Good day and welcome to the Civeo Corporation First Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Regan Nielsen, Director, Corporate Development and Investor Relations. Please go ahead, sir.

Thank you and welcome to Civeo's first quarter 2020 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 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 the call over to Bradley.

Thank you, Regan, and thank you all for joining us today on our first quarter earnings call. We hope that you and your families are staying safe and healthy. Given how dramatically the world has changed in recent weeks due to the COVID-19 pandemic and a simultaneous implosion the global oil markets, we'll devote less time to discussing our first quarter 2020 results in favor of updating you on what we are seeing in our business today and our plans to navigate the current environment. Let me start by saying that at Civeo, the safety and wellbeing of our employees, guests and contractors is always our top priority. Accordingly, over the last several months as the COVID-19 pandemic has evolved, we've been working in close consultations with medical professionals, government health authorities, third-party experts and our customers to implement enhanced safety measures at all of our facilities. Crisis management plan, which we successfully used during the Fort McMurray fire in 2016 and have since revised and refined, enabled us to quickly and effectively put in place protocols to manage the situation. We will remain in continuous dialog with these stakeholders during the duration of the pandemic, and we extend our profound gratitude to our employees, guests, customers and vendors for their continued vigilance as we work through this together in this very difficult time. The highlighted key takeaways from today's call, they are as follows: Our first and foremost important priority in this tumultuous time is to protect the health and wellbeing of our employees and guests. Despite the economic disruption and subdued activity in March in North America, the company still delivered improved year-over-year financial and operational results for the first quarter of 2020. This significantly reduced our leverage to 2.54 times as of March 31, 2020 from 2.98…

Thank you, Bradley. And thank you all for joining us this morning. Today, we've reported total revenues in the first quarter of $138.8 million, with a net loss on a GAAP basis about $146.5 million or $0.87 per share. The net loss included a goodwill impairment charge of $93.6 million in our Canadian reporting unit, as well as asset impairment charges totaling $38.1 million in Canada and $12.4 million in the US. During the first quarter, we generated adjusted EBITDA of $20.3 million, operating cash flow of $20.8 million, and free cash flow of $18.3 million. Turning to the first quarter results for our three segments. I'll begin with a review of the Canadian segment performance compared to the performance a year ago in the first quarter of 2019. Revenue from our Canadian segment was $79.3 million as compared to revenues of $66.8 million in the first quarter of 2019. Adjusted EBITDA in Canada was $11.4 million, an increase from $10.2 million in the first quarter of 2019. Revenues and adjusted EBITDA for the quarter were both impacted positively by year-over-year billed rooms growth. During the quarter, billed rooms in our Canadian lodges totaled 708,000, which was up 13% year-over-year from 626,000 in the first quarter of 2019. This was due to increased billed rooms from our expanded Sitka Lodge, serving LNG activity in British Columbia, as well as increased oil sands activity in January and February partially offset by the decline in Canadian occupancy in March. Our daily room rate for the Canadian segment in U.S. dollars was $93, essentially unchanged year-over-year. Turning to Australia. During the first quarter, we recorded revenues of $49.1 million, up from $28.4 million in Q1, 2019. Adjusted EBITDA was $16.2 million, up from $9.9 million during the same period of 2019. These results…

Thank you, Carolyn. As we indicated in our April 14 Business Update, the dual impacts of the COVID-19 pandemic and the severe downward pressure on oil prices have begun to negatively impact our financial performance, primarily in Canada and to a lesser degree in the U.S. Due to rapidly evolving market environment, we have withdrawn on our previously announced 2020 revenue and EBITDA guidance and are lowering our full year 2020 capital expenditure guidance to approximately $15 million. Moving to the segments. In Canada, oil sands region has been noticeably affected as customers began to announce reduced capital spending and operating budgets in late March. To illustrate this, at beginning of March 2020, we were serving about 8,600 guests per day in Canada. By the end of March, we're serving roughly only 3,000 guests per day. Although, we continue to host essential personnel at our lodges, occupancy has declined markedly in recent weeks. We are not anticipating recovery in oil sands occupancies for the rest of the year. We did open our lodges to approximately 1,100 evacuees from the Fort McMurray town as that was flooded this week and continue to work collaboratively with local officials to assist the community in its recovery efforts. In Canada, our LNG directed work should be more resilient this year on our Canadian portfolio. While the LNG Canada related workforce has also gone to essential personnel, we expect the activity in personnel levels to normalize in the second half of 2020, as the impacts of the COVID-19 pandemic retreat. Moving to Australia. Civeo's business has been remarkably resilient in recent weeks, which is the trend we expect to continue in the second quarter. The diversification of our portfolio across different geographic and commodity markets is a key element of Civeo's strategy. And although, the…

Thank you. [Operator Instructions] And we will take our first question from Kurt Hallead with RBC.

Hey, good morning everyone, and hope your respective families are safe and well.

Thank you, Kurt.

Bradley, I appreciate the color and commentary and kind of reticent to provide any kind of specific -- levels of specific guidance given the uncertainties at play. So, maybe I just ask you to give us some directional context. Maybe start off on the Canadian front as you had mentioned a significant drop off in residency during the course of -- from the end of March and for where we kind of are today in that recovery, so we can kind of get a sense of the magnitude on that and LNG expect to be a little bit more resilient. So, when you're going to put them into a shake and bake bag and kind of throw them on to a table, what kind of overall kind of directional decline in Canadian revenue could we expect maybe as we get into the second quarter? And then, if you can give us some general sense, again, just broadly directionally whether or not the second quarter could mark the low point for the full year for Canada? That'd be very helpful. Thanks.

Sure. Happy to do that, Kurt. As we outlined in the prepared comments, our occupancy in Canada went from about 8,600 guests per day in early March to close to 3,000 and a little bit below. And in April, it's bounced back up as we're taking care of the evacuees from Fort McMurray. I don't think that that's going to last very long. As we mentioned and you highlighted in your question, in Canada we do expect the LNG Canada project will start to ramp back up in the second half back to initially planned levels that were in our original guidance. But at this point, our current forecast we're not assuming that oil sands occupancy improves from where we are today. Maybe a little bit, but not materially. So, to put that in perspective, in total Canada last year had about 3.1 million room nights. I expect that number is going to be under 2 million room nights in total, that's both the oil sands LNG and LNG related. So, that will produce materially lower revenues and EBITDA out of Canada. And that quite frankly is the crux of the difference between our originally -- original guidance, which was about $100 million and while we're not giving guidance today, while we're expecting significantly lower EBITDA year-over-year. That being said, the other major assumption in our outlook right now is that Australian occupancy remains at levels that it is today. We're not expecting any sort of hockey stick increase in occupancy in Australia, but we are expecting it to stay at current levels. If we’re to see that change, then that would be a downside for us. I think the U.S. team has done an admirable job over a multiyear period, but certainly in the last 60 days to 90 days in addressing their cost structure. And so, it's not material to us, I think they've done a very good job in mitigating what would otherwise be a significantly negative market for us as we see rig count falling to -- close to historic levels as of last week and expected to go to historically low levels in the future and completion activity in the U.S. to effectively come to a halt. So that's kind of the picture we have today. I would say that upside for us would be likely if we're overly conservative or pessimistic around Canada. We've seen a couple of operators who are starting to look at bringing forward their turnaround and maintenance work in their oil sands region. Imperial has publicly announced it, and we're working with several other customers were contemplating it. That would not be in our guidance numbers of the commentary I just gave. So, that's the picture that we have today and happy to answer any follow-on questions.

No, that's great color. I really appreciate going through that detail. My follow-up question would be on the leverage ratio, and I appreciate the candor about the risk of tripping that come in the fourth quarter of this year. I do know that you have a number of adjustments -- bank adjustments that are related to EBITDA. And just kind of curious as to what that level of adjustments might be for the -- maybe on a full year basis or as the rest of the year kind of plays out. You do our baseline EBITDA calculation and I know that sometimes we don't always kind of capture what those additional adjustments are, so any color on that would be helpful.

Sure. Sure, Kurt. I'll take that. With respect to our bank adjusted EBITDA, the most significant adjustment is for non-cash stock-based compensation. So, it's approximately $10 million-ish a year that we add back to reported adjusted EBITDA to get to bank EBITDA. There was and there is an adjustment for acquisitions where we pro forma in the historical. So, for -- currently, we have pro forma in the Action EBITDA on periods prior to owning them, that obviously once we get to the third quarter, there no longer will be that adjustment, because we'll have included their results for our full year in our results. So, that really -- the stock-based comp is the big one.

I appreciate that detail. And then on the stock-based comp, so despite the recent events and stock price dynamics and everything else, that's a pretty -- that stock-based comps are pretty static number.

Well, we're -- we have not issued any shares this year, so it'd all be grants that are still amortizing. It is -- as we disclosed in the proxy, the board is not taking any shares. They've reduced their comp and they're taking all of the comp and cash. And I don't expect on a go-forward basis at least for the rest of 2020 that we'll see any shares issued. So, it's a longwinded way of saying, yes, it will start to go down. But I don't think it will go down materially from where it is right now. For the next 12 months, you will start to see the impact of not issuing any shares in 2020 -- in kind of 2021, 2022.

Okay. Great. Thanks for that. Appreciate it.

And next, we'll move to Stephen Gengaro with Stifel.

Thanks. Good morning, everybody. Hope everybody is well.

Thank you, Stephen. Good morning.

Thanks. So, in follow-up to Kurt's question, you guys have a history over the years I think of managing lower occupancy levels pretty well and maintaining a positive EBITDA contribution for really -- clearly since you guys spun out of oil states, but even before them. While thinking about the margin degradation, what looks like a second quarter room count, which is down 50% in Canada or more, can you stay EBITDA positive in Canada in 2Q? Are there enough variable cost to get you there, or how should we be thinking about that just in a general sense?

I think, Canada in the second quarter will be close to breakeven, plus or minus. That will be after COVID related costs and some restructuring costs. But I think in total, right now, I think, Canada is plus or minus breakeven. The U.S. will be slightly negative and Australia -- prior to the two biggest variables are holding on the occupancy and what the currency is going to do. Thus far, they have been kind of our bedrock to keep us going.

Thanks. And then, you mentioned the Australian room count being pretty stable from these current levels. Is it currently at around where the first quarter was, or has it been a drop off since the end of the first quarter?

It stayed relatively consistent. There are certainly from time to time customer specific issues that will influence things. But generally speaking, Australia feels like it's in line with our expectations in April.

Sorry. And then, just as a final one from me for now. And we can sort of triangulate where we all flow out from an EBITDA perspective, which I know is tough. When I think about the models and the EBITDA contribution, your CapEx is about $15 million, your interest is about $25 million, maybe a little bit less, so that's about $40 million. So, if you do $50 million or $60 million in EBITDA, you are going to be $10 million to $20 million free cash flow positive plus some working capital. Am I thinking about that right? And how should we think about working capital?

That's spot on. I'll ask Carolyn to give some overview comments to confirm the numbers, but that feels right. CapEx is $15 million, interest expenses is $25 million plus or minus, and so that's $40 million. And then working capital should move in our favor here in the second quarter, presuming the baseline assumption is that we'll have some recovery in Canada all LNG related in the second half of the year. But in total, I expect about $14 million, $15 million worth of cash flow coming from working capital, specifically in the second quarter. Carolyn, any corrections or adjustments?

No. Spot on.

Okay.

All right. Great. Okay. Thank you.

Thank you, Stephen.

[Operator Instructions] And we'll hear a follow-up from Stephen Gengaro with Stifel.

Thanks. So, I'll jump back on. So, one more, the Action acquisition has seemingly gone very well, since you guys closed in middle of last year. Can you give us an update on what you're seeing there and sort of the -- I know it's tough market right now, but kind of the expectations for that business over the next sort of three to six quarters, and how it's evolving and how the deal is done?

Sure. So, we closed the Action Industrial Catering business in July of 2019. Just as a backdrop for the balance of the people on the call, Action provides management service -- integrated services to customer owned rooms in Western Australia, predominantly serving iron ore customers, but also serving gold, lithium and other customers there. It's a service-only business, a lower margin business, but the business which has been growing significantly since we acquired it. We had four nice renewals -- the contract renewals we mentioned in our prepared comments, were all Action related. There are three wins and one renewal. We're working very closely with our customers on a couple of material renewals that will happen in July of 2020. But I would say, in general, EBITDA coming out of Action is going to be about doubled to triple what we are initially anticipating out of the business. We've seen business continue to grow, and iron ore prices are holding in there quite nicely. They are in the $80 range and that's where they started the year. We are ser -- the two major commodities that we serve in Australia, iron ore with Action and met-coal with our legacy business and those both go into steel manufacturing. And so, we're very, very -- watching very closely the global steel demand and how things are coming back, but thus far, things have stayed relatively buoyant in Australia. So, we're optimistic that continues for the rest of the year.

Great. Thank you.

And that will conclude today's question-and-answer session. At this time, I would like to turn the call over Mr. Bradley Dodson for any additional or closing remarks.

Thank you everyone for joining us today. These are incredible times we have to manage through. I do want to say thank you to our team. As you can imagine, we're all dealing with a lot of anxiety. For our frontline workers, our operations team, the protocols and our safety team has put in place to keep people safe and to mitigate the impact of the COVID-19 virus in our locations has been unbelievable and I can't possibly thank them enough. Thank you to our global office staff, who have be working from home for close to two months. It hasn't been easy, but you have done an incredible job, to our finance team, who closed the quarter in a completely remote environment that was incredible. And so, thank you to everyone and we'll get through this together. Thank you.

And that will conclude today's call. We thank you for your participation.