And welcome to the Civeo Corporation Third Quarter 2021 Earnings Call. At this time all participants are in listen-only mode. A question and answer session will follow formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. I would now like to turn the conference over to your host Mr. Regan Nielsen, Senior Director, Corporate Development and Investor Relations. Please go ahead.

Thank you. And welcome to Civeo's Third Quarter 2021 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'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. For today's call, I'll provide a brief summary of our performance for the quarter, Carolyn Stone, our CFO, will then provide a financial and segment level review. And I'll conclude with our commentary on our expectations for the balance of the year and moving into next year before we move to the question and answer portion of the call. At a high level we are seeing encouraging signs related to COVID-19 as the Delta wave has begun to retreat in Canada and the pace of vaccinations in Australia has improved significantly. As always, we are thankful to our operations team who continue to be vigilant and following our safety protocols which aim to mitigate the risk of the virus spreading. In the third quarter, we made significant progress towards our financial objectives, maintaining our commitment to free cash flow generation and leverage reduction. To this end during the quarter, we replaced and refinanced all of our debt and extended its maturity out to September 2025 and also announced the board's authorization of a share repurchase program for up to 5% of the total common shares outstanding. Encouraged by these accomplishments and continued but continued uncertainty related to the pandemic and its after effects, as well as continued geopolitical uncertainties led us to remain conservative in our approach to value creation, cash generation and debt reduction. The key takeaways from our call today are our businesses reliably generating free cash flow despite the uncertainty in difficult operating environment that we're currently in. In the third quarter Civeo delivered 31 million of free cash flow and made debt repayments of 25 million. As a result, our net leverage ratio was reduced to 1.86 times as…

Thanks, Bradley. And thank you all for joining us this morning. Today, we reported total revenues in the third quarter of 155.1 million with net income on a GAAP basis of 0.1 million or $0.0 per diluted share. During the third quarter, we generated adjusted EBITDA of 26.2 million, operating cash flow of 33.9 million and free cash flow of 31 million. The decrease in revenues and adjusted EBITDA experienced in the third quarter of 2021 as compared to the same period in 2020 was largely due to increased labor costs and lower customer maintenance activity in our Australian business along with the hand of Civeo's qualification for Canadian Emergency Wage Subsidy proceeds. Additionally, SG&A in the quarter was up year-over-year giving part to higher share based compensation expense resulting from a relative increase in our stock price during the third quarter of 2021 compared to the third quarter of 2020. Partially offsetting these impacts was an increase in billed rooms in the Canadian oil sands lodges and an increase in Canadian mobile camp activity. Let's now turn to the third quarter results for our three segments. Revenue from our Canadian segment was 84.1 million and increase compared to revenue of 71.8 million in the third quarter of 2020. Adjusted EBITDA in Canada was 19.8 million, which was a decrease from 21.3 million in the third quarter of 2020. Results from the third quarter of 2021 reflects the impact of a strengthened Canadian dollar relative to the U.S. dollar, which increased revenues and adjusted EBITDA by 4.4 million and 1 million respectively. On a constant currency basis, the revenue improvement was largely due to an increase in the amount of billed rooms as well as increased activity in Canadian mobile camp. The year-over-year decline in adjusted EBITDA was largely attributable…

Thank you, Carolyn. Based on our improving outlook for the remainder of the year, we are raising the lower end of our existing full year 2021 revenue and adjusted EBITDA guidance to a range of 570 million to 580 million for revenues and 95 million to 100 million for EBITDA. We are maintaining our full year 2021 capital expenditure guidance at a range of $15 million to $20 million. Due to the strong free cash flow in the third quarter and a more positive outlook for the fourth quarter, we are raising our full year free cash flow guidance based on the EBITDA and CapEx guidance just given an expected interest expense of $15 million for 2021, no expected cash taxes, and roughly 10 million in proceeds from asset sales we're raising our expectations for 2021 free cash flow to a range of $70 million to $80 million. I will now provide regional outlook for our business segments and corresponding market assumptions. For the remainder of 2021 North Canadian segment, we expect it to remain steady with positive trends in the oil market. As is the case every year, we are expecting to see a modest decrease in billed rooms sequentially in most of our lodges in the fourth quarter related to holiday downtime. This is typical seasonality and should be partially offset by some recently awarded winter project work in the southern lodges and expected strong mobile camp activity through the end of this year and that activity should continue into 2022. As we look into 2022, while we are encouraged by the recent uplift in oil prices, we know that our customers need to be convinced of longer term stability in commodity prices, COVID-19 dynamics and the broader economy before materially increasing their capital investments. While activity in…

[Operator Instructions] Our first question comes from Stephen Gengaro with Stifel. Please proceed with your question.

Thanks. Good morning, everybody.

Good morning, Stephen.

So, just maybe to build a little bit on your commentary for 2022. When we think about what's going on in Australia where there's obviously a lot of moving pieces and you hit on a few of them, what are some of the things that we should be watchful for that would kind of give you more confidence in a sort of an improvement in the Australian markets next year?

Great question. Generally speaking, what we're seeing both in Australia and more broadly in North America as well is that while commodity prices have recovered, customers are reticent to change their spending plans based on the short term medium term commodity price outlooks. And so, I think what we'll have to look for in both markets is announcements from the customer base around their capital spending plans for next year. Obviously we haven't seen any of those yet particularly in North America but until we see their spending increase, it's hard to see how we're going to see increased occupancy.

Great, thanks. And then when you painted a picture for this year of 70 million to 80 million in free cash flow, I mean you've done, you've generated a lot of cash and paid down a lot of debt over the last couple of years and you announced this share repurchase program. When we think about the return of capital to shareholders, how should we think about that evolving as we go forward? I mean, if you keep generating the types of cash that you did this year, you're going to exhaust your share repurchase program pretty quickly I would think, is there other plans to increase that level at some point other some mechanics around the size of it and how it works in Canada but is there a plan to increase it and or you're thinking about other ways to return cash to shareholders?

So, you're right. Under a normal course issuer bid in Canada, we are limited to up to 5% repurchasing up to 5% of the common shares outstanding during the 12 month period. There are no current plans to expand it beyond that but should the board and management decide to do so, we would need to flip that into a substantial issuer bid which is not impossible by any means but would take additional work. So, we're pleased with our progress thus far on the share repurchase program. It was established in September, so we didn't get as much repurchased in the third quarter as we would have liked. But we'll continue to look at it as we go through the fourth quarter and into 2022. Right now, the focus on in terms of returning capital to shareholders is the repurchase plan. There are no other means that are being currently contemplated.

Great. And then one final. When you look at and this may be a longer term question but when you look at what's going on in the global gas markets and obviously your presence on the West Coast of Canada and Kitimat, what's the opportunity there over the next one, two, three years? I mean, I guess we're waiting on maybe another try and get enough ID, there is anything any insights you have as it pertains to the opportunity on the West Coast Canada?

Well, we're watching the same thing that everyone else is which is whether or not the LNG Canada project will approve trains three and four. That would be beneficial as you mentioned to our Sitka location as well as to pipeline construction camp activity. Right now for 2021, the biggest impact on our BC operations has been the BC health order reducing the headcount allowable at industrial projects which impacted LNGC as well as the associated pipelines. That has been relieved here in the third quarter. So, we're back to occupancy levels that we anticipated coming into the year at Sitka. We expect those occupancy levels to continue into next year. The pipeline construction activity and our camps related to that was strong in the third quarter. We expect to be strong again in the fourth quarter and into 2022. And it'll be a matter of how those projects progress and whether or not there is a lengthening of the construction -- excuse me, -- construction time period, which would allow our camps to operate longer.

Great. Thank you.

Thank you.

Our next question comes from Steve Ferazani with Sidoti & Company. Please proceed with your question.

Hi, good morning Bradley and Carolyn. When we think about the remaining labor challenges and costs in Australia, can I think what you're seeing positive that gets you to go to the higher end of your EBITDA guidance range and move up your cash flow projections for the year?

It's really largely not related to Australia, it's largely related to the Canadian business both in the third quarter and higher expectations in the fourth quarter. And a lot of that has to do with -- in the third quarter, it was Sitka occupancy and pipeline construction camp activity and that trend will continue in the fourth quarter.

Is what you're seeing in terms of the nice move in the mobile camps in Canada, is that them catching up on lost time during COVID and trying to get things back on schedule in terms of wrapping that up?

There's a little bit of that but this was largely expected kind of coming in. I think it's what changed from let's say what we were thinking in terms of pipeline construction activity six or nine months ago is just the since scope changes for the project the camps that we're working on. So, we're seeing a larger number of people that we need to house and a longer duration and so that could be considered pick up or kind of catch up but in reality, the camps are going in on the timeline expected from the beginning.

And when I think about obviously benefited from much better turnaround activity than the COVID year. But where would you say even though Canadian oil sands productions maybe back to pre-COVID levels, how would you characterize turnaround activity this year versus pre-COVID years?

So, in rough numbers we did about what's called 50,000 to 60,000 room nights that come round activity last year. So, that's the COVID impact. This year we should do somewhere around 150,000 to 175,000 room nights related to turn around activity and a more, and a healthier year. So, to your question pre-COVID year, it would be closer to 300,000 to 400,000 room nights.

Still well, is that due to COVID restriction versus new projects? I mean, can you characterize what sort of picks that back up to that level? It's not just preceding COVID risks, right? You still need to see new projects.

Yes. It's the same point that we mentioned earlier which is, whether it's our oil sands customers or our Australian customers, many of them have made their spending plans earlier in the year or last year based on commodity prices that had a very different, that were very much lower than where we are today and we're not seeing the higher current commodity prices changing their spending habits. And so this was roughly in line with our turnaround activity expected for the year slightly better, but certainly not reflective of an $80 WTI price tag. I think the other issue, as we've mentioned in the past is while it's certainly more acute in Australia, Canada is suffering from the same issues in terms of labor availability and labor mobility as different provinces put in place different protocols as it relates to travel into and out of the provinces. Once that returns back to normal, that should help alleviate some of the labor restrictions that both we face but it's also impacting our customers.

That's true. And what's the key to getting greater labor availability into that Australian market now and what are you seeing in terms of government policies? Do you see any easing yet?

So, it's going to certainly the vaccination rates that have occurred in the third quarter in Australia were nothing short of remarkable in my opinion. They're surpassed in terms of first dose and fully vaccinated percentages of the population, they passed the U.S. And so to answer your question, we need to see the international borders open without restriction. We need to see labor, temporary and kind of migrant labor starts to come back into the country and the travel restrictions between different states within Australia to be eliminated in order to see that really improve. I mean I read somewhere that they're short about 400,000 temporary laborers that will come in from outside the country and that's just a material number for that labor base in Australia but in particularly acute in Western Australia.

Livable. Just last quick question just from a modeling question in terms of how you're thinking about timing of debt repayments and any thoughts on that.

We have scheduled amortization payments under our term loan and million Canadian every quarter. So, and then generally speaking to the extent we have free cash flow over and above that in any quarter I would say the majority of that is going to be applied to pay down debt as well.

Okay. Thanks everyone.

Absolutely.

Absolutely working capital flexible.

And working capital and/or currency as long as there is any fluctuations in currency.

Absolutely.

Okay. Thanks so much.

Thank you.

Our next question comes from Stephen Gengaro with Stifel. Please proceed with your question.

Thanks. Just a follow up as I was thinking Bradley about what you laid out 2022 and I know you may or may not want to comment into this, but I figured I'd ask you do you think if give or take a starting point of sort of flat EBITDA year-over-year is a reasonable place to be thinking about this?

It is. It'll depend on the factors that we laid out. It'll depend on Canadian turnaround activity that could be upside. It'll depend on the duration of pipelines, construction activity, and how long our camps are needed to be in place. Should that extend into 2023 that would obviously be helpful because we won't have to face the demobilization costs next year, they will be pushed into 2023. And then Australia right now as we look out, it doesn't look like spending is going to increase. If we see Australian activity increase, our spending increase, we should see that improvement. The team has been working feverishly to address the labor issue in Australia. To the prior question the government has eased the Visa requirement requirements and so that should help bring in additional labor specifically related to hospitality. So, that should be helpful that I think kind of flat year-over-year is a good starting point and we still need to go through the heavy lifting on our budgeting process. We will certainly get more color on the next call. And we'll certainly have better visibility as it relates to all three or four of those factors in February.

Great. Thank you.

Thank you.

Ladies and gentlemen we have reached the end of the question and answer session. And I would like to turn the call back over to Bradley Dodson for closing remarks.

Thank you, Marina. Thank you, everyone for joining us on the call. We appreciate your interest in supportive of Civeo and we look forward to speaking to you on the next earnings conference call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.