way to quantify the impact of the wildfires on your Q3 results?

[Bradley Dodson, executive]

I would say in rough numbers in terms of what didn't flow through in the third quarter was on the order of magnitude of about 30,000 room nights in turnaround activity. And so that's roughly the impact that we saw. Some of that was pulled forward, but some of that, quite frankly, that we had evacuations and occupancy didn't recover back to where it was prior to the forest fires. So as we look at 2024 and start to look at 2025 again, looking at relatively flat build rooms in the Canadian lodges year-over-year.

[Steve Ferazani, analyst]

When I think about -- so that's assuming you it's $100 night room, it's roughly a $3 million impact, if I'm doing my math right. But you didn't -- you only -- you went to the high-end of your revenue range and you only tightened EBITDA. So it would indicate something else is going stronger to offset. What was a pretty big impact in the quarter?

[Bradley Dodson, executive]

Yes. I mean it's -- the Australian integrated services business has been very strong. We've expanded our relationship with one customer in particular, and that has flowed through to -- I mean, if you look at the quarterly progression of the services business in Australia in the 10-Q, Q1 to Q2 of 2024, you'll see a big pickup in revenues, and that has continued into Q3, and we expect that to continue going forward. We had come into this year if you let me, I'll speak in Australian dollars. We were expecting kind of AUD 320 million of top line. I think we'll exceed that significantly this year in terms of the integrated services in Australia, and that's up from approximately AUD 240 million of top line services revenue last year.

[Steve Ferazani, analyst]

How much of that is activity versus you winning the businesses?

[Bradley Dodson, executive]

It's largely winning work. Certainly, we've seen occupancy pick up at customer villages that we had already operated, but a big chunk of it is winning work, the vast majority.

[Steve Ferazani, analyst]

Previous quarter, you talked about the potential of adding more rooms in Australia with you had the 3 villages that were full. Any update on that?

[Bradley Dodson, executive]

Continue to pursue it. It's never a straight line from point A to point B, unfortunately. So we have been optimistic that we could have executed on that, but we need the customer commitments to back in, and there have been some shifting needs from the customers. And as a result, we've been able to satisfy those needs at other locations and have not needed to expand yet, but it's still a possibility. And just to remind everyone that was order of magnitude of about 100 rooms in the Bowen Basin.

[Steve Ferazani, analyst]

The last one from me, just the demob costs, were there any this quarter? Or is that $1 million that was going to be this quarter pushing into 4Q?

[Bradley Dodson, executive]

We only had about $400,000 in the third quarter with about $1 million left in the fourth quarter, and that should be the final e-mail costs.

[Operator]

Our next question comes from the line of David Storms with Stonegate.

[David Storms, analyst]

I could circle back on some of the integrated services stuff you were talking about. When you think about bringing current customers into the fold, how much more runway do you see there?

[Bradley Dodson, executive]

Well, we the team, we have put together a goal to hit AUD 500 million by 2027. To remind everyone, we entered into the integrated services business in kind of materially when we acquired a business in 2019. Back then, for a half year, we did about AUD 40 million of top line. Last year, we did AUD 240 million. This year, we should be close to AUD 340 million. And it's really grown from that business.

[David Storms, analyst]

And then just turning to Canada with the contract renewal that you just completed, I guess what does the environment look like for contract renewal negotiations and maybe compared to any new client negotiations you're having?

[Bradley Dodson, executive]

I would say that in Canada, well, all the operators are looking to cut costs. So it's always a battle. I think the team did a good job where we were able to maintain pricing, maintain exclusivity, and it was a good contract outcome with the main state customer of ours. I think it comes back to several things. It is operating safely, keeping their people safe. It is delivering on service. And of course, it is meeting their price expectation. And with our portfolio of locations in Canada, we can service the vast majority of the northern players in the basin kind of legacy oil sands region north of Fort McMurray.

[David Storms, analyst]

And then just one more and similar to an earlier question, maybe a little hard to quantify. Is there any sense on what catch-up in Q4 could look like now that the wildfires are kind of in the rearview?

[Bradley Dodson, executive]

Well, it's a little difficult, I'll be honest, because the fourth quarter will always have holiday downtime. I mean it's not surprising that the level of headcount for our customers starts to decline in November and December. And so, as we look out at kind of activity levels for Canada, it will be masked by the holiday downtime. So you won't really see a pickup in occupancy, but it will be because of the holiday downtime.

[Collin Gerry, executive]

So maybe just seasonally, it will just maybe look a little stronger than normal.

[Bradley Dodson, executive]

Yes. I mean, seasonally, if we look like-for-like, it will largely depend on what we have like-for-like is the loss of McClellan '23 to '24 on a year-over-year basis. But on like-for-like, fourth quarter will be in line with last year.

[Operator]

[Operator Instructions]. Our next question comes from the line of Sean Mitchell with Daniel Energy Partners.

[Sean Mitchell, analyst]

Bradley, when you talk about Australia getting $500 million in '27, does that assume some M&A? Or is that all organic internal growth?

[Bradley Dodson, executive]

Well, right now, we have an opportunity set over the next 3 years that obviously, we can't hit on all of them or won't hit on all of them, but there's a pathway of known opportunities for the integrated services business that will be let out for bid that we have an opportunity to bid on and to win. And so it does not include M&A.

[Sean Mitchell, analyst]

And then second, when you talked a little bit about growth opportunities outside of energy in Australia, are there opportunities outside of energy in Canada and/or the U.S. that you might be looking at over the next kind of year or two?

[Bradley Dodson, executive]

Yes. I mean I would say right now, the vast majority are still resources related as opposed to energy. And there are opportunities there, and we'll continue to pursue those. Longer term, we would look outside of resources. I'd say that still ways off. Sean, what we think we do well is take care of people, and that has applications outside of where we do right now.

[Operator]

Our next question is a follow-up from Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

The last year plus in Canada, the margins have been jumping around because of some demob costs and the wildfires, et cetera. When we think about '25 as far as Canadian margins are concerned, should we be thinking about going back to like a normal seasonal pattern and kind of a mid-teens margin? Or is there something I'm missing there? Because I'm actually honestly having trouble triangulating to the $90 million plus number.

[Bradley Dodson, executive]

I think right now, we need to complete the budgeting process, but I think margins may have an upward bias, but they won't have a significant upward bias yet. We need to build back the top line, to be honest.

[Operator]

We have reached the end of our question-and-answer session. I'd now like to turn the call back over to Mr. Dodson for any closing remarks.

[Bradley Dodson, executive]

Thank you, Michelle, and thank you all for joining the call. We appreciate your interest and your questions. We look forward to speaking with you on the fourth quarter earnings call, which we expect to be in February of 2025.

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.