Civeo Q2 2025 Earnings Call Transcript

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July 29, 2025

Key Takeaways

  • Positive Sentiment: Management has repurchased 883,000 shares (7% of outstanding stock) in Q2, completing 30% of its 20% buyback authorization and targeting 100% of free cash flow for further repurchases.
  • Positive Sentiment: The Australian segment delivered 4% revenue growth (7% in constant currency) and 10% EBITDA growth (12% constant currency), driven by new village acquisitions, integrated services expansion, and two large contracts worth AU$314 million.
  • Negative Sentiment: The Canadian segment saw revenues drop to $50 million (from $79.5 million) and adjusted EBITDA fall to $7.5 million (from $17.3 million) amid subdued turnaround activity, customer cost cuts, and ongoing market headwinds.
  • Neutral Sentiment: Civeo maintained full-year 2025 guidance of $640–670 million in revenue and $86–96 million in adjusted EBITDA, expecting stronger free cash flow in H2 to support its capital allocation plan.
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Earnings Conference Call
Civeo Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Speaker 3

Greetings, and welcome to the Civeo Corporation's second quarter 2025 earnings call. At this time, all participants are in listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to your host, Regan Nielsen. Please go ahead.

Speaker 6

Thank you, and welcome to Civeo's second quarter 2025 earnings conference call. Today, our call will be led by Bradley Dodson, Civeo's President and Chief Executive Officer, and Collin Gerry, Civeo's 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. These forward-looking remarks speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these forward-looking statements except as required by 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.

Speaker 5

Thank you, Regan, and thank you all for joining us today on our second quarter 2025 earnings call. I'll start by highlighting some of the key takeaways before walking through a brief summary of our second quarter 2025 financial results. Collin will provide a financial and segment level review. I'll conclude with our 2025 guidance and the underlying reasonable assumptions, and then we'll open the call up for questions. Turning to our key takeaways, I'll start with significant progress that we've made towards completing our expanded share repurchase authorization. We capitalized on equity market softness earlier in the second quarter to repurchase 883,000 common shares, which is approximately 7% of Civeo's common shares outstanding. These repurchases made since the announcement of our new capital allocation plan equate to 30% of that new buyback authorization as of June 30, 2025.

Speaker 5

Civeo has now repurchased approximately 27% of its common shares outstanding since we began our share repurchase program in August of 2021. We believe that share repurchases represent a compelling use of capital, especially during broad market equity market volatility. Given the accelerated buybacks of a recently completed acquisition, we have now reached the upper end of our target net leverage ratio of two times. We are comfortable with that ratio as we continue to execute under our share repurchase program. We remain committed to completing the 20% share repurchase authorization as soon as practicable and intend to use no less than 100% of the annual free cash flow to achieve that goal. I'll now move to some comments on the regional results. In Australia, we remain focused on growing our integrated services business and integrating the recent acquisition.

Speaker 5

Revenue in the region increased 4% year over year, or 7% on a constant currency basis, and adjusted EBITDA grew by 10%, or 12% on a constant currency basis. Contributions from the newly acquired Bowen Basin villages and growth in our integrated services business are driving the strong margins that we experienced in the second quarter. Based on current customer discussions and our base of contracted room nights, we expect our current Australian occupancy levels to continue through the rest of the year despite weakening in net coal prices experienced recently. We completed the acquisition of four villages in May and began integrating them into our operations. Approximately two months of those results were included in our second quarter 2025 results. We are pleased with their early contributions, and we look to realize further larger leverage going forward.

Speaker 5

Additionally, we recently announced two contracts in Australia and the Bowen Basin: a renewal of a contract with an existing customer. The renewal is a four-year taker-pay agreement at our own villages with expected revenues over the contract term of $250 million. The second contract previously announced is a three-year integrated services contract worth approximately $64 million in revenue. These awards validate our winning strategy and position us for continued momentum and growth in Australia. In Canada, the second quarter saw the typical seasonal increase in occupancy relative to the first quarter, driven by turnaround activity in the core region of the core oil sands region. However, on a year-over-year basis, turnaround occupancy remains subdued. Conditions in Canada remain challenging given the macroeconomic headwinds, which include low and uncertain oil prices and our customers' fiscal conservatism.

Speaker 5

Customers remain steadfast in their singular focus on cost reductions in response to oil price and political uncertainty and investor pressure to return capital to shareholders. We remain focused on controlling what we can control. We continue to take steps to optimize our cost structure in Canada and align our business with the realities of the current environment without sacrificing our ability to capitalize on opportunities to diversify our business away from the oil sands region. Overall, we are executing on our strategic priorities in each region. In Australia, our Australian business is hitting on all cylinders, and while the Canadian headwinds remain, we know this market well. We're working with our strategic partners to understand how we can continue to support them as we capitalize on volume opportunities in the region. We are taking decisive action to apply our resources to position Civeo for long-term resilience and cash generation.

Speaker 5

With that, I'll turn it over to Collin.

Speaker 6

Thank you, Bradley. Thank you all for joining us this morning. Typically, I would first focus on expanding more on the underlying drivers of the result in the income statement. However, the real story for this quarter relates to the balance sheet and the impact of our recent capital allocation. Bradley mentioned we made significant progress on our share repurchase authorization, completing 30% of the program in the second quarter. In addition, we executed on accretive growth through our acquisition in Australia. As a result, our net debt increased by $95 million in the second quarter, primarily driven by $65 million deployed for our recent Australian acquisition and $19 million deployed for share buybacks. Consequently, our net debt was $154 million as of June 30, 2025, resulting in a net leverage ratio of 2 times.

Speaker 6

Turning to the income statement, today we report total revenues in the second quarter of $162.7 million, with a net loss of $3.3 million or $0.25 per diluted share. During the second quarter, we generated adjusted EBITDA of $25 million and negative operating cash flow of $2.3 million. Our free cash flow was burdened by a working capital bill in the quarter and the expected payment of Australian income taxes, which included a large payment related to the prior year. The decrease in adjusted EBITDA in the second quarter of 2025 compared to the year-ago period was primarily due to the decreased build rooms at the Canadian lodges. We expect this lower level of customer spending to continue as producers in the region remain keenly focused on reducing costs. As we mentioned, we're taking action to cut costs and streamline the business and identifying additional opportunities across the region.

Speaker 6

Second quarter revenues from our Australian segment were $112.7 million, up 4% from $108.6 million in the second quarter of 2024. Adjusted EBITDA was $23.7 million, up 10% from $21.6 million in the second quarter of 2024. The increase in revenues and adjusted EBITDA was primarily driven by the recently completed acquisition of four owned villages, as well as margin improvement in the integrated services business. The year-over-year increase was offset by the impact of a weakened Australian dollar relative to the U.S. dollar, which decreased revenues and EBITDA by $3.2 million and $0.7 million, respectively. Australian-owned village build rooms in the quarter were 690,000 rooms, up 10% from the second quarter of 2024, primarily due to our recently completed acquisition. Our daily room rate for Australian-owned villages in U.S.

Speaker 6

dollars was $76, which decreased from $78 in the second quarter of 2024, primarily due to the weakening of the Australian dollar. Turning to Canada, we reported revenues of $50 million compared to revenues of $79.5 million in the second quarter of 2024. Adjusted EBITDA for the segment was $7.5 million, a decrease from $17.3 million in the second quarter of 2024. As noted, the year-over-year revenue and adjusted EBITDA decreases were driven by lower build rooms as our customers focus on cost and headcount reductions, as well as the loss of Fort Hills-related occupancy from the sale of Armapullo Lake Lodge. During the second quarter, build rooms in our Canadian lodges totaled 450,000, which was down from 752,000 in the second quarter of 2024. Our daily room rate for the Canadian segment in U.S.

Speaker 6

dollars was $94, which decreased from $96 in the second quarter of 2024, primarily due to the weakening of the Canadian dollar. Looking at our capital structure, as mentioned earlier, Civeo's net debt as of June 30th was $154 million, a $95 million increase since March 31st, 2025. Attributable to our recent acquisition, as well as the significant progress made on our share repurchase authorization in the quarter, our net leverage ratio for the quarter was two times, with total liquidity of approximately $73 million. Given the accelerated buybacks and recently completed acquisitions, as mentioned, we have now reached the high end of our target net leverage ratio at two times. We have allocated $22.5 million to share repurchases in the first half of 2025, and assuming current valuations, we expect to utilize free cash flow to remain active repurchasing shares for the back half of the year.

Speaker 6

We will target a year-ending leverage ratio of approximately two times. Turning to capital allocation, I'll start with CapEx. On a consolidated basis, capital expenditures for the second quarter of 2025 were $4.5 million, down from $5.3 million during the second quarter of 2024. Capital expenditures in both periods were predominantly related to maintenance spending on our lodges and villages. As noted, during the second quarter of 2025, we repurchased approximately 883,000 shares through our share repurchase program for a total cost of approximately $19.1 million. With our recently increased share repurchase authorization and commitment to accelerating the return of capital to shareholders, we continue to believe that repurchasing Civeo shares presents a value-enhancing opportunity. Second quarter market softness gave us an excellent buyback opportunity. We've made great progress on our current share repurchase authorization, and we will continue to opportunistically execute on our plan moving forward.

Speaker 6

With that, I'll turn it back over to Bradley. Thank you, Collin. I would now like to turn our discussion over to the full year 2025 guidance with consolidated axis, including our underlying macroeconomic and regional assumptions. We are maintaining our full year 2025 revenue and adjusted EBITDA guidance. We continue to look for revenue this year to be in the range of $640 million to $670 million and adjusted EBITDA to be in the range of $86 million to $96 million. We are also maintaining our full year capital expenditure guidance, which was a range of $20 million to $25 million. I'll now provide the regional outlooks and corresponding underlying assumptions. In Australia, customer activity in our own villages remains very strong. Three of our Bowen Basin villages continue to operate effectively at full capacity. We are seeing strong occupancy across the remainder of our own village portfolio.

Speaker 6

Despite weakening net coal prices in the first half of the year, we expect continued strength in our own villages throughout the balance of the year. As it relates to our integrated services business, we are encouraged by the top-line growth as well as the year-over-year margin improvement experienced in the first half of the year. We will continue to focus on executing cost-effectively as we on our recent contract awards. We expect to build on this through the remainder of 2025 and beyond as we work towards our goal of achieving $500 million Australian of Australian integrated services revenues by 2027. In Canada, we continue to navigate the difficult operating environment in the oil sands and lower demand for temporary turnaround activity, which has been exacerbated by broader macroeconomic uncertainty.

Speaker 6

We expect build rooms in the second half of the year to be more in line with the second half of 2024, though more balanced between the third and fourth quarters. Lastly, we do not currently foresee any meaningful near-term rebound in the upstream oil sand spending. As a result, our focus remains squarely on managing what we can control, executing on our cost reduction initiatives, enhancing operational efficiency, and aligning our resource base with demand realities. During the second quarter, we took steps to streamline our lodge footprint, including cold closure of two lodges. We are actively working with a third-party consulting partner to identify additional opportunities to lower our cost structure in Canada.

Speaker 6

While 2025 is clearly a transitional year for our Canadian segment, we believe we are executing the decisive actions that will orient the business to capitalize on growth opportunities and position it for long-term growth and improved cash flow generation. I want to take a moment to thank the hardworking Civeo team for their continued focus on operational excellence. That, together with disciplined capital deployment, is what's driving long-term shareholder value creation. With that, we're happy to take your questions.

Speaker 3

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 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, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from David Joseph Storms with Stonegate Capital Partners.

Speaker 1

Morning. Just wanted to start with maybe some of the puts and takes on your guidance at a macro level. We've seen a couple of trade deals get announced in the U.S. over the last couple of weeks. Do any of those deals give you confidence to maybe relook at that guidance? Is there a chance that it could be biased towards the upside or the downside? Just curious as to what your thoughts are relative to that.

Speaker 5

We have been watching the international trade situation very closely. Obviously, thus far to date, the impact of the trade uncertainty has not impacted our business either in Canada or Australia significantly, although we watch it very closely. The impact, primarily to food costs, has been felt in a very minor fashion in Canada. We're keeping an eye on it to make sure that doesn't accelerate. Most of our focus has been on whether trade uncertainty or disruption will impact our customers and how that might influence their need for rooms or their spending. Thus far, we've not seen any material impact either previously or with recent announcements.

Speaker 1

Understood. That's very helpful. Thank you. I just wanted to turn to the acquisition that you completed in the quarter. I know you mentioned that you're expecting maybe a little bit of additional margin increase as you continue to integrate that. I did want to double-check about the $4.9 million in roughly two months. Does a $30 million run rate sound fair for that property on the full year, or are there other maybe synergies that could be squeezed out of that?

Speaker 5

On the run rate, I mean, originally, we had talked about $11 million of impact in 2025 in terms of EBITDA. That was assuming we were going to close at the beginning of April. We closed at the beginning of May. The fundamentals of that are intact. Right now, we're not expecting any change to our outlook at this point. Operationally, our team is doing a good job of folding that into our operations. With net coal prices being a little shaky here recently, I think it's too early to make a call for improvement.

Speaker 1

Understood. Thank you for taking my questions. I'll get back online.

Speaker 3

Our next question comes from Stephen Michael Ferazani with Sidoti & Company.

Speaker 2

Morning, everyone. Bradley, your guide would seem to imply, even if we add in the full six months of the four villages, that the second half does look, from a profit standpoint, to be better than the first half. Can you walk through, is that better turnaround activity in 3Q? Is that more impact from the cost cuts? Can you get us to what gets the second half to at least be moderately better than your first half?

Speaker 5

Yeah, I would say that Canada, second quarter, third quarter looks fairly stable overall, both on the top line and on the adjusted EBITDA line. We're expecting Canada in the fourth quarter to have normal seasonal downtime for the holiday season. In Australia, the third quarter will be an improvement over the second quarter. One, because of the full quarter of the four acquired villages. Two, because of the integrated services business that we won in the Bowen Basin that we announced. Then continued strength in the base business, primarily the owned villages and the base level of integrated services.

Speaker 2

Great. That's helpful. Obviously, we're all looking at the net coal prices and thinking that would be a concern. Then you announced a very large contract renewal for four years. I mean, I don't want to ask you if you were surprised by that. What's your gauge on your customers in Australia, given what we've seen, the extreme volatility in prices and recent weakness that you're getting those lengthy extensions, particularly with larger customers?

Speaker 5

I think it speaks to the service level, which is a combination of the field team doing a good job on food services and housekeeping, coupled with an exceedingly strong safety record, that coupled with the portfolio that can meet the customer's needs across several of their projects, across several of our villages. I think it's being close to the customer. As they've grown over the last five years, we've been able to serve that growth consistently, effectively, at an economic price for them. I would say that your point is that, or your question implies something that's very valid, which is there is uncertainty in the market. While that was a great win, I would say that it was relatively shaky. With our contracted room base in Australia, I feel pretty good about the second half of 2025 going into 2026.

Speaker 5

As it relates to customers, if they have a, as a hypothetical, they have a contracted minimum of 500 rooms. We have a handful of customers, several customers that are using more than their contracted minimums. What starts to get called into question is how much of that above the contracted minimum are they going to use? Are they going to start deferring maintenance projects that are starting to push things to the right? I have faith that in the net coal, the current net coal commodity price environment, that becomes a little bit more uncertain. As we sit here today, we feel good about things, but the net coal price puts our antenna up, and we got to pay attention.

Speaker 2

Got it. That's fair. If I can get one more in, just about free cash flow. Obviously, the first half, you've seen an outflow. You talk about using 100% or more of free cash flow for the share buyback. Can you talk a little bit about how this trends over the next couple of quarters, given the outflows from the first, because I didn't hear you update the free cash flow guide?

Speaker 5

As it relates, I guess if the underlying question is related to, is the question related to the repurchase program or just free cash flow in general?

Speaker 2

If you don't generate free cash flow, it's going to affect the buyback. I guess at the core, the question is, is free cash flow going to be much stronger in the second half, or how are you thinking about it?

Speaker 5

Free cash flow will be stronger in the second half, yes. As you know, having followed us for as long as you have, seasonally or just through history, the first half, free cash flow has always weakened. You have a ramp-up in receivables as we come out of the holiday slow period. We have some structural things, including insurance and property taxes, which typically hit in the first half of the year. You throw on top of that, we're now a cash taxpayer in Australia that started in earnest with the 2024 fiscal year. Those payments, as Collin noted, there was a big one this quarter that was related to 2024. Free cash flow would be better in the second half.

Speaker 5

Just to remind everyone, our capital allocation plan is to spend no less than 100% of free cash flow on the buyback until we get to our 20% buyback authorization. We will continue to be active in the second half of the year on the buyback program. That's expected to.

Speaker 2

Okay. Fair enough. Thanks, Bradley.

Speaker 3

That is star one if you would like to ask a question. We'll go next to Jawad Hossain Bhuiyan with Stifel Nicolaus & Company.

Operator

Sorry, everyone. This is Jawad on for Stephen Michael Ferazani. I just had a quick question on the Canadian occupancy. I guess, given the continued weakness in billed rooms and then also coupled with the turnaround activity that you've seen, I guess, could you speak a little bit on what you're seeing so far in 3Q and then maybe whether there's any signs of stabilization or improvements as we go into the second half of the year? Thanks.

Speaker 5

Sure. As it relates to Canadian occupancy in the second quarter and the third quarter, it always depends on turnaround activity. As we sit here today, the third quarter has been a continuation of the second quarter. In order to hit what's implied in guidance, we will need to see some expected turnaround activity come to fruition in Canada, particularly in the next couple of months. If that does not come to fruition, we'll miss that part of guidance. As of right now, it looks like we should see a pickup here in July to August and August to September as it relates to Canadian occupancy. As always, turnaround activity is uncertain and could run longer into the fourth quarter. That's not currently contemplated in guidance. I would say that, generally speaking, there is some stabilization in the Canadian.

Operator

Got it. Thank you. I'll pass it on.

Speaker 3

Moving on to John Matthew Daniel with Daniel Energy Partners.

Speaker 4

Hey, Bradley. Thanks. And Collin, thanks for including me. Bradley, I've got perhaps a basic question, so apologies for the ignorance. As you look at Australia, you know today you've got multiple U.S. service companies there, Halliburton, Liberty, HP. Can you walk me through just the longer-term opportunity set? I'm not looking for specific guidance per se, just what the opportunity exists with supporting that segment of companies coming over there. Give me that market update if you don't mind.

Speaker 5

Yeah. I mean, today, our Australian operations, with the exception of, today and historically, our oil and gas exposure in Australia has been, I would, minimal to de minimis. For us, our exposure has been at a Raffle location, which from time to time has supported onshore and offshore LNG activity. As it relates to onshore land, oil and gas development, this goes back over 10 years. We did a little bit of work as it related to the Curtis Island LNG work in Queensland, but that's long gone in terms of the opportunity for accommodations work. I think on a go-forward basis, as it relates to oil and gas opportunities in Australia, it would likely be a natural gas drilling project, something similar to the Santos project in New South Wales. Our Bygge Bryan and Erewrye locations are well suited to support that should that move forward.

Speaker 5

There seems to be political momentum to support further natural gas drilling in that they're facing higher power cuts. What we're facing, the whole country is facing higher power prices and are starting to get more comfortable with natural gas being an answer to what will be an electricity availability and cost issue.

Speaker 4

Okay. Nothing now, but do you see, I guess, how, what do you think these companies are doing for accommodations for their workers? Because it is remote, isn't it?

Speaker 5

It is. A lot of it is in a space that we don't currently play in, which is we do not have mobile camps in Australia. It's something we've looked at in the past and may and will continue to look at in the future. I don't see it as being a major driver for us. Where I think the Australian business can grow is there are specific properties in our core business that would be additive if we were to acquire them. There is also organic growth and potentially acquisition growth in the integrated services business. We are very conscious of the fact that any capital project has to stack up against our cost of capital and the anticipated return from the buyback program.

Speaker 4

Got it. Okay, that's all I had. Thanks for entertaining that question.

Speaker 5

Thank you, John.

Speaker 3

This now concludes our question and answer session. I would like to turn the floor back over to Bradley Dodson for closing comments.

Speaker 5

Thank you, Gary. Thank you, everyone, for joining the call today. We appreciate your interest in Civeo. We look forward to speaking with you on the third quarter earnings call, which we anticipate will be at the end of October.

Speaker 3

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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