Civeo Corporation (CVEO) Earnings Call Transcript & Summary

Good morning. This is the Civeo Annual General Meeting of Shareholders. I would now like to introduce the first presenter, Richard Navarre.

Good morning. I'm Richard Navarre, Chairman of the Board of Directors of Civeo Corporation, and I am a shareholder. Welcome to the 2021 Annual General Meeting of Shareholders. This meeting is being held online due to the public health impact of the COVID-19 pandemic and to support the health and well-being of our employees and our shareholders. This meeting will now come to order. To begin, we would like to introduce Civeo Corporation's Board of Directors and executive officers. First, Bradley J. Dodson, President, Chief Executive Officer and director; C. Ronald Blankenship, director; Martin A. Lambert, director; Constance B. Moore, director; Charles Szalkowski, director; Timothy O. Wall, director; and finally, Carolyn J. Stone, Senior Vice President, Chief Financial Officer and Treasurer. A copy of the rules of conduct, which we will follow in carrying out the business of this meeting, is available on the annual meeting website. As stated in the rules of conduct, if you would like to submit a question, you may do so by following the instructions on the meeting website. We ask that you limit yourself to 2 questions or comments and restrict your questions to matters of general interest to our stockholders. All questions received before or during the meeting and our responses will be posted to our Investor Relations website. Thank you for your cooperation with these rules. Paul Ramirez from Broadridge has been designated as the Scrutineer. The Scrutineer has confirmed that the notice of Annual General Meeting and related proxy statement was mailed on April 18, 2021, to shareholders of record on March 24, 2021, and that a quorum is present at the meeting. We will now proceed with the items presented in the proxy statement furnished to shareholders of record. The polls have been opened, and we will close the polls on all matters immediately after the presentation of today's proposals. If you wish to vote during the meeting, please follow the instructions on the meeting website before the polls close. If you have already voted in advance of the meeting, you do not need to do -- to vote again unless you wish to change your vote. Our first proposal is the election of 2 directors named in the proxy statement to serve as Class I members of the company's Board of Directors until the 2024 Annual Meeting of Shareholders or until their successors are duly elected and qualified. The Board of Directors recommends that shareholders vote for the director nominees. Our second proposal is to approve the compensation of the company's named executive officers. This proposal is a nonbinding shareholder advisory vote. The Board of Directors recommends that shareholders vote for the proposal. Our third proposal is to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2021 and until the next Annual General Meeting of Shareholders, and to authorize the directors of the company acting through the Audit Committee to determine the pay to be -- for Ernst & Young LLP for 2021. The Board of Directors recommends that shareholders vote for the proposal. Our fourth proposal is to determine whether a shareholder vote to approve executive compensation should occur every 1, 2 or 3 years. This proposal is a nonbinding shareholder advisory vote. The Board of Directors recommends that shareholders vote that future advisory resolutions on executive compensation be submitted to shareholders annually. We will now pause to address any shareholder questions we have received during -- related to these proposals. Seeing no questions on the proposals, the polls are now closed. Mr. Ramirez, will you please report on the tabulation of the votes?

From the proxies and ballots received regarding the election of directors, the 2 nominees for directors named in the proxy statement received a majority of the votes cast by shareholders at the meeting. And each of those nominees received a greater number of votes for his or her election than votes withheld from his or her election. From the proxies and ballots received regarding the approval of named executive officer compensation, the votes cast in favor of the proposal exceeded the votes cast against the proposal. From the proxies and ballots received regarding the auditor proposal, the majority of votes cast by shareholders were voted in favor of the proposal. From the proxies and ballots received regarding the frequency of the approval of named executive officer compensation, the votes cast in favor of an annual vote exceeded the vote cast for each of the other 2 alternatives.

So based on the proxies and ballots received, the shareholders have elected the 2 nominees for director named in the proxy statement. They have approved, on an advisory basis, the compensation of the company's named executive officers; and they have ratified the appointment of Ernst & Young for 2021 and until the next Annual General Meeting of Shareholders; and authorized the directors of the company acting through the Audit Committee to determine the remuneration to be paid to Ernst & Young LLP for 2021; and approved on an advisory basis, the annual frequency of the vote on the compensation of the company's named executive officers. This concludes the formal business for the meeting. We are now adjourned. I will now ask that Bradley Dodson, the company's Chief Executive Officer, to provide a general update on the company.

Thank you, Rick. Thank you all for [Technical Difficulty] Thank you. Sorry for the technical problems. Good morning, everyone. Thank you. I have 3 key themes that we'll go through in this presentation. Safety first. Safety has always been a core value of Civeo, our safety protocols and crisis management plan. We're [Technical Difficulty] with pandemic [ environment ] as we work to keep our employees and guests safe and our locations open. Secondly, in 2020, our strategy of diversifying our revenue streams is supporting primarily revenue maintenance personnel turned out to steady our revenue streams and earnings in a very chaotic market. Lastly, from a financial perspective, priority remains generating free cash flow and reducing leverage. That was consistent throughout 2019 and into 2020, and we made significant progress on that. Looking forward to Slide 1, please. Thank you. In terms of the safety performance. Again, safety is the core value of Civeo, obviously, at the beginning of the pandemic in late 2019 and into early 2020 in close consultation with our third-party medical professionals, government health authorities, third-party experts and our customers to [Technical Difficulty] and mitigate the spread of the virus at our facilities. We implemented numerous initiatives to protect the health of our guests and our employees. This included health screening, increased sanitation of high-touch areas, takeaway food service, mandatory physical distancing, roster changes and work-from-home protocols. Overall, we had a significant improvement in our total recordable incident rate, or TRIR, year-over-year in each of the regions and globally. In terms of the [Technical Difficulty] as we met or surpass our financial goals, as I'll show you the diversity both geographically and which end market commodities we're serving, buoyed our financial results in a market of unprecedented decline in oil prices and oil activity. We generated $117 million of operating cash flow and $111 million of free cash flow. We reduced our total debt by $108 million down to $251 million at 12/31/20. This allowed us to reduce our leverage ratio to 2.1x at year-end 2020 [ from 2.9x ] a year earlier. In particular, our Australian business did exceedingly well. We increased our adjusted EBITDA by 32% and our billed rooms by 15% as the contribution from the Action Catering acquisition, which we completed in July of 2019, did exceedingly well, as well as increased activity in our legacy Bowen Basin operations. We also see -- contract renewals, expected contract revenues in Australia of AUD 236 million. Lastly, and importantly, we amended and extended our credit agreement that extended for all of the company to May 30, 2023. I will show here, compared to those that have followed us for years, gross profit and revenues have significantly changed over the last several years to diversify away from being significantly influenced by oil activity to include LNG commodities driven by global steel demand, specifically metallurgical coal and iron ore. Both of those commodities did not see the impact of the pandemic as severely as we [Technical Difficulty] 2020 and a significant decrease to E&P customer spending during the year. As a result, our results held up significantly better than oilfield services that are tied more directly to oil activity. The second area of strategic focus in terms of our revenues has been focusing in on the operating personnel and maintenance personnel customers, operating personnel that are day-to-day extracting their natural resources. And then the maintenance and turnaround personnel are doing the annual maintenance typically in the second and third quarters of [Technical Difficulty]. Both of those have, over time, be more resilient to shorter-term impacts of commodity price movement. We also, to a lesser degree, support construction activity. Specifically, we support the activity for the [Technical Difficulty] as well as several iron ore expansionary projects in Western Australia. I put these charts in. As you know, about 95% of our revenues come from Canada and Australia. But I think the charts on the right here show the impact very clearly of the pandemic. You can see that occupancy in Canada fell very quickly in the second quarter. We were fortunate, the third quarter into the fourth, we saw some recovery in that occupancy. But as oil prices and the impact on oil spending by our customers impacted our Canadian operations, a significant impact to our occupancy. As I mentioned earlier, supporting metallurgical coal and iron ore did not see the same impact in activity and spending. As a result, our billed rooms were up 15% year-over-year and our business there had a very strong year overall. Just some history, you can see that we've had fairly [Technical Difficulty] our adjust [Technical Difficulty] for 2019 to 2020 was fairly consistent despite the turmoil that we saw in the market. Because of lower capital spending and some sale of assets, our free cash [ rose ] significantly year-over-year. And as a result, you can see our trend in terms of paying down our debt continued in 2020. Just to catch everyone up on again, focus remains and will remain on keeping our locations open and the people in them safe. We did continue to benefit from, again, the diversified [Technical Difficulty] cash. In the first quarter, we had $125 million of revenues and $16.2 million of EBITDA. This was due to lower Canadian occupancy, which billed rooms [Technical Difficulty] year-over-year and our Australian occupancy billed rooms are down 10% year-over-year. The Canadian results were down year-over-year, primarily because the start of 2020, in January and February, did not have the impact of the pandemic. So we [Technical Difficulty] 2020 quite well and occupancy, as the schedule a couple of charts ago, fall off pretty significantly in March and into the second quarter. Our Australian results were down slightly, primarily pandemic's impact on labor costs. Despite this, we still generated $16 million of free cash flow and reduced our total debt outstanding by $13 million. Again, deleveraging our balance sheet remains our most important financial focus which we'll leverage throughout 2021. We also updated our guidance on the first quarter earnings call to increase the upper end of the guidance, moving the guidance for adjusted EBITDA to $90 million to $100 million for the year as we see some upside in our Canadian segment related to turnaround in mobile camp activity, and our mobile camp activity is supporting some of the natural gas and oil pipeline expansions that are underway. Moving forward, looking for the rest of 2021, we're cautiously optimistic that by the back half of this year, with the rollout of vaccines, that we will start mitigation of the impact of global economy. We continue to very closely monitor the Chinese-Australian trade war that affects our met coal activity in Australia. As of right now, we have [Technical Difficulty] customer behavior to date. Federal, state and provincial health orders and restrictions, both in Canada and Australia, which limit occupancy or restrict operations, could continue to negatively impact both our occupancy and operations ability -- availability of labor across both countries. We're cautiously optimistic that the pipeline construction related to Coastal GasLink pipeline expansion project and the work we've won there will contribute to our results in 2021 and going into 2022. As I alluded to earlier, the COVID-19 pandemic and some of the travel bans have limited labor supply, both in Canada and Australia, starting back in the last half of 2020 and into the first quarter of 2021. We expect that will continue at least in short term. We are seeing some optimism as it relates to global oil prices, and that should be an encouraging sign for both our Canadian and U.S. segments going into the second half of this year and 2022. Lastly, just to summarize, again, in this environment and in every environment, safety is our #1 priority. And we will focus on [Technical Difficulty] and financial perspective, generating free cash flow and reducing leverage. Our focus from an operating perspective has been -- from an operating perspective is to focus on supporting the operating personnel and the maintenance personnel that tend to be more [ thin ] throughout varying macroeconomic environments. Again, our efforts to diversify into things like the Canadian LNG market with the LNG Canada project, our expansion with the Action acquisition and Australia give the diversity that [ state are ] expected to continue to pay dividends going into the future. The Australian business right now, the Eastern half is exclusively supporting the operating personnel and maintenance activities primarily for met coal mining companies. And our integrated services in Western Australia is [Technical Difficulty] Both of these markets performed much better in 2020, and we expect them to continue to perform well in 2021. Our support of the Canadian LNG project, while we've been impacting British Columbia headcount and industrial projects in the first quarter and into the second quarter, we expect that to start to roll off in the second half, and we should see better occupancy at our [Technical Difficulty] in the second half of this year. We do expect that our mobile camp work supporting the Coastal GasLink pipeline as well as the Trans Mountain pipeline to pick up here in the second quarter and into the second half. From a financial perspective, from balance sheet perspective, it was a great effort to extend the maturities out to 2023. That gives us the runway we need to continue to reduce our debt and for [Technical Difficulty] the remaining outstanding debt over the next 12 months. We have been free cash flows in our entire history since spinning off in 2014, and [Technical Difficulty] 2021. And Rick, that concludes my formal comments. Happy to take any questions.

Thank you, Bradley. Seeing no questions, I think we will conclude the rest of the meeting.

Thank you. The Civeo Annual General Meeting of Shareholders has now come to an end. Thank you for attending. You may now disconnect.