Greetings, welcome to the Civeo Corporation Q1 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Regan Nielsen, Vice President of Corporate Development and Investor Relations. Thank you, Regan. You may begin.
Thank you. Welcome to Civeo's Q1 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 for our Q1 earnings call. I'll start with the key takeaways for the Q1 and then give a brief summary of our Q1 2023 performance. After which Carolyn will provide a financial and segment level review. I'll conclude with our updated full year 2023 guidance and re-reasonable assumptions underlying that guidance. We will open the call for questions. The key takeaways from our call today are: the Q1 of 2023 results were in line with our expectations and reflect the normal seasonality of our business. To remind everyone, again, the second and Q3s are typically our strongest quarters with turnaround activity or maintenance activity, particularly in Canada.
Today, we announced five additional contract awards across several of our Bowen Basin villages in Australia, with expected revenues totaling AUD 175 million, raising our revenue visibility in our own villages business. In addition, we have increased our market share in integrated services in Australia with recent contract wins. To counter inflationary pressures in the Australian integrated services business, we have a mitigation plan in place and are expecting to see improvement in the second half of 2023. There are no material updates to our outlook for our Canadian mobile camps and expected demobilizations. Encouraged by counterparty interest received to date, our team is focused on redeploying or selling our McClelland Lake assets after the expiry of our current contract. Canadian turnaround activity is shaping up well for the second and Q3s of 2023.
We continued to execute on our share repurchase program in the Q1 and will continue to opportunistically buy back shares. Lastly, as we've disclosed on previous calls, we have divested the majority of our U.S. segment over the last 18 months and have reached the point where the remainder of the U.S. business is immaterial. Moving forward, we will no longer report the U.S. business as a separate segment in our SEC filings and investor materials. Let me take a moment to provide a business update on our two segments. In Canada, our revenues and Adjusted EBITDA were consistent with our expectations but declined year-over-year.
While the revenue decrease was primarily driven by a weakened Canadian dollar relative to the US dollar, the Adjusted EBITDA decrease can also be attributed to a decrease in contribution from our mobile camps and our Sitka Lodge due to the wind down of pipeline construction activity as well as inflationary pressures. Sequentially, revenue and Adjusted EBITDA remained relatively flat quarter-over-quarter. For Australia, we saw a year-over-year increase in revenues driven by increased integrated services revenue from new contracts and increased billed rooms in our Civeo-owned villages. Due to inflationary pressures, primarily associated with the integrated services business, Adjusted EBITDA declined year-over-year, however. I will speak to how we're handling the inflationary pressures later in the call. Q1 results in Australia were also adversely impacted by a weakening of the Australian dollar relative to the US dollar.
With that, I'll turn the call over to Carolyn Stone.
Thank you, Bradley, and thank you all for joining us this morning. Today, we reported total revenues in the Q1 of $167.6 million with a GAAP net loss of $6.4 million or $0.42 per diluted share. During the Q1, we generated Adjusted EBITDA of $20.2 million, operating cash flow of $0.4 million, and negative free cash flow of $2.1 million. As Bradley just mentioned, the decline in Adjusted EBITDA we experienced in the Q1 of 2023 as related to the same period in 2022 was largely due to the weakened Australian and Canadian dollars relative to the US dollar, the wind down of Canadian pipeline constructive activity, and continued inflationary pressures.
These decreases were partially offset by a $1.7 million gain on sale of assets related to the divestiture of certain U.S. assets. The negative free cash flow in the quarter was primarily the result of a $15.6 million increase in working capital in the quarter, which was largely driven by typical seasonality of our cash flows. Let's now turn to the Q1 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 Q1 of 2022. Revenues from our Canadian segment were $89.5 million, as compared to revenues of $96 million in the Q1 of 2022. Adjusted EBITDA in Canada was $12 million, a decrease from $17.2 million in the Q1 of last year.
Results from the Q1 of 2023 reflect the impact of a weakened Canadian dollar relative to the US dollar, which decreased revenues and Adjusted EBITDA by $6 million and $0.8 million, respectively. On a constant currency basis, revenues remained relatively flat due to an increase in Canadian lodge revenue, offset by a decline in mobile camp activity. Lower contributions from mobile camps and our Sitka Lodge, due to the wind down of Canadian pipeline construction activity, coupled with inflationary pressures, contributed to the decrease in Adjusted EBITDA year-over-year. During the Q1, billed rooms in our Canadian lodges totaled 643,000, which was modestly up from 636,000 in the Q1 of last year.
Our daily room rate for the Canadian segment in USD was $96, which declined year-over-year due to occupancy mix and a weakened Canadian dollar relative to the US dollar. Turning to Australia, during the Q1, we recorded revenues of AUD 77 million, up from AUD 63.5 million in the Q1 of 2022. Adjusted EBITDA was AUD 14.2 million, down from AUD 15.4 million last year. Results from the Q1 of 2023 reflect the impact of a weakened Australian dollar, which decreased revenues and Adjusted EBITDA by AUD 4.6 million and AUD 0.9 million, respectively. On a constant currency basis, the increase in revenue was largely driven by increased occupancy at our own villages in the Bowen and Gunnedah Basin and higher activity for our integrated services business related to new contracts.
Inflationary pressures, primarily associated with our integrated services business, led to a decline in Adjusted EBITDA year-over-year. Australian billed rooms in the quarter were 523,000, up 10% from 474,000 in the Q1 of 2022 due to increased customer demand at our own villages as well as recent contract wins. The average daily rate for our Australian villages in US dollars was $78 in the Q1, which was down modestly from $79 in the Q1 of 2022. The decrease was entirely driven by the weakened Australian dollar, as the Australian dollar average daily rate was actually up year-over-year. On a consolidated basis, capital expenditures for the Q1 of this year were $4.8 million compared to $3.6 million during the same period in 2022.
Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. Our total debt outstanding on March 31, 2023 was $142.6 million, a $10.6 million increase since December 31. Our net leverage ratio for the quarter increased slightly to 1.2x as of March 31 from 1.1x as of December 31. As of March 31, 2023, we had total liquidity of approximately $90.6 million, consisting of $78.2 million available under our revolving credit facilities and $12.4 million of cash on hand. In the Q1 of 2023, we repurchased approximately 169,000 shares through our share repurchase program for a total cost of approximately $3.8 million.
Bradley will now discuss our updated guidance for the full year 2023. Bradley?
Thank you, Carolyn. I like to turn our discussion now to the updated full year 2023 guidance on a consolidated basis, including looking at the underlying assumptions for each of the two regions related to that guidance. We are maintaining our previously provided full year 2023 revenue and Adjusted EBITDA guidance ranges of $630 million-$650 million of revenues and $85 million-$95 million Adjusted EBITDA. However, we are increasing our full year 2023 capital expenditure guidance to a range of $45 million-$50 million. It's important to note this increase in capital expenditure guidance is entirely driven by a previously announced contract win in Australia, where the customer has requested specific upgrades to three of our Bowen Basin villages. These upgrades will be fully funded by the customer up front.
To reiterate, this increase in capital expenditure guidance relative to our initial guidance will not have a material impact on our 2023 free cash flow guidance. As a result, to run through the cap that guidance based on this EBITDA guidance and CapEx guidance, expected interest expense of $12 million for the full year of 2023, an expected working capital inflow of $20 million and minimal cash taxes, we are maintaining our expected 2023 free cash flow guidance of $43 million-$58 million. I'll now provide the regional outlooks by region. In Canada, As we look at the remainder of 2023, we are expecting to experience solid oil sands, all oil sands turnaround activity in the second and Q3s of the year, with oil sands billed rooms increasing year-over-year.
This will be partially offset by lower billed rooms at our Sitka Lodge, as well as lower mobile camp activity as the CGL and TMX pipeline construction projects near completion. As it relates to the expiry of the McClelland Lake Lodge contract in June of 2023 and the underlying customer demand for that lodge, there is no change in our 2023 guidance, as we believe the Civeo lodges will be needed to support demand from this customer through 2023. Our team is focused on strategic alternatives for McClelland Lake Lodge assets beyond the expiry of the current contract, and we are encouraged by the counterparty interest that we've received to date. In the interest of protecting ongoing negotiations, we cannot provide any further details as it relates to how the McClelland Lake Lodge could contribute financially moving forward.
In regards to the Canadian mobile camps, there are no material changes in our outlook for these assets since our last earnings call. We continue to expect the camps to wind down during 2023 as pipeline construction activity nears completion or is completed. Our guidance includes approximately $20 million of demobilization expense in 2023. Sorry, $10 million of demobilization expense in 2023. Excuse me. $6 million of demobilization expense in 2024. We will continue to update shareholders as we progress through the year. Turning to Australia. We continue to see encouraging signs of growth in customer demand for our owned villages and our integrated services business. In regards to our owned villages, we continue to experience an uplift in customer activity as well as growing customer interest in securing room supply moving forward.
This is evidenced by our today's announcement of the additional contract awards across the Bowen Basin. Specific to these contract awards, there are five Australian contract awards, which comprised of a two-year AUD 90 million contract award with a renewal, a five-year AUD 45 million contract renewal, and three short-term contracts totaling AUD 35 million in 2023, all of which de-risk our current outlook and our current guidance. All those numbers were in Australian dollars. As noted above, in conjunction with the previously announced contract win in Australia, the customer expected specific upgrades to three of our Australian villages. These upgrades, which we expect to complete in 2023, will be fully funded by the customer upfront. Turning to our Australian integrated services business. It's benefiting from increased revenue from recent contract awards over the last two quarters, but continues to be burdened by severe inflationary pressures.
We have a plan in place to attack this. It's a three-pronged approach. First, on labor, we have a focused HR recruitment effort in place. Our supply chain is making efforts to work on food and freight cost inflation. We're seeking contractual adjustments to provide relief and flexibility given the extreme inflationary environment. We're making strides on all three fronts. Our Australian team is laser-focused on these initiatives. The upper end of our guidance includes mitigating certain inflationary impacts by the second half of 2023 in our integrated services business. I will conclude by underscoring the key elements of our strategy as we navigate through 2023. Our mandate is as follows: We prioritize the safety and well-being of our guests, employees, and communities. We focus on enhancing our best-in-class hospitality offerings.
We will manage our cost structure in accordance with the occupancy outlook across Canada and Australia. We will continue to allocate capital prudently to maximize free cash flow generation while we continue to return capital to shareholders and manage our debt base. We'll also seek opportunities to further our revenue diversification. With that, we're happy to take questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, please make sure to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Steve Ferazani with Sidoti & Company. Please proceed with your question.
Morning, everyone. Appreciate all the detail on the call. Brad, can you provide any detail or do you have any further information in terms of the cadence of the mobile camp wind down to sort of help us think about this?
At this point, we have 4 camps running, 3 for Coastal GasLink and 1 for the Trans Mountain expansion. Right now, we expect that 2 out of the 4 will demobilize this year and the other 2 will demobilize next year. We're expecting that the largest portion of the demobilization will be in the Q4 of this year.
Okay.
With again, and I messed up earlier. It's $10 million USD of demobilization costs in the 2023 guidance. For 2024, we'll have $6 million of demobilization costs. The rig or activity on all of the assets are expected to conclude in 2023 as of what we know right now.
Okay. Okay, that's fair. When I look at your Canadian billed rooms, and obviously the mobile camp wind downs affecting Sitka. Having said that, your billed rooms were up sequentially and year-over-year, moderately, you could argue more than moderately if you're, if you add in the decline in Sitka. All signs point to much higher CapEx in Canada this year with Trans Mountain coming. I'm trying to get a sense of why you know, you still sound somewhat cautious. Your sense on how much better things could get in terms of accommodations in that market with all signs pointing to higher CapEx.
Fair point. There, there's certainly conflicting, I would say we continue to be optimistic on Canada. Last year we did 2.76 million room nights in total, for the year 2022, and guidance assumes 2.78 million. A modest increase. I would say that we're more optimistic on turnaround activity in Canada, which would be, which would feed into your comment around CapEx. There are a lot of conflicting signs because you've had several, two specifically, major oil sands players make public comments that they're looking to reduce headcount in the oil sands region. Should that occur, that, you know, if they play that out, that would be a risk. Right now, we're not assuming that because none of the current occupants indicate that's the case.
I would say while the mix is unfavorable because Sitka is down, I would say right now the oil sands activity is up modestly year-over-year in the guidance, to the tune of, let's say, 10% of room nights being up. We're getting offset by Sitka. I, you know, we obviously follow it very closely in terms of what the CapEx announcements are, but there's certainly some conflicting signs. Right now, I'd say I'm more optimistic than some of the data points that are out there.
Okay. That's fair. Thanks. Then, turning to Australia, obviously revenue up very nicely. You know, there's a mix of larger service contracts, which I know are lower margin. Generally speaking, and I know labor cost is the biggest piece to this, you know, how much better can that get? We would have thought it would have been better at this point, right, as COVID restrictions came out. What's holding that back in terms of labor availability? You addressed this on your remarks, how quickly you can address that. 'Cause, I mean, the revenue, the growth is there, and you announced new contracts again this morning.
Yeah. Yeah. On the, I think the key to focusing on Australia is the vast majority of the EBITDA generation is out of the owned villages. There, you know, quite frankly, with the renewals and the additional short-term contracts that we announced today in the owned villages, we're running pretty strong occupancy. You know, Coppabella is effectively gonna be full by the end of the Q2, so will Moranbah. Two of our major locations, that's almost 50% of the total number of owned rooms that we have. Dysart is doing quite well. The Gunnedah Basin is starting to pick up with the announcement of Whitehaven's Vickery project.
We expect that to start to pick up in the second half, which could be upside to the guidance. That's where, you know, that's the key for Australia is the owned villages. The growth, as you mentioned, is likely going to come from the integrated services business. The team has done a great job of building that business over the last three years. Unfortunately, because of COVID, largely, the inflationary pressures in Western Australia, where the majority of our integrated services business is, are fairly significant.
You know, we're starting to see the influx of foreign workers into Australia, but it's been very slow, because a lot of the federal policies to help facilitate that have been in place for the better part of 2 years now, almost 2 years now. The bureaucracy has kept things made it difficult. We're starting to see, you know, we've gotten 10 foreign cooks in the last 3 months. We've got a number coming in that are in process. Chefs are a big sticking point. The other piece on the labor side is that it's been very difficult to hire full-time employees on the housekeeping and the hospitality side other than chefs. The team is making progress.
We expect it to improve in the Q2. It improved throughout the Q1, month to month, but we only had one extra month from the last time we spoke. Should that trend continue, that will support our guidance in the Q2, the Q2 and the balance of the year. We see a material improvement in the second half of the year, to meet the upper end of our guidance.
Okay. All right. Thanks, Bradley. Appreciate the detail.
Thank you. Thank you for the interest and the questions.
Our next question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.
Thanks. Good morning, everybody. I think first, Bradley, can you talk a little bit about, I know we've talked a little in the past about this, but the source gas in Canada for LNG Canada, and I know you haven't played there historically. Is there an opportunity there that you're looking into?
Yes. We don't plan, right now, we don't have any locations in the Montney. We have a really looking for an entry point in there. It could be an opportunity to redeploy the mobile camp assets as they come off the pipeline construction projects. That's really been the major focus, is seeing for looking for opportunities for the mobile camps to work.
Thanks. When we think about, I guess 2 other things. One is the balance sheet, right? You have for years generated a lot of free cash flow. You've delevered. Where do you stand on your thoughts of allocating capital more towards buybacks versus debt reduction? Like, is there a point at which you get more aggressive there? How do you weigh those 2 options, particularly as your leverage ratio continues to come down?
The leverage ratio is in a good spot, at 1.2x. I would like to keep it in that range. Certainly for certain capital allocation opportunities, we can look to increase the leverage ratio, but I wouldn't wanna increase it significantly. As we think about the returns on capital deployment, certainly unfortunately, where the stock price has trended, the returns on buybacks look attractive, very attractive. We have not come out with a formal capital allocation policy. It's something we're working on. Hopefully by the end of the year, we'll have a formal capital allocation policy out. It's a little bit difficult to be really aggressive for us in the first half just because of the seasonality of our cash flow.
To remind everyone, you know, the first half of every year for the last four years has been not as strong as the second half. That's a combination of coming out of the Q4, which is a softer quarter for us, ramping up into the Q1, ramping up into the second and Q3s for turnaround activity. You have an increase in receivables, typically. Also the first half is weighted with several annual cash flow outflows, namely property taxes and insurance premiums. As you see receivables go up, you're seeing, you know, pay or cash flows going out. In the back half of the year, cash flow tends to be much stronger. We're gonna be, you know, conservative, but certainly the opportunity exists there to be buying back stock.
Great. Thank you. just one follow one. The CapEx increase that you mentioned, that I believe the customer is basically paying the entire increase ahead of a contract. How does that show up on the income statement?
The customer is paying for approximately US $20 million worth of capital improvements at three locations, Coppabella, Dysart, and Moranbah. They've already prepaid a portion of that. When we start the work, which will be in the Q2, they'll make a second payment, which will make us prepay the entire amount. The revenues from that will be amortized over the length of the five-year contract. There was some recognition in the Q1, we'll be amortizing it for the balance of the five-year contract.
Great. That's all for me. Thank you.
Thank you, Stephen.
The next question comes from the line of Dave Storms with Stonegate. Please proceed with your question.
Thank you, good morning. Quick question.
Good morning.
Morning. From the U.S. divestitures standpoint, I saw you had the $1.7 million increase. Was that from selling both Killdeer and Acadian Acres, or was that only one of them? Any color you could give there would be helpful.
Sure. We sold the housing units off of Acadian Acres. We still have the land in Acadian Acres that we're planning to sell. We still have Killdeer, both of which are in held for sale.
Killdeer is not.
Killdeer is not held for sale. Sorry.
Understood.
It is being sold.
Perfect. Then, also great to see, you know, you announced a couple wins, couple new contracts this quarter. Any further information you'd give us on the current bidding environment would be helpful as well, please.
I'm sorry. Could you repeat that?
Yeah, sorry. Just any color you could give us on the current bidding environment, especially after seeing you announce new wins, in Australia?
As I mentioned in the prepared comments, we've got two locations that are effectively gonna be full for the second half of the year. That's Moranbah and Coppabella. There's clearly a shift, and we tried to emphasize this. The customers have moved to being concerned about surety of supply of rooms. Three of the announced wins are really drive that home in that they are securing supply for their turnaround activity. So these are three, six, nine-month contracts. That's the AUD 35 million of the total that are really making sure that they have the rooms available for their turnaround staff. With the announcement of the Whitehaven Vickery project, we expect the Gunnedah Basin also to start picking up in activity.
That's more of a back half of 2023 opportunity and a 2024 and beyond opportunity as they build that project. I would say that, you know, in Australia, it's very upbeat. In Canada, turnaround activity is a big question mark. It looks like it's gonna be a good year. I would say that I'm optimistic there's upside there, but 2024 could be even better.
That's very helpful. Thank you.
Thank you.
There are no further questions at this time, and I would like to turn the floor back over to Bradley Dodson for any closing comments.
Thank you, John. Thank you everyone for joining the call today. We truly appreciate your interest in Civeo. We look forward to speaking to you on our Q2 earnings call at the end of July.
That concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.