Civeo Corporation (NYSE:CVEO) Q4 2023 Earnings Call Transcript
Civeo Corporation (NYSE:CVEO) Q4 2023 Earnings Call Transcript February 29, 2024
Civeo Corporation 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. Welcome to the Civeo Corporation's Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow today's formal presentation. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll turn the conference over to Regan Nielsen, Vice President, Corporate Development and Investor Relations. Regan, you may now begin.
Regan Nielsen: Thank you, and welcome to Civeo's fourth quarter and full year 2023 earnings conference call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer and Carolyn Stone, Civeo's Senior Vice President, Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding forward-looking statements, to the extent that our remarks today contain 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, Regan, and thank you all for joining us today on our fourth quarter and full year earnings call. We had a solid end to the year, having reached and exceeded our target leverage ratio. We are entering into 2024 with financial strength and flexibility to execute on our capital allocation strategy, including looking to identify and execute on growth opportunities. This morning I'll review our fourth quarter 2023 performance and Carolyn will provide a financial and segment-level review, and I'll conclude with our initial full year 2024 guidance and the underlying rate regional assumptions. Lastly, we'll open up the call for questions. I'll begin with a few important highlights. Our fourth quarter 2023 revenues adjusted EBITDA and free cash flow exceeded our expectations.
Australian adjusted EBITDA increased 64% compared to the fourth quarter of 2022, due to particular strength in our build rooms at our own villages where we posted our third consecutive quarter of record performance. We also saw margin improvement in our Australian Integrated Services business, as a result of our inflation mitigation efforts and both our own villages and our integrated services benefited from recent contract wins. Moving to Canada, subsequent to the end of the quarter, we completed the previously announced sale of the McClelland Lake Lodge and we are currently performing the associated transportation services contract for those assets. During 2023, we returned 23% of our free cash flow to shareholders through both our recently initiated dividend and continued opportunistic share growth.
I'll now make a few comments on the business segments. Australian segment performed exceptionally well during the quarter as we experienced sequential and year-over-year growth in both our own village business and our Integrated Services business. During the quarter, we experienced a sequential increase in Australian owned-village occupancy setting again a third consecutive quarterly record for that side of our business. In the fourth quarter, Australian Integrated Services business experienced significantly improved margins as our inflation mitigation efforts started to demonstrate positive results. We should continue to see this benefit from our team's efforts as we move into 2024. Our team continues to execute on growth plans for our Integrated Services business with a goal to reach $500 million Australian in top-line revenues out of integrated service in Australia by 2027.
With improved margins, we believe the Integrated Service business is particularly attractive given contract terms and the outlook for additional opportunities in the business. As expected, our Canadian segment revenues and adjusted EBITDA decreased year-over-year due to the wind down of LNG related mobile camp activity, including $5.6 million in the US and mobile camp demobilization costs in the fourth quarter. Regarding the sale of our McClelland Lake Lodge in Canada, we completed the sale in January of 2024 and we have received all proceeds. The majority of the net proceeds were recognized in the fourth quarter with the remainder here in January 2024. As a reminder, the entirety of the sale proceeds and associated costs as well as other related reimbursements are included -- 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 progressing well and we continue to pursue other related business opportunities. And with that, I'll turn the call over to Carolyn
Carolyn Stone: Thanks, Bradley and thank you all for joining us, this morning. Today, as Bradley noted, we reported financial results that exceeded our guidance. Total revenues in the fourth quarter were $170.8 million, with GAAP net income of $23 million or $1.55 per diluted share. During the fourth quarter, we generated adjusted EBITDA of $17.4 million. Again, this is exclusive of the financial impact of the dismantlement and sale of the McClelland Lake Lodge assets. Operating cash flow of $40 million and free cash flow of $39.2 million. Fourth quarter adjusted EBITDA increased year-over-year due to increased build brands 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 $5.6 million in mobile camp demobilization costs.
For the full year 2023, we reported revenues of $700.8 million and net income of $30.2 million or $2.01 per diluted share. In 2023, we generated adjusted EBITDA of $102 million, a decrease from our 2022 adjusted EBITDA of $112.8 million. Results for the full year of 2023, reflected impact of a stronger US dollar, which decreased both revenues and adjusted EBITDA by $28.8 million and $5.7 million respectively. The decrease in adjusted EBITDA was largely driven by the wind down of LNG-related activity in Canada and the impact of weak and Canadian – and Australian dollars, but partially offset by significant improvement across our Australian businesses. Let's now turn to the fourth quarter results, for our two segments. I'll begin with a review of the Canadian segment performance compared to its performance, a year ago and the fourth quarter of 2022.
Revenues from our Canadian segment were $72.7 million, as compared to revenues of $88 million in the fourth quarter of 2022. Adjusted EBITDA in Canada was $3.4 million, a decrease from $11.8 million in the fourth quarter of last year. Revenues and adjusted EBITDA decreased 17% and 72% respectively, primarily driven by the wind down of LNG related mobile camp activity, including $5.6 million of mobile camps demobilization costs. During the fourth quarter, billed rents in our Canadian lodges totaled 613,000 which was modestly down from 622,000 in the fourth quarter of 2022. Our daily run rate for the Canadian segment in US dollars was $95, which increased slightly from $93 in the fourth quarter of last year. Turning to Australia, during the fourth quarter, we recorded revenues of $89.3 million, up from $73.1 million in the fourth quarter of 2022.
Adjusted EBITDA was $21.5 million, up 64% from $13.1 million last year. A significant increase to adjusted EBITDA was due to increased billed rents at our owned villages, increased integrated services activity and improved margins due to our inflation mitigation efforts. Australian billed rooms in the quarter were a source of strength with 638,000 up 23% from 519,000 in the fourth quarter of 2022. This is due to increased demand at our owned villages as demonstrated by our recent contract awards. The average daily rate for Australian villages in US dollars was $74 in the fourth quarter modestly from $73 in the fourth quarter of 2022. On a consolidated basis, capital expenditures for the full year 2023 were $31.6 million compared to $25.4 million, during the full year 2022.
Capital expenditures in both periods were related to maintenance spending on our lodges and villages. Additionally, the full year 2023, also included $10 million in expenditures for the Australian customer funded infrastructure upgrades that we have discussed on prior quarter conference call. Our total debt outstanding on December 31, 2023 was $65.6 million and $37.7 million decrease in September 30 of 2023. We were pleased to reach and exceed our net leverage ratio target in 2023. We ended the year at 0.6 times down from 0.9 times as of September quarter end. And as of December 31, 2023 we had total liquidity of approximately $136.4 million consisting of $133.1 million available under our revolving credit facilities and $3.3 million of cash on hand giving us the strength and flexibility to opportunistically pursue growth vectors in 2024 and beyond while maintaining prudent leverage ratios.
And turning to capital allocation. As you are aware we updated our capital allocation priorities in September. Our new capital allocation framework is designed to allow our strong cash flow generation to support our existing operations, return capital to shareholders through a consistent dividend and opportunistic share repurchases and use excess cash to fund growth opportunities all while maintaining our target leverage ratio in the range of 1.0 times to 1.25 times through the cycle. However, we are open to increasing our leverage ratio up to 2.0 times to pursue accretive growth opportunities where appropriate and we may also occasionally drop below 1.0 times as we have at December 31 as we carefully assess growth opportunities. During the fourth quarter of 2023, we repurchased approximately 121,000 shares through our share repurchase program for a total at $2.4 million.
And earlier this month, we announced that our Board of Directors has declared our third quarterly dividend payment. Shareholders of record as of February 25 will receive a $0.25 per share cash dividend payable on March 18. With that, I'll turn it over to Bradley to discuss our initial guidance for the full year 2024 Bradley?
Bradley Dodson: Thank you, Carolyn. Now I'll turn the discussion to our initial full year 2024 guidance on a consolidated basis and include an outlook for each of the regions. We are initiating full year 2024 guidance of revenues of $625 million to $700 million and adjusted EBITDA of $80 million to $90 million. Our initial full year 2024 capital expenditure guidance is $30 million to $35 million. Based on this adjusted EBITDA and CapEx guidance expected net cash proceeds related to McClelland Lake dismantlement and sale of approximately $6 million, expected cash interest expense of also approximately $6 million, expected working capital inflow of $10 million and expected Australian cash taxes of $10 million. We are expecting our 2024 free cash flow to be in the range $45 million to $60 million.
I will now provide the regional outlooks and corresponding underlying assumptions. As we mentioned on our last conference call, the primary reason for the year-over-year EBITDA decline in 2024 is the wind down of Canadian mobile camp activity and a loss at the McClelland Lake earnings which account for approximately $27 million of the year-over-year change between 2023 adjusted EBITDA and 2024 EBITDA guidance These are partially offset by year-over-year increases in revenues and margins in Australian integrated services business and modestly improved performance in the Australian villages and Canadian margins. We are acutely focused on replacing these earnings and growing the company, but 2024 will be a transition year for our Canadian business.
In Canada, as we look into 2024 the macroeconomic environment for oil sands is improving with increased customer capital spending and the Trans Mountain Pipeline expansion coming online this year. With the exception of the loss of occupancy at the McClelland Lake Lodge, we should experience steady to modestly increasing build rooms across the rest of our large portfolio. Regarding our mobile camps, the majority of our mobile camp rental activity is complete and we are continuing to demobilize -- continuing the demobilization process in 2024. We expect approximately $6 million of demobilization costs in the first half of this year which is contemplated in our full year 2024 guidance. Again, this will be a transition year for our Canadian business.
Moving forward we have identified promising opportunities and expect to leverage our brand and scale to expand in additional Canadian geographies and end market. Turning to Australia, customer activity in our own villages improved throughout 2023. And we expect that to continue into 2024 at similar levels to the end of the year. We are currently expecting, -- we are currently full at three of our Bowen Basin villages was had very healthy occupancy at the rest of our own diligence in the portfolio in Australia. As it relates to our integrated services business, the story of 2023 was our inflation mitigation plan that we executed throughout the year. Our significantly improved margins in the fourth quarter demonstrate the progress that has been achieved.
And we should continue to see the benefit of our efforts through 2024, resulting in increased EBITDA year-over-year. We are excited about the growth potential of our Western Australian Integrated Services business. And we now -- and now that we have executed on our inflation mitigation plan, we can shift our focus back to winning work and growing the business. Our team has set a goal to grow our Australian Integrated Services business to $500 million of revenues, Australian by 2027. I will conclude by underscoring the key elements of our strategy. We will prioritize the safety and well-being of our guests, employees and communities. We will invest in operational improvements and innovation to continue to enhance our best-in-class hospitality offerings.
We will allocate capital prudent prudently, to maximize free cash flow generation, while we continue to return capital to shareholders and evaluate growth options. With that, we're happy to take your questions.
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