Greetings. Welcome to the Civeo Corporation's Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow today's formal presentation. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll turn the conference over to Regan Nielsen, Vice President, Corporate Development and Investor Relations. Regan, you may now begin.

Thank you, and welcome to Civeo's fourth quarter and full year 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 fourth quarter and full year earnings call. We had a solid end to the year, having reached and exceeded our target leverage ratio. We are entering into 2024 with financial strength and flexibility to execute on our capital allocation strategy, including looking to identify and execute on growth opportunities. This morning I'll review our fourth quarter 2023 performance and Carolyn will provide a financial and segment-level review, and I'll conclude with our initial full year 2024 guidance and the underlying rate regional assumptions. Lastly, we'll open up the call for questions. I'll begin with a few important highlights. Our fourth quarter 2023 revenues adjusted EBITDA and free cash flow exceeded our expectations. Australian adjusted EBITDA increased 64% compared to the fourth quarter of 2022, due to particular strength in our build rooms at our own villages where we posted our third consecutive quarter of record performance. We also saw margin improvement in our Australian Integrated Services business, as a result of our inflation mitigation efforts and both our own villages and our integrated services benefited from recent contract wins. Moving to Canada, subsequent to the end of the quarter, we completed the previously announced sale of the McClelland Lake Lodge and we are currently performing the associated transportation services contract for those assets. During 2023, we returned 23% of our free cash flow to shareholders through both our recently initiated dividend and continued opportunistic share growth. I'll now make a few comments on the business segments. Australian segment performed exceptionally well during the quarter as we experienced sequential and year-over-year growth in both our own village business and our Integrated Services business. During the quarter, we experienced a sequential increase in Australian owned-village occupancy setting again a…

Thanks, Bradley and thank you all for joining us, this morning. Today, as Bradley noted, we reported financial results that exceeded our guidance. Total revenues in the fourth quarter were $170.8 million, with GAAP net income of $23 million or $1.55 per diluted share. During the fourth quarter, we generated adjusted EBITDA of $17.4 million. Again, this is exclusive of the financial impact of the dismantlement and sale of the McClelland Lake Lodge assets. Operating cash flow of $40 million and free cash flow of $39.2 million. Fourth quarter adjusted EBITDA increased year-over-year due to increased build brands 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 $5.6 million in mobile camp demobilization costs. For the full year 2023, we reported revenues of $700.8 million and net income of $30.2 million or $2.01 per diluted share. In 2023, we generated adjusted EBITDA of $102 million, a decrease from our 2022 adjusted EBITDA of $112.8 million. Results for the full year of 2023, reflected impact of a stronger US dollar, which decreased both revenues and adjusted EBITDA by $28.8 million and $5.7 million respectively. The decrease in adjusted EBITDA was largely driven by the wind down of LNG-related activity in Canada and the impact of weak and Canadian – and Australian dollars, but partially offset by significant improvement across our Australian businesses. Let's now turn to the fourth quarter results, for our two segments. I'll begin with a review of the Canadian segment performance compared to its performance, a year ago and the fourth quarter of 2022. Revenues from our Canadian segment were $72.7 million, as compared to revenues of $88 million in the fourth quarter of 2022. Adjusted EBITDA in Canada…

Thank you, Carolyn. Now I'll turn the discussion to our initial full year 2024 guidance on a consolidated basis and include an outlook for each of the regions. We are initiating full year 2024 guidance of revenues of $625 million to $700 million and adjusted EBITDA of $80 million to $90 million. Our initial full year 2024 capital expenditure guidance is $30 million to $35 million. Based on this adjusted EBITDA and CapEx guidance expected net cash proceeds related to McClelland Lake dismantlement and sale of approximately $6 million, expected cash interest expense of also approximately $6 million, expected working capital inflow of $10 million and expected Australian cash taxes of $10 million. We are expecting our 2024 free cash flow to be in the range $45 million to $60 million. I will now provide the regional outlooks and corresponding underlying assumptions. As we mentioned on our last conference call, the primary reason for the year-over-year EBITDA decline in 2024 is the wind down of Canadian mobile camp activity and a loss at the McClelland Lake earnings which account for approximately $27 million of the year-over-year change between 2023 adjusted EBITDA and 2024 EBITDA guidance These are partially offset by year-over-year increases in revenues and margins in Australian integrated services business and modestly improved performance in the Australian villages and Canadian margins. We are acutely focused on replacing these earnings and growing the company, but 2024 will be a transition year for our Canadian business. In Canada, as we look into 2024 the macroeconomic environment for oil sands is improving with increased customer capital spending and the Trans Mountain Pipeline expansion coming online this year. With the exception of the loss of occupancy at the McClelland Lake Lodge, we should experience steady to modestly increasing build rooms across the rest…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Thank you. And our first question comes from the line of Stephen Gengaro with Stifel. Please proceed with your questions.

Thanks. Good morning everybody.

Good morning.

Good morning.

I think the --the first for me is, when we think about the strength in Australia that you saw in the fourth quarter was very strong. And you think about the outlook for Australia, I mean one of the things that we keep hearing about is kind of concerns about economic growth in China. And I'm just curious sort of what your, -- what your outlook and guidance sort of suggest for Australia? And how we should think about sort of the potential gives and takes, what are the economic conditions right now.

All the indications from our customer base down there on the own villages side is one of for the new customers and by growing production. Certainly some of the majors are looking at cost containment. But our outlook for occupancy in the owned villages is nicely up year-over-year 2024 from 2023. We're seeing a big uplift in our integrated services business. Some of that's top line where we're expecting to hit over $250 million in revenues in 2024. That's up from about $240 million. And 2023 but the big story is the margin improvement there. And the vast majority of that integrated service business is iron ore related. So we're quite constructive on the Australian business and certainly always cognizant of macroeconomic forces. But as of right now we feel very good about.

Great. Thanks. And when you think about use of cash and you've obviously done a tremendous job over the last several years like deleveraging and returning capital. What types of acquisitions, if you are thinking about acquisitions, should we think you would be pursuing, would it be geographic expansion or would it be things like the sort of on the logistics and catering side that would be more likely in current geographies.

Well, we will focus on current geographies, the Australia and North America. I'll start with Australia. There are a handful of one-off properties that would be nice additions to the portfolio primarily in the Bowen Basin. So we're pursuing that. The integrated services, there are opportunities to expand that business through acquisition and we're looking to do so. And that would be again in the Australian geography. In Canada, I think one of the big takeaways from the Saga that was McClelland Lake is that existing infrastructure has value because the replacement costs are significantly higher today than they have been historically. So reaching a complete newbuild Lodge in North America economically is very difficult in my opinion. So how do we leverage existing underutilized assets primarily in Alberta to expand into other geographies, specifically Eastern Canada? I'm looking perhaps as the McClelland Lake assets moving into Western US, as an opportunity to expand into the US in a fashion that more it reflects or resembles mirrors what our Canadian operations are today. Certainly, are also looking in Canada to find an entry point into the Montney, which we see long term activity there that it's been more difficult to determine the entry point.

Great. Yes. Thank you for the color.

Our next question is from the line of Steve Ferazani with Sidoti & Company. Please proceed with your question.

Morning Bran and Carolyn. Obviously finished up a very busy year. When I think about 2024 and the margin improvement you've already seen in Australia. And I'm assuming and maybe you provide a color, I'm assuming it's a mix of the new contracts some easing inflationary pressures. Also wanted to ask about if labor constraints are easing, and how much more room you've got into 2024 on all those on outlook points?

And so that is gaining scale although I don't think we've seen the improvement on getting scale in the integrated services business quite yet. That will be part of what we pivot to focus on is to have more improve our processes, and to really bring more of it to the bottom line. I think as you look at kind of gross margins and integrated services, the fourth quarter was a really nice quarter. And if we can maintain that kind of 9% to 10% gross margin integrated services. That's pretty solid. Now going to work on being more efficient on the operational side. The inflation still issue, so I don't want to discount it. But I think the team has done by focusing and as we mentioned in our inflation mitigation plans was work on human capital and how can we be more efficient there? And we've seen improvements location by location in terms of reducing turnover and reducing the reliance on temporary employees. And so, we're early stages in that but the progress has been good.

Okay. And then turning to the US market. You noted looks like another year of rising CapEx and we have the Transmountain coming. How is that going to -- how are you thinking about that translating into turnaround activity? And is it too early to get a sense? Are you hearing much right now from customers about both occupancy this summer spring I guess starting in spring?

Yeah. I'm still a little early to really call that Canadian turnaround activity for 2024, guidance assumes a slightly softer turnaround period in Q2, Q3 this year. And so we'll have to see how it plays out. But right now, guidance is a little bit softer on turnaround activity, but we'll see we've seen some improved margin some locations in Canada because of our some of our inflation mitigation efforts and we expect that to continue into 2024.

Great. I think you covered a lot territory in the call. I didn't hear did you provide guidance on free cash flow?

$45 million to $60 million.

Any changes to your target range or other uses of capital beyond acquisitions on the net leverage?

Right now -- right, I mean we've kind of blew through our target with the on free cash flow in fourth quarter, but it's really kind of a timing issue. Certainly expect to be returning the same kind of capital to our shareholders in 2024. But we do need to pivot and allocate more to growth than we have -- well, quite frankly been able to but now, building that pipeline or that funnel of growth opportunities that I just highlighted on the past question. And so, I'm cautiously optimistic where we'll have showed some growth and putting capital to work in a growth fashion in 2024.

Right. Thanks Bradley.

Thank you.

Thank you. Our next question is from the line of Dave Storms with Stonegate. Please proceed with your question.

Good morning.

Good morning.

Just hoping we could start with kind of the cadence of the guidance. Should we expect it to follow pretty typical seasonal patterns? Or is there anything else that you think might throw a wrench to that?

Dave, right now for 2024, we expect to be fairly typical where historically 65% of the annual EBITDA comps in Q2 and the combined Q2, Q3. And that's largely driven by a couple of factors that we've highlighted previously. One, certainly turnaround activity in Canada, Q4 and Q1 are usually softer, because of the holidays either at the beginning of the year or ending the year, so I think it will be a fairly typical in terms of cadence.

We expect to see the kind of cadence on cash flow not thinking on cash flow. The same historical cadence on cash flow where first quarter is our lowest cash flow because of various timing and buildup of revenues as such and outcome we'll get more cash in as the year progresses.

Understood. Thank you. And then, you mentioned the goal of getting Integrated Services up to $500 million in Australia. What are the logistics look like for that? And what is short-term success look like concerned fairly long-term goal?

Well, our team has identified tangible contract wins over the next three years. That should be able to get us to that $500 million mark. As many of you may recall, we entered into an integrated services in Western Australia in 2019 with the action industrial catering acquisition, which at the time we bought it is about $40 million Australian revenues and last year it did $239 million. So we've made significant progress and we see a very tangible pathway to get to $500 million. It's not without a lot of work by the team and continuing to demonstrate the value proposition to the customer base to it to achieve new contract wins.

Understood. Thank you for taking my questions.

Absolutely. Thank you.

Thank you. At this time we have no additional questions. I'd like to hand the floor to Bradley Dodson for any closing remarks.

Thank you, Rob, and thank you everyone for joining the call today. We appreciate your interest in Civeo and look forward to speaking with you on the first quarter earnings call expected in April.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.