Civeo Corporation (NYSE: NYSE:CVEO), a provider of hospitality services, has announced its financial results for the first quarter of 2024. The company reported an in-line performance with no changes to its full-year guidance, despite facing a mix of growth in its Australian operations and a decline in the Canadian segment. Adjusted EBITDA in Australia surged by 43% due to strong contract wins and improved margins, while in Canada, revenues and adjusted EBITDA fell as a result of the winding down of LNG-related activities. The company is focused on returning capital to shareholders, maintaining its dividend payments, and considering mergers and acquisitions as potential uses of cash.
Key Takeaways
- Civeo Corporation's first quarter performance was in line with expectations, keeping full-year guidance steady.
- The Australian segment saw a 43% increase in adjusted EBITDA, driven by contract wins and better margins.
- Canadian revenues and adjusted EBITDA declined due to the planned reduction in LNG-related activity.
- The company is committed to returning capital to shareholders through dividends and share repurchases.
- Civeo aims to grow its integrated services business in Australia to AUD 500 million by 2027.
- The company is actively exploring expansion opportunities in Alberta, Canada, and the Western US.
Company Outlook
- Civeo maintains full-year revenue and adjusted EBITDA guidance, anticipating normal seasonality in the coming quarters.
- The company expects improved margins in its integrated services business throughout the year.
- Civeo is focused on an inflation mitigation plan and prioritizes safety and operational improvements.
Bearish Highlights
- The Canadian segment experienced a downturn due to the wind down of LNG-related activity.
- A $4 million decrease in second-quarter adjusted EBITDA is expected due to demobilization costs.
Bullish Highlights
- Strong customer activity and occupancy levels continue in Australia.
- Civeo is pursuing reinstallation of assets at a new location in the Western US for a potential long-term client.
Misses
- Despite the overall in-line performance, the company faced specific challenges, including a decrease in Canadian revenue and upcoming demobilization costs.
Q&A Highlights
- The company plans to review its dividend payment in the fall after a year of consistent payments.
- Civeo's modular assets are in high demand for remote industrial and mining projects, particularly those related to power transmission and electric vehicle batteries.
- Expansion into the US market is contingent on securing client projects and winning work.
Civeo Corporation's first quarter earnings call highlighted the company's resilience and strategic focus amidst a mixed performance. With a strong Australian segment bolstering the company's outlook, and a proactive approach to the challenges in Canada, Civeo continues to navigate the dynamics of the global hospitality services market. The company's commitment to shareholder returns and strategic growth initiatives, particularly in integrated services, sets the stage for its future endeavors. Investors and stakeholders anticipate further developments as Civeo reviews its dividend payments later in the year and continues to expand its footprint in North America.
InvestingPro Insights
Civeo Corporation's (NYSE: CVEO) latest earnings report reflects a company navigating through a period of mixed regional performance, with notable strength in its Australian operations and a strategic focus on shareholder returns. InvestingPro data and tips provide additional context to understand the company's financial health and market position.
InvestingPro Data:
- Market Cap (Adjusted): 338.69M USD
- P/E Ratio (Adjusted) last twelve months as of Q1 2024: 27.8
- Revenue last twelve months as of Q1 2024: 699.33M USD
InvestingPro Tips:
1. Civeo's valuation implies a strong free cash flow yield, which may be attractive to investors looking for companies generating significant cash relative to their share price.
2. The company's stock price has experienced a large uptick over the last six months, increasing by 32.46%, which could signal growing investor confidence in its long-term prospects.
For readers looking to delve deeper into Civeo's financial metrics and future outlook, there are additional InvestingPro Tips available at https://www.investing.com/pro/CVEO. These include insights on shareholder yield, the company's debt levels, and profitability predictions for the year. To access these expert tips and comprehensive analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 9 additional InvestingPro Tips listed for Civeo Corporation that could further inform your investment decisions.
Full transcript - Civeo Corporatn (CVEO) Q1 2024:
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. 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. Turning to Australia’s customer activity and our owned-villages remains incredibly strong and we expect to continue to see similar levels going forward. We are currently full at three of our Bowen Basin villages with very healthy occupancy at the rest of our owned-village portfolio in Australia. As it relates to our integrated services business, our improved margins are expected to continue for the remainder of the year. We are encouraged by our progress to-date and we are continuing to focus on our inflation mitigation plan. We are excited about growth potential of our Western Australian integrated services business and now we have made strides on our inflation mitigation plan, we can shift our focus to winning work and growing the business. Again, our team has set a goal to grow our integrated services business to AUD 500 million of top line by 2027. I will conclude by underscoring the key elements of our strategy. We will prioritize, as always, the safety and wellbeing of our guests, employees and communities. We will invest in our operational improvements and innovation to continue to enhance our best-in-class hospitality offerings and we will allocate capital prudently to maximize free cash flow generation while we continue to return capital to shareholders and evaluate growth opportunities. With that, we’re happy to take your questions.
Q - Alec Scheibelhoffer: Hi, thanks and good morning, everyone and thanks for taking my questions. So just to kick us off here. Two for me, just so when we were looking at the full year guidance, can you just talk about some of the drivers between the low and the high end? And also, should we expect to see normal seasonality with roughly about 65% of full year EBITDA in 2Q, 3Q?
Bradley Dodson: Thank you. To answer the second part of the question, yes, seasonality should continue. Again, the amount of EBITDA coming in Q2 and Q3 is largely driven by the turnaround season in Canada, and we expect that to be the case this year. The upper end and the lower end is actually linked to the same issue, which is, what does the Canadian turnaround season look like. Right now, it looks as expected, we’re obviously only one month into it, so we’ll see how it plays out. But that’s probably the biggest driver for us. Inflation continues to be an issue largely across the globe. Most impactful right now in Australia around food costs and more importantly, labor. The team has done a great job in terms of trying to improve, increase our full-time labor, as opposed to using temporary labor, which has a negative impact on costs and productivity. So, those are primarily the largest drivers of the issue. Currency has gone against us, but we’ve had a few things go for us year-to-date. We’ve had better occupancy in our Kitimat Sitka Lodge. We’ve seen better occupancy in the core Canadian area, coupled with really, just really strong occupancy in Australian Bowen Basin villages, and clearly very good execution on the integrated services side in Australia.
Alec Scheibelhoffer: Got it. Thanks. Appreciate the color. And then just as a second question, I’m just curious if you flush out just how you think about uses of cash and what are your key criteria when you’re looking at potential M&A?
Bradley Dodson: Well, uses of cash, we’ve got the dividend, which is $0.25 a share or $1 for the full year. For shareholders, that is paramount. We’ve been opportunistically buying back shares as well. We need to get back to growing the business, and those returns for growth opportunities have to size up and be better than the opportunity buying back stock. So, there are a handful of organic opportunities, and then we’re looking at M&A. The organic opportunities are around contracted lodge and village rooms, either bringing them back online or modest increase in rooms. And the M&A side is around integrated services and expansion of geographies within Canada and Australia.
Alec Scheibelhoffer: Got it. Thank you. I appreciate the color. That’s all for me. I’ll turn it back.
Bradley Dodson: Thank you.
Operator: Our next question comes from the line of Steve Ferazani with Sidoti. Please proceed with your question.
Steve Ferazani: Thanks. Good morning. Bradley, Barclay. Appreciate all the color on the call this morning. I wanted to ask about Australia. Another really impressive quarter in terms of accommodations and food revenue. You announced so many new contracts or renewed contracts at better rates. Have we seen it all now? Is there more near-term growth or does this level off near-term?
Bradley Dodson: No, we’ll see further growth, particularly on the integrated services side. The team has a lot of lines in the water and is really building a good business there. I mean, if you recall, that business was a $70 million business back five years ago and we did $230 million. I’m talking local currency. Last year budget for this year was $250 million. Going to beat that resoundingly. So, and that factored into guidance. And so, we’re making good strides there. It’s a differentiated service in terms of the competition we’re winning market share from others. So, we’re more than cautiously optimistic on it.
Steve Ferazani: Great. What are the risks there, given the number of contracts you have renewed already? Anything near-term we should be concerned about or – and what kind of term do you have that you’ve de-risked sort of what’s in place right now?
Bradley Dodson: There are no, on the questions about Australian integrated services, there are no material renewals until 2027. That being said, in the integrated services business, as you know, all the contracts can be canceled. So, every day we have to show up and deliver service and the team is there. We’ve got a good relationship with the major customers there where there’s transparency and good conversation, where inevitably when you’re trying to serve 8,000, 9,000 people a day, there are going to be mistakes. But with the transparency, the conversation, the willingness to and the effort to deliver excellent service every day, that carries the day.
Steve Ferazani: Fair enough. Turning to the other side, on food and service in Canada, two straight quarters where your year-over-year top line was up more than 20%. And given, can you give a little sense of what’s driving that? I know the margins are fairly thin there, but is pretty significant revenue growth given everything else that’s going on in Canada.
Bradley Dodson: Well, the major driver for Canada are, as discussed, I mean, one, we sold the McClelland asset, so year-over-year we’re losing those billed rooms. We got a good value for the assets that we sold. And the second is the wind down in the LNG Canada activity. Those are the major drivers for Canada, both top line and EBITDA. Now the focus is for us and for our team is to find additional projects to build back up the profitability of Canada. I think through the process of selling McClelland, we recognize that our modular assets, both permanent and mobile, there are a lot of industrial and mining projects that need assets that are remote. A lot of them are driven by power transmission and effectively, resources that are used in EV batteries. So, we’re working very diligently to expand the Canadian business into other geographies, specifically east of Alberta and down into the US.
Steve Ferazani: And then any update on McClelland Lake? Was that transportation contract completed within Q1? And where are you on any follow-up?
Bradley Dodson: Right, the transportation contract is complete. It was all recognized in the first quarter. And we are continuing to pursue the reinstallation of those assets at the new location in the Western US and the potential to operate those assets long-term for the new client.
Steve Ferazani: Thanks, Bradley.
Bradley Dodson: Thank you.
Operator: Our next question comes from the line of Dave Storms with Stonegate. Please proceed with your question.
Dave Storms: Good morning.
Bradley Dodson: Hi, Dave.
Dave Storms: Good morning. Just when we kind of start with the dividend, I know you’ve been paying it for a couple of quarters now. Your stock has gone up since you started paying it. Just could you give us a sense of what your process is like? How often do you revisit that to make sure it remains competitive? Anything on that front would be very helpful.
Bradley Dodson: Sure. Well, we’d like to get a year underneath our belt. This would be the fourth payment, so we’ll readdress it in the fall. And again, it’s a key component to our capital allocation framework. And so, as you know, cash flow for us is also seasonal. EBITDA seasonal. We covered that in the first question, but cash flow is better in the back half of the year, so we’d like to see how things play out. Certainly, dividend growth is possibility, but one that we’ll address in the back half of this year.
Dave Storms: Understood. Very helpful. Thank you. And then just touching back on kind of some of your levers that you have to kind of recoup some of those mobile camp losses. You mentioned, maybe expanding to Alberta, maybe into the US a little bit. What would that look like logistically and what would be some of the hurdles to get over that?
Bradley Dodson: Well, right now the hurdles are two-fold, they’re not surprising. Which is one, we need the client project to move forward, so we need green line on projects and then we need to win the work. We’ve got a handful of projects we’re actively pursuing. That’s simply what needs to happen. We’ve got a team in Eastern Canada on the business development side that are pursuing opportunities and they’re largely mining and transmission-related. The US is initially going to be dependent on can we get more work ultimately related to McClelland assets.
Dave Storms: Understood. Thank you. Appreciate the color.
Operator: Thank you. We have reached the end of our question-and-answer session. And with that, I would like to turn the floor back over to Bradley Dodson for any closing comments.
Bradley Dodson: Thank you so much and thank you everyone for joining the call today. We appreciate your interest in Civeo and we look forward to speaking to you on our second quarter earnings call planned for July.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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