Bristow Group Inc (VTOL) 2013 Q4 法說會逐字稿

Good morning. My name is Stephanie and I will be your conference operator. At this time I would like to welcome everyone to the Era Group's Q4 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions). Thank you.

Mr. Chris Bradshaw, CFO, you may begin your conference.

Thank you, Stephanie. Good morning and thank you for joining our conference call today. I am here with our CEO, Sten Gustafson; our General Counsel, Shefali Shah; our Chief Accounting Officer, Jennifer Wayland; and our VP, Finance, Ben Sluchuk.

By now you should have a copy of our earnings press release for our fourth quarter and full year 2013. Each of our SEC filings and earnings press releases is available under the Investor Relations link on our website, EraGroupInc.com, and also on the SEC website, SEC.gov. If you have not already done so I would encourage you to access one of those sources to print or view a copy of the presentation slides that accompanied our press release. We will be referring to certain slide numbers during the course of our prepared remarks.

Before starting the call I would like to note that management may discuss forward-looking statements on this call. These forward-looking are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements as described on our most recent annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and the other filings we make with the SEC. In addition, we may discuss non-GAAP financial measures during the call, such as adjusted EBITDA. Please see our earnings release or the investor presentation on our website for the calculation of these measures and the appropriate GAAP reconciliation.

Now I would like to turn the call over to our CEO. Sten?

Thanks, Chris, and welcome, everyone, to the call. In reviewing our quarterly highlights, as our business does have a fair amount of seasonality that you will see is particularly pronounced during our fourth and first quarters, I will compare the fourth quarter of 2013 versus both the fourth quarter of 2012 and the third quarter of 2013. This will also highlight the impact of the full return to service of our EC 225s during the current quarter. As you may recall, all of our EC 225s were working a little less than one-third of the fourth quarter of 2012. Some returned to service in the third quarter of 2013 and all of them were earning revenues this entire fourth quarter.

Turning to our full-year 2013 operational highlights on page 5, and Chris will cover these in greater detail a little later, we very nearly touched $300 million in revenues this year, an all-time high for Era, representing a 10% increase over last year's results. This increase of $26 million came primarily from higher utilization of medium helicopters related to an increase in oil and gas activities in the US Gulf of Mexico and Alaska; the commencement of international oil and gas operations in 2013; and an increase in search and rescue or SAR activities. These results were partially offset by a decrease in dry leasing and air medical revenues. Our net income this year of $18.7 million considerably more than doubled, representing 140% increase over last year's net income. Our adjusted EBITDA of $95.3 million this year represents a 21% increase over 2012's results.

In addition to the increase in revenues, the improvement in net income and adjusted EBITDA was largely due to a $14.7 million increase in gains on asset sales. Specifically, the gains on assets totaled $18.3 million in 2013 compared to $3.6 million in 2012. The significant gains recognized from asset dispositions during the year not only represent a continuation of our returns-focused strategy to deliver value for our shareholders but also further validate our strategy of owning our equipment.

If you exclude the impact of gains on asset sales, our adjusted EBITDA for this year was $77 million, an increase of 2% from $75.2 million in 2012. We would contend that these are strong results considering the impact of the global suspension of the EC 225 heavy helicopters, which represent almost 25% of Era's fleet value for more than half of the year.

Turning to our operational highlights for the fourth quarter on page 6, I will note that we delivered strong operating performance this quarter, resulting in record fourth-quarter operating revenues of $76 million, a 7% increase over the prior year's quarter. I am happy to say that every quarter this year has seen record revenues for that respective quarter. Net income attributable to Era Group this year was $1.8 million relative to $3.6 million from the prior year's quarter. Our adjusted EBITDA for this quarter was $20 million, relatively flat compared to the prior year's quarter of $21.2 million.

Our policy of recognizing revenue from our Brazilian joint venture and our customer in India only when cash is remitted resulted in a $2.8 million negative impact to revenues and EBITDA in the fourth quarter of this year compared to the fourth quarter of last year. Specifically, the cash collected, and thus revenue recognized, from these two customers was $6.4 million this quarter versus $9.2 million in last year's fourth quarter.

In comparing this quarter's results to the third-quarter results, I will point out again that a significant degree of seasonality in our results occurs from the third quarter going into the fourth quarter. Keeping that in mind, our operating revenues decreased by $5 million or 6% from the third quarter and our net income and adjusted EBITDA decreased by $3.4 million and $5.4 million, respectively.

In addition to the impact of seasonality, net income and adjusted EBITDA decreased due to losses on equity investments and a lower contribution from gains on asset sales. Specifically, the losses on equity investments totaled about $900,000 in the fourth quarter of 2013 compared to a gain of about $500,000 in the third quarter. Also we had gains on asset sales of about $500,000 this quarter compared to $2.6 million in the third quarter.

Our results are broken out by activity on slide number 7. As we announced earlier this year, we have separated out our search and rescue or business as a focused line of service, appointing an experienced veteran of the elite Air Force Special Operations Command, 920th rescue wing, E.J Hitzman, as Director of . As a result we will now separately report operating revenues.

Our oil and gas segment currently represents nearly three-quarters of our business. And our operating revenues from that segment this quarter were $53.6 million, representing a 25% increase from the prior year's quarter and a slight decrease relative to last quarter due to seasonality, primarily in Alaska. Most of that, over $45 million, came from our Gulf of Mexico operations, 25% above the prior year's quarterly results, reflecting the full impact of the full return of our four EC 225s in the Gulf as well as higher utilization and rates we have been achieving for our single-engine aircraft in the Gulf.

We saw a 12% increase over our third quarter after adjusting for separate revenues in that quarter, which are referenced on the next slide, driven primarily by seeing the benefits of a full quarter of results from our four EC 225s in the Gulf.

In Alaska we generated operating revenue of $6.9 million, a 6% increase over the prior year's quarter, due to the addition of the light twin aircraft to our Alaskan operations and a drop of about $7 million relative to the third quarter due to the seasonal impact of firefighting, utility and other short-term contracts that ended prior to this quarter.

Our international revenues of $1.2 million this quarter came from our contract in Uruguay, which began in late January of 2013 and were essentially unchanged from last quarter.

As we have seen from the beginning of the year, demand continues to increase for our services as the number of deepwater drilling rigs and platforms, to which our medium and heavy aircraft are particularly well suited, continues to grow. This is particularly true in the deepwater Gulf of Mexico, where the deepwater rig count is projected by some analysts to grow at a faster rate than any other area of the world. Moreover, a number of our clients' deepwater projects are now beginning to move from the drilling to the completion and installation phases, which are personnel intensive.

Let's turn to slide 8 to review our other service lines. Operating revenues this quarter from our dry leasing business decreased year over year to $11.6 million. This was primarily due to the timing of cash receipts from both Aeroleo in Brazil and a customer in India as well as some dry leases that have ended since the prior year's quarter.

The 11% increase from last quarter is due almost entirely to the timing of cash receipts from Aeroleo. Revenues from Aeroleo and this customer in India continue to be recognized on a cash receipts basis due to liquidity issues experienced by both customers. Relative to last year's quarter, we essentially doubled our revenues to $5.4 million with the addition of new subscribers and an increased overall ad hoc activity.

Relative to third quarter our revenues increased by 17% due to the higher fixed monthly revenues derived from the addition of a third -equipped AW 139 to our program.

Revenues of our Air Medical business fell by 25% relative to the prior year's quarter, to $3.1 million, due to the conclusion of three low-margin contracts. As we have discussed before, we have increased the financial return hurdle we now require when bidding new Air Medical contracts to be more consistent with our oil and gas operations. Relative to third quarter our revenues from Air Medical decreased only slightly.

Finally, our flightseeing is a seasonal business, as you can appreciate, in Alaska, so it does not contribute anything in the fourth or first quarters of each year. Our FBO business saw this quarter's revenue increased 4% relative to last year's quarter and decreased 10% relative to the third quarter, due to variances in average fuel sales and re-billables.

Turning to slide 9, you will find an updated table of Era's future capital commitments. With the Deepwater rig count projected by industry experts, ODS Petrodata, to increase by another 13 rigs or more than 25% by the end of this year with a number of those coming from our current clients, we continue to be quite bullish on the Gulf of Mexico. We continue to have 10 AW 189s on order with options for another 10. As a reminder, we are the launch customer in the US for the AW 189 and our first three are scheduled to arrive before the end of this year.

Based on the dialogue we are having with our current oil and gas customers due to this increasing activity in the Gulf as well as our dry leasing customers, we are confident that these first 3 AW 189s will be utilized as soon as they are ready.

In terms of additional heavies, some months ago we announced an agreement with Sikorsky to add the S92 to our fleet, expanding and diversifying our heavy aircraft fleet offering to enable us to pursue a broader universe of market opportunities in the deepwater.

We ordered a total of four aircraft with options for five more. The first three are scheduled to arrive during 2016.

We continue to add the versatile AW 139 to our fleet, with two aircraft scheduled to arrive before the end of the second quarter. I would also note that one will be SAR provisioned, meaning that, although it will be originally outfitted for crew change, we could quickly convert it into full configuration, should the market demand warrant it. To order a SAR-provision AW 139 is typically at least a one-year leadtime, so this has given us further flexibility to address whichever market demand warrants the particular configuration.

With that, I will turn it over to Chris to go through a more detailed review of our financial results.

Thank you, Sten. Looking at slide 11, Sten reviewed the primary factors driving the revenue increase, and I will now provide a brief overview of the primary variances on the expense line items.

Operating expenses were 12% higher in fiscal year 2013 compared to 2012. Repairs and maintenance expenses increased $13 million, or 29%, as a result of the timing of repairs in 2013 and a net $7 million decrease in vendor and maintenance credits from the prior year.

Personnel costs increased over $4 million or 7%, primarily due to additional headcount to support increased activity. By way of reminder, we booked a $2 million one-time charge related to operating leases on certain helicopters configured for Air Medical services in the third quarter of 2013. The early buyout of those leases was completed in the fourth quarter with two of the helicopters being sold in late 2013 and a third sold in January 2014.

Administrative and general expenses increased $4 million or 12%, primarily due to increased headcount, compensation expense and other costs related to being an independent public company. These increases were partially offset by a reduction in the allowance for doubtful accounts due to a customer bankruptcy in the prior year.

Depreciation expense was $3 million or 7% higher due to the addition of higher-cost helicopters.

During 2013 we sold or otherwise disposed of helicopters and other equipment for cash proceeds of $65 million, resulting in gains of $18.3 million. This represents a $14.7 million increase from the gains recognized in 2012.

Interest expense was $7.4 million, or 70% higher, due to the issuance of our 7 3/4% senior notes in December 2012.

Our effective income tax rate was 40% in fiscal year 2013 compared to 36% in 2012. We provided a valuation allowance of $800,000 in 2013 related to NOL carryforwards in certain states where we believe it is more likely than not the benefit of those NOLs will not be realized. Excluding the impact of this valuation allowance our effective tax rate in 2013 would have been approximately 37%.

Earnings from equity investments were $900,000 in 2013, an increase of $6.4 million compared to a loss of $5.5 million in 2012. We recognized an impairment charge of $5.9 million on our Brazilian joint venture in 2012.

Adjusted EBITDA increased 21% year over year. If you exclude the impact of gains on asset dispositions, the increase in adjusted EBITDA would have been 2%.

The adjusted EBITDA margin in 2013 was 32% compared to 29% in 2012. Excluding the impact of gains on asset sales, the adjusted EBITDA margin in 2013 would have been 26% compared to 28% in 2012.

Slide 12 highlights the key variances between Q4 2013 and Q4 2012. Operating expenses were 7% higher, primarily due to a $1.6 million increase in repairs and maintenance expenses and a $1.2 million increase in personnel costs. The increase in R&M expense was due to the timing of repairs and an increase in power by the hour or PBH expense due to additional flight hours and the EC 225 helicopters resuming operations. The increase in personnel costs resulted from higher headcount to support increased activity.

Administrative and general expenses were $3 million higher, primarily due to increased headcount, compensation expense and professional service fees related to being an independent public company. In addition, allowance for doubtful accounts increased by $400,000 in the quarter due to collection issues related to a note with a customer that purchased parts from us in a previous year.

Our effective income tax rate was 54% in Q4 2013 compared to 36% in Q4 2012. Excluding the previously referenced valuation allowance related to certain state NOLs, our effective tax rate in Q4 2013 would have been 40%.

Losses from equity investments were $900,000 in Q4 2013, a decrease of $800,000 compared to Q4 2012. These losses were primarily attributable to our equity investments in Dart and Lake Palma.

Adjusted EBITDA decreased 6% in the current quarter. The adjusted EBITDA margin in the current quarter was 26% compared to 30% in the prior year.

Turning to slide 13, I will provide a brief overview of the primary expense variances between the fourth quarter and third quarter of 2013.

Operating expenses decreased by 12%, primarily due to the previously noted one-time lease buyout charge recognized in Q3, a seasonal reduction in flight hours and personnel costs, and the benefit of vendor and maintenance credits in the current quarter.

Administrative and general expenses increased 900 or 9% related to management bonuses. Gains on asset dispositions in Q4 were $2 million lower than the gains recognized in Q3.

Our effective income tax rate was 54% in Q4 2013 compared to 37% in Q3. Again, the increase is due to the previously referenced valuation allowance related to certain state NOLs.

Losses from equity investments decreased $1.4 million compared to Q3, primarily due to losses in Dart and Lake Palma.

Adjusted EBITDA decreased 21% from Q3. Excluding the impact of gains on asset sales in each period, Q4 adjusted EBITDA decreased 14%. The adjusted EBITDA margin was 26% in Q4 compared to 31% in Q3. Again, excluding the impact of gains on asset dispositions, the adjusted EBITDA margin in the fourth quarter would have been 26% compared to 28% in the third quarter.

Slide 14 provides an update on our current capitalization structure. As of December 31, we had a cash balance of over $31 million and total debt of $285 million. During Q4 we borrowed $40 million under our revolving credit facility to fund deposits and progress payments for new S92, AW 189 and AW 139 helicopters. At quarter end our total liquidity was approximately $136 million.

Our total debt to adjusted EBITDA ratio was 3 times. Our interest covenant ratio was 5.3 times. And our total debt to total cap was 40%.

We believe our current cash balances, future cash flow from operations and access to borrowings under our revolving credit facility will be sufficient to fund our current capital commitments. We plan to maintain the financial flexibility to capitalize on growth opportunities as they arise.

Slide 15 depicts Era's net asset value, which primarily consists of the fair market value of our helicopter fleet. As usual, we have shown NAV per share, both with, at $33 per share, and without, $43 per share, the deferred tax liability, so that investors can make their own determination of how much, if any, the NAV calculation should be burdened by the current amount of this liability.

The $0.50 increase in NAV per share from Q3 is primarily due to cash flow generated by the company. Slide 18 in the appendix shows the calculations used to derive our NAV per share. I would remind you that this calculation only includes the helicopters that we own. It does not include any value for leased-in or managed helicopters that we operate.

With that I will turn it back over to Sten.

Thanks, Chris. Once again I want to thank everyone on the call for joining us this morning. And with that I would like to go ahead and open the line up for questions. Operator, could you please open up the line.

(Operator Instructions) Adam Ritzer with Pressprich.

So let's see, a couple of things I just want to ask about. Can you talk a little bit about rates right now? Clearly, some of the other oilfield services, sectors and drilling rates seem to have a little bit of weakness. Has this affected you at all? Or maybe you could comment about that?

No. I will tell you we have not seen any of that. Certainly, that's something which -- we are primarily production exposed. But obviously today's drilling is tomorrow's production. So we certainly watch continuously for any canaries in the coal mine that would indicate that there's any kind of softening.

What we have seen, certainly in our market, which is predominantly the Gulf of Mexico -- it continues to be quite strong. And so we have not seen any of our clients pushing projects to the right at all. In fact, if nothing -- a number of these projects, as I mentioned earlier, are moving into the completion and installation phases, which become quite personnel intensive. So some of the previous drilling is now turning into that phase. And so we are actually seeing an increase in tempo. So, touch wood, so far we have not seen any of that, but we are keenly focused and making sure we are not whistling past the graveyard here, and are making sure we've retained as much flexibility as possible, both in our capitalization structure and then also in our order book to maintain as much optionality as possible so that we are not in a situation where we are long aircraft.

Right, okay. My next question has to do with the EC 225 issue. I know in the past I might have asked and other people have asked it. But can you now tell us what you think the lost revenue or additional expenses were in 2013, due to the EC 225s?

Unfortunately, that dovetails with a conversation we are having now with well, we'll just -- Eurocopter, what is now Airbus. Certainly, we are pleased there has been a full and safe return to service of the 225s.

And you are correct that, now that we are able to finally get our arms around the full impact from the suspension, as you can appreciate, legal considerations and the sensitivity around commercial discussions between us and Airbus, we are not able to really discuss that at this point.

Okay. And then my last question has to do with Brazil. There's a lot of moving pieces there. I guess the first thing I noticed was you guys are down -- I guess one of your partners was selling their interest to a third party. Maybe you can talk a little bit about that and who that partner is and what's going on there.

Sure. Chris, do you want to take that?

Yes. To date we've only had one partner in Brazil. The new partner will be an unaffiliated Brazilian national who is permitted to control the operations under the local regulatory regime. But there will be a full change in partners from the previous one to this new individual.

From a macro standpoint we continue to remain optimistic about the Brazilian market, taking into account activity that is likely to be undertaken by international oil and gas companies.

As you know better than most, Adam, Aeroleo has certainly faced a number of headwinds resulting from a variety of issues, including, most recently, the extended suspension of the EC 225 helicopters, which reflect about 40% of Aeroleo's fleet value. Certainly, we --

Okay. I'm sorry. Go ahead, I'm sorry.

I was just saying, we, as noted in our press release, are pleased to have this transaction with the new partner signed. And we expect it to close in the second half of this year.

Okay. And I think last quarter, if I'm right, you still had, I don't know, $13 million to $14 million of deferred revenues, I think, from the Brazilian venture. Does this affect your collection of that? Because there was some wording about you guys have settled various issues. Could you possibly explain how that affects the deferred revenue collection?

Sure. It's not going to have any impact on our collection of our deferred revenues. Our ability to collect those over time will remain fundamentally an issue of the operating performance of the Company.

As you noted, at the end of the September quarter the deferred revenue balance from Aereleo was about $17 million. That increased by another $4.1 million in the fourth quarter to total $21 million deferred revenue balance at the end of 2013.

But ultimately our ability to collect those revenues will be a function of how the Company performs and not necessarily affected by the impact or the change in our partnership.

Got it. Okay, thank you. I'll get back in line.

(Operator Instructions) No further questions in queue. I will turn the call back over to its presenters.

Thank you, Stephanie. And thank you, everyone, for joining our call today. We look forward to speaking to you again next quarter.

And this concludes today's conference call. You may now disconnect.