Greetings, and welcome to Civeo Corporation Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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 Regan Nielsen, Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Thank you, and welcome to Civeo's third quarter 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.

Thank you, Regan, and thank you all for joining us today on our third quarter earnings call. I'll start with the key takeaways for the third quarter and then give a brief summary of our third quarter 2023 performance. Then Carolyn will provide a financial and segment-level review, and I'll conclude with our updated full-year 2023 guidance with its underlying assumptions, and I'll also provide a preliminary outlook for 2024. Then we'll open up the call for questions. The four key takeaways from our call today are the third quarter 2023 financial results exceeded our expectations, strong operational execution in both Canada and Australia. Australia demonstrating strong year-over-year growth. During the quarter, we secured an economically attractive solution for our McClelland Lake assets, which we are optimistic will also lead to additional opportunities. We announced our capital allocation framework, including initiating a $0.25 per share quarterly dividend to provide a consistent form of capital return to our shareholders, and we renewed our share buyback growth. The last key point is we'll provide a qualitative assessment of our initial outlook for 2023. Let me now take a moment to discuss the third quarter in our segments. Our revenue in the third quarter reflected a diverse customer base from traditional oil and gas production, LNG, project construction and wildfire response in Canada to met coal and iron ore protection. Our Australian segment performed exceptionally well during the quarter as we experienced sequential and year-over-year growth in both our own villages business and our integrated services business. During the quarter, we experienced a sequential increase in Australian owned-village occupancy setting a second consecutive quarterly record for Australian build rooms. On a constant currency basis, the Australian Village revenues were up 25% year-over-year, led by increased occupancy in both our Bowen Basin and Gunnedah…

Bradley, and thank you all for joining us this morning. Today, we reported total revenues in the third quarter of $183.6 million with GAAP net income of $9 million or $0.61 per diluted share. During the third quarter, we generated adjusted EBITDA of $32.9 million, operating cash flow of $36.8 million and free cash flow of $31.7 million. As Bradley mentioned earlier, the decline in adjusted EBITDA we experienced in the third quarter of 2023 as compared to the same period of 2022 was largely due to the wind down of Canadian pipeline construction activity, and therefore, our mobile camp revenues and EBITDA. This decrease was partially offset by increased build rooms in our Australian Bowen Basin Villages and increased Australian integrated services activity due to our recent contract wins. Let's now turn to the third quarter results for our two segments. I'll begin with a review of the Canadian segment performance compared to its performance a year ago in the third quarter of 2022. Revenues from our Canadian segment were $95.1 million as compared to revenues of $103 million in the third quarter of 2022. Adjusted EBITDA in Canada was $23 million, a decrease from $25.6 million in the third quarter of last year. Results from the third quarter of 2023 reflect the impact of a weakened Canadian dollar relative to the U.S. dollar which decreased revenues and adjusted EBITDA at $2.6 million and $0.7 million respectively. On a constant currency basis, revenues decreased 5% primarily due to a decline in mobile camp activity as pipeline construction continues to wind down. Adjusted EBITDA also declined year-over-year due to the aforementioned dynamics. During the third quarter, billed rents in our Canadian lodges totaled $726,000, which was modestly down from $731,000 in the third quarter of 2022. Our daily run rate…

Thank you, Carolyn. I'd like to turn our discussion to our updated full-year 2023 guidance on a consolidated basis, and we will look at the outlook for each of the regions. We are increasing our full-year 2023 revenues and adjusted EBITDA guidance ranges, resulting in the ranges of 675 to 885 -- sorry, $675 million to $685 million for revenues and $95 million to $100 million for adjusted EBITDA. We are maintaining our full-year 2023 capital expenditure guidance of $35 million to $40 million. Based on this EBITDA and CapEx guidance, expected net cash proceeds from the McClelland Lake demobilization and sale of those assets of approximately $20 million. Expected cash interest expense of $12 million for 2023. And expected working capital inflows of $5 million, largely related to customer reimbursement of capital associated with Village upgrades. Limited cash taxes, we are adjusting our expected 2023 free cash flow range to $68 million to $78 million for the full-year. I'll now turn to regional outlooks and the underlying assumptions. In Canada, as we look into the fourth quarter of 2023, we are expecting to experience a sequential decline in Canadian mobile camp activity with the Coastal GasLink pipeline continuing to wind down coupled with the typical fourth quarter sequential decline in large build rooms due to the end of turnaround season and normal holiday downtime at the end of the year. In Canadian mobile camps, there are no material changes in our outlook. The camps began winding down in the third quarter, and the fourth quarter will be burdened with approximately $10 million of demobilization expense. We continue to expect approximately $6 million of demobilization expenses in 2024 related to the mobile camps. In regards to the McClelland Lake lodge sale, we expect to receive the majority of the net…

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti. Please proceed with your question.

Good morning, Bradley and Carolyn. Thanks for all the color on the call. I just want to ask a couple of questions on Canada. The Canadian accommodations margins significantly improved just if that was around McClelland in the sale or if there's anything significant costs you're taking out or any margin improvement that's sustainable there because it was much better?

I think it's a handful of things. We had strong occupancy in Canada in the third quarter. We had very strong turnaround activity in the -- what we call our core region of assets, which is the Fort McMurray Village, Beaver River Athabasca area. In addition, we had the occupancy that was at the cloned move into Beaver River Athabasca. So improved occupancy gives us economies of scale and we're able to leverage that. There were also some efforts that have been put in place earlier in the year. They are paying benefits in terms of labor costs. And that really flowed through the third quarter, was our first time to really see the benefits of that. In addition, we had some wildfire-related, response-related occupancy at Sika [ph] in British Columbia that helped during the quarter. Those are the main components that helped.

Okay. How much of that do you think is sustainable the actions you've taken?

Well, certainly, the labor efforts that we put in place will continue -- we won't have fire.

No, the seasonality to it, of course, I know there is seasonality.

Yes, but I think the efforts the team has made, we'll be lasting on the labor side in Canada.

On the cadence of the wind down with mobile camps, I was surprised that it didn't step down this quarter. Can you just help us out on anything you know on timing, when you think that the wind down is complete?

It will be fourth quarter.

It will still -- would you still -- but you're expecting some revenue remaining there or not?

We'll have some, but it will -- in terms of EBITDA contribution, coupled with the mobile camp demobilization costs that will start to flow through in the fourth quarter. So the revenues will step downward.

Okay. Fair enough. When you sold McClelland Lake, you highlighted the fact that you can use funding for growth, and that's certainly not something you've -- there hasn't been a lot of growth efforts for the last few years. Can you give us a little bit of highlights on what your growth strategies might be particularly as you try to replace some of that mobile camp revenue?

Yes, so in Canada, we're looking at an entry point into Montney. There are also going to be some opportunities to pick up selected properties in Canada that would augment the portfolio. Those are the two main things we're looking at right now, in addition to pursuing opportunities related to the McClelland Lake sale.

And then last one for me. Your outlook on Australia, obviously, significant gains. We know that there's investment by the mining industry in Australia. But what's your upside from here? Do you think you've seen the biggest gains? I know you've had some big contracts. Is there a room for occupancies to grow from here?

Going into 2024, we'll have the benefit of a full-year of the contracts we signed this year that we mentioned on prior calls, there are going to be some opportunities, modest opportunities to add additional rooms or bring mothballed rooms online in Australia, both of those, whether they're new build rooms or bringing on mothballed rooms. Those will only move forward if we have customer commitments that support them. We expect that -- so that's on the own village side on the integrated services side, we'll have the full-year benefit of the contract wins that we've had this year, and we see a portfolio of opportunities to continue to win additional work and grow that business. It will also benefit from the full-year benefits of the inflation and mitigation plan that we put in place. So as the first past margins out of the integrated services business were not where we wanted them. We got -- we had some benefit in the second quarter. We had some benefit from the mitigation plan in the third quarter really didn't see the full benefit of it on a clean basis until September. So fourth quarter will be one where we're expecting to see how the true benefit and confirming that our efforts played out as we anticipated them.

Perfect. If I could just get one last one in. Given the very healthy dividend you've introduced, and I know given the liquidity of the stock, the buybacks can be challenging. Does the dividend to some degree, replace the buyback? Or could you still be aggressive with the buyback, given that you're -- with the cash coming in from McClelland Lake, your net leverage is probably going to bump against the low range of your target already.

That's correct. And there in terms of timing of reemploying it for growth opportunities. It may bump down lower in the fourth quarter as well. But I expect that we'll have some opportunities to put capital work in 2024 that we will fund with cash flow and leverage.

Thanks.

Our next question comes from the line of Alec Scheibelhoffer with Stifel. Please proceed with your question.

Hi, good afternoon everyone and thanks for taking my question here. If you can hear me, just to kick us off here. I know you gave a lot of color just in the last Q&A session during the call. But just at a high level, if there's any additional color you could give us just understand the puts and takes when we're thinking about 2024 and maybe some of the avenues of growth you're pursuing a cost out, maybe a little bit more granular.

Well, let's start with Australia in terms of year-over-year, we'll have, as I mentioned, we'll see -- we expect at this point still finalizing our budgets that build rooms and the undiligence will be up year-over-year. We'll have the full-year benefit of being quite frankly, fully occupied at Coppabella and Moranbah villages, which were nicely occupied in the first half of 2023. But certainly, our full rafters in the second half and expect that to continue into 2024. The other piece, major piece is going to be just top-line growth in integrated services coupled with better margins as we've adjusted pricing for the inflationary environment that we've experienced. So those are the main drivers there. If we can get to customer commitments, we'll certainly expand the own villages if we can make the economics work. So that's Australia. In Canada, we've got -- we had effectively a full-year of McClelland occupancy. The first half was at [indiscernible], the second half was at Beaver Athabasca. So their Canadian build rooms will be down year-over-year, we're still finalizing what that looks like. And then we'll have mobile camp both top-line and EBITDA will be down year-over-year. So what we're looking at is trying to redeploy assets. One of the things that really, you look for the silver lining in difficult situations and the McClelland Lake Lodge was a difficult situation. But in marketing those assets, it gave us a very good insight into the value of modular and mobile camp assets in the broader industrial complex, both in Canada and down here in the U.S. and see an opportunity to leverage underutilized asset -- existing underutilized assets in Canada to leverage our way into new opportunities, both across Canada and into the U.S., we expect over the next 12 months, we'll have -- be able to put some more meat on that book.

Great, thank you for the color there. And then -- just as a second question here, if you could just remind us or talk a little bit about the mobile camp demobilization that hit in 2023 and how much it lingers into '24. I think you said $6 million, but if you could just refresh my memory on that. That would be great.

So let me be clear for everyone. So on the mobile camps, we had $10 million of demobilization expenses that will run through EBITDA in 2023 and $6 million that will run through EBITDA in 2024. As it relates to the demobilization costs related to McClelland, that will flow through other income and expense line item, along with the proceeds from selling those assets. So little confusing as we'll talk about demob in both cases, but we'll try and be clear.

Great and that's all for me. I'll turn it back. Thank you.

Thank you very much. Thanks for your questions.

Our next question comes from the line of Dave Storms with Stonegate Capital Markets. Please proceed with your question.

Good morning.

Good morning.

Just one quick one on McClelland Lake. Are there any contingencies there that we should be aware of, any earnest money that may or may not be material?

There were some deposits that were put in place upon signing the agreement, and we're paid as soon as the units are truck ready on location in Alberta. As it relates to the sale of the assets, as it relates to the transportation, those will be -- start to be recognized in the fourth quarter as we move the assets from Alberta down to the Western U.S.

Understood. Appreciate it. And then it looks like over the last four quarters, the EBITDA contribution from Australia and Canada has been about a 50-50 split. Is this a trend we should think about going forward? Or do you think that there's a potential for that split to diverge a little?

Well, because of the loss of the McClelland earnings and the Mobile Camp earnings in Canada, it will shift in 2024. And as highlighted in the comments, we're working to -- on earnings replacement for Canada. That will take some time.

Understood. Thank you. And then just one more, and I think you touched on this a little bit earlier, but your leverage ratio is below that 1x target. Is this gearing up for something? Or is this just the normal fluctuations of the leverage ratio through the cycle?

I would say it's normal fluctuations. Our free cash flow historically, and we expect this trend to continue is usually strongest in the second half of the year. The reasons for that are you ramp up in the first half of the year, receivables go up, have the start of the turnaround seasons predominantly in Canada, but Australia as well in the second quarter. And then those receivables start to unwind in the second half of the year. So we had strong free cash flow in the quarter. We expect to have strong free cash flow in the fourth quarter. And then on top of that, you've got the net proceeds from McClelland coming through. So I would say it's just normal fluctuations exacerbated or enhanced, not exacerbated enhanced by the proceeds from the McClelland sales. So I do expect it to temporarily go below our range, and then we expect to deploy that and growth efforts in 2024.

Understood, that's very helpful. Thank you for taking the questions.

Absolutely. Thank you.

There are no further questions in the queue. I'd like to hand the call back to Bradley Dodson for closing remarks.

Thank you and thank you all for joining us on the call today. We appreciate your interest in Civeo, and we look forward to speaking with you on the fourth quarter and full-year earnings call, which we expect to do in February.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.