Bristow Group Inc (VTOL) 2014 Q2 法說會逐字稿

Presentation

At this time I would like to welcome everyone to the Era Group Earnings Call. (Operator Instructions) Chief Financial Officer, Chris Bradshaw, you may begin your conference.

Thank you, Steve. Good morning and thank you for joining our conference call today. I'm here with our CEO, Sten Gustafson, General Counsel, Shefali?Shah, SVP of Fleet Management, Stuart?Stavley, Chief Accounting Officer, Jennifer Whalen, and VP of Finance, Ben Slusarchuk.

By now you should have a copy of our earnings press release for second quarter of fiscal year 2014. The earnings press release is available under the Investor Relations link on our website, ERAGroupInc.com and also on the SEC website, SEC.gov. If you've 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 accompany 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 statements 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 in our most recent annual report on form 10K, our subsequent quarterly reports on form 10Q, and the other filings we make with the SEC.

In addition, we will 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 as we move from the first quarter to the second quarter, I will compare the second quarter of 2014 versus both the second quarter of 2013 and the first quarter of 2014. As we saw last quarter, this will also highlight the impact of the full return to service of our EC225 during the current quarter.

As you may recall, none of our EC225s were working the second quarter of 2013 but all of them were earning revenues for both the entire first and second quarters of this year. You'll also notice that we have bolstered our disclosure with the inclusion of the table of flight hours by line of service to the past five quarters in both our press release and in the appendix of this presentation. Although of course not all flight hours are created equal and none of the hours of our leased aircraft such as in Brazil are captured here, we hope that net-net our investors will find this information helpful to understanding our business.

Turning to our operational highlights for the first quarter on page 5, I'm happy to say that our streak of record revenues continues with another strong operating performance this quarter resulting in record second quarter operating revenues of over $86 million, a 17% increase over the prior year's quarter driven primarily by increased activity in our US Gulf of Mexico operations. Net income to Era Group this quarter was $5.2 million or $0.26 per diluted share relative to $5.1 million or $0.26 per diluted share in the prior year's quarter which represents an increase despite both a pretax $2.5 million impairment charge representing reserve against a note receivable and a $1.3 million decrease in gains on asset dispositions.

When you exclude the impact of this impairment charge, our net income would've been $6.7 million or $0.33 per diluted share this quarter. Operating income which includes gains on asset dispositions but is not burdened by the impairment charge increased by 26%. Excluding the gains on asset dispositions, adjusted EBITDA which also excludes the impairment charge increased 19% relative to last year's quarter.

In comparing this quarter's results to the first quarter of 2014 results, our operating revenues increased by $7.1 million or 9% primarily driven by normal seasonal factors such as the start of flightseeing fire fighting activities in Alaska and longer daylight hours for oil and gas operations in both Alaska and the Gulf of Mexico.

Our net income increased by approximately $800,000 over the first quarter 2014 despite the impairment charge, excluding the impairment charge, the increase would've been $2.4 million or more than 50%. Relative to the first quarter 2014, our operating income and adjusted EBITDA increased by $3.5 million and $3.8 million respectively due largely to increased activity and improved margins.

Our results are broken out by activity on the next couple of slides, beginning with oil and gas on slide 6. Our oil and gas service line currently represents nearly three-quarters of our business and our operating revenues from that service line this quarter were $61.2 million, representing a 25% increase from the prior year's quarters and an 8% increase relative to last quarter. Most of that, over $51 million, came from our Gulf of Mexico operations, 35% above the prior year's quarterly results reflecting the significant impact of the resumption of operations of our EC225 as well as higher rates for our medium helicopters and increased activities for our single engine helicopters.

Relative to the first quarter of 2014, again, where we had a full quarter of EC225 operation, we saw a 5% increase driven primarily by increased flying hours with longer summer days.

In Alaska we generated operating revenue of $9.3 million, basically flat relative to the prior year's quarter and a 50% increase over the first quarter of 2014 due to the aforementioned seasonality. Our international revenues were $200,000 this quarter as our contract in Uruguay which began in late January of 2013 ended in March of 2014. The deepwater rig count in US Gulf of Mexico continues to climb past pre-moratorium levels and is expected to continue to grow in contrast to some of the other offshore regions around the world. We certainly keep a very close eye on some of the recent dislocation in the offshore drilling sector as deepwater new builds continue to arrive while some international deepwater projects get moved to the right because obviously today's drilling is tomorrow's installation and production.

But it is important to point out the dynamics that the new rigs coming on have a meaningfully higher POB -- person on board count -- than the older, smaller rigs that they are displacing. Anecdotally, one of the large players in the Gulf of Mexico has reduced his rig count in the Gulf from 13 to 10 rigs but because they added newer, larger rigs while letting go of some older, smaller rigs, they did not reduce their heavy aircraft count by a single aircraft.

Let's move to slide 7 to review our other service lines. Operating revenues this quarter from our dry-leasing business decreased 12% year over year to $11.5 million primarily due to dry-leases that have ended since the prior year's quarter. Sequentially however we saw a 5% increase. Consistent with our strategy of seeking the highest returns for the equipment, those aircraft whose dry-leases ended have either returned to go to work here in the US or have been sold. Revenues from Aer?leo and a 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, search and rescue or SAR revenues increased 47% to $5.1 million with the addition of new subscribers and a third SAR helicopter being placed into service. Relative to the first quarter of this year however, our revenues decreased by 17% due to fewer SAR missions flown. Revenues of our air medical business were $3.1 million essentially flat relative to last year's quarter and the first quarter of this year.

Finally, our flightseeing is a seasonal business as you can appreciate in Alaska and so does not contribute anything in the fourth of first quarters of each year. Relative to the prior year's second quarter however we saw a 5% increase due to higher rates. Our FBO business saw this quarter's revenue increase 3% and 1% relative to last year's quarter and the first quarter of 2014 respectively due to higher fuel sales.

Turning to slide 8 you'll find an updated table of our future capital commitments. We continue to have 10 AW189s on order with options for another 10. As a reminder, we are the launch customer in the US and our first three are scheduled to arrive before the end of this year. We're working with the manufacturer, AgustaWestland, and the FAA to assist in the AW189 getting certified by the FAA here in the US. Based on the dialogue we're having with our current oil and gas customers due to the increasing activity in the Gulf, as well as our dry-leasing customers, we are confident that at least our first four AW189s will be utilized as soon ads they are ready and of course obviously as soon as they are certified by the FAA.

In terms of additional heavies, you may recall that we have entered into an agreement with Sikorsky to add the S92 to our fleet, expanding and diversifying our heavy aircraft fleet offerings to enable us to pursue a broader universe of market opportunities in the deepwater. We have a total of 4 aircraft on order with options for 5 more but we've managed to get the delivery date for the first aircraft moved up to late next year with the next 2 scheduled to arrive during 2016.

We continue to add the first full AW139 to our fleet with another arriving during the second quarter. As we continue to watch the offshore oil and gas market closely, we sought to maintain as much flexibility and optionality as possible. To that end, you can see that half of our committed expenditures remain cancelable with de minimis financial impact and we have another $400 million of options should the market strengthen.

Turning to slide 9 we wanted to provide you some detail on our recent exit of our Lake Palma joint venture. Lake Palma as you may recall was a joint venture owned 51% by Era and 49% by our partner FAASA, a Spanish firefighting operator. Effective July 24 we sold our 51% interest in Lake Palma to FAASA for a total consider of $9.2 million comprised of $2.9 million in assigned debt and $6.3 million of cash.

We expect to record a book gain of $2.3 million in the third quarter and the sale will reduce our fleet count by seven single-engine aircraft, resulting in a pro forma June 30 fleet count of 159 aircraft. After the transaction we still have another 10 aircraft on dry-lease in Spain. The creation and the ultimate exit of the Lake Palma venture are in keeping with our overall strategic goal of generating the highest return possible whether it means adding or disposing of aircraft depending on the situation.

Our partner approached us with a compelling offer with the cash proceeds representing a premium to our proportionate share of the fair market value of the aircraft. In addition, the timing was attractive as the joint venture has not been a cash taxpayer to date due to the depreciation shield associated with the assets but it was expected to start paying cash taxes in 2015. In short, the joint venture served its purpose well when we had an excess of idle A119s and the time did come to exit at an attractive price.

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

Thank you. Sten. Looking at slide 11, our second quarter expenses increased on an absolute basis compared to the second quarter of 2013, the growth in revenues outpaced the increase in expenses, resulting in margin expansion between the two periods. Operating expenses increased $7.7 million but were flat as a percentage of revenues. As you know, repairs and maintenance expenses and personnel costs are the two largest components of our OpEx.

Personnel costs increased by $2.7 million or 16% due to the pay scale and benefit plan adjustments that we implemented at the beginning of 2014 in response to a competitive labor market. R&M expense increased by $1.2 million or 7% period over period which was a net function of the $2.8 million increase in PBH expense due to the EC225 helicopters resuming operations, partially offset by the recognition of a $1.6 million credit related to the settlement agreement with Airbus helicopters with respect to the suspension of our operations of the EC225s.

Administrative and general expenses increased by $0.5 million or 5% due to increased compensation costs. As a percentage of revenues, G&A expenses declined from 13% in Q2 2013 to less than 12% in the current quarter. Turning to gains on asset dispositions, this quarter sale of a Bell 212 medium helicopter is a good example of the way helicopters can retain their value over an extended period of time. This helicopter was originally manufactured in 1979. Our acquisition costs for the aircraft was $900,000 and it had a net book value of $300,000 at the time of sale. We sold it for cash proceeds of $3.4 million resulting in gains of $3.1 million.

In Q2 of last year, we sold two helicopters and related equipment for total proceeds of $18 million resulting in gains of $4.5 million. Interest expense decreased $800,000 primarily due to increased capitalized interest related to additional deposits on helicopter orders. As Sten previously noted, we recorded a pretax $2.5 million impairment in Q2 on a note receivable that was extended to a foreign company to facilitate the establishment of a helicopter operating certificate in conjunction with the join submission of bids for international contracts. While collection efforts will continue, we believe this note receivable is a probable loss as of June 30.

Income tax expense increased $400,000 due to higher pretax income and a higher effective tax rate in the current quarter. Our effective tax rate was 38% in Q2 2014 compared to 36% in Q2 of last year. Excluding the impairment charge this quarter and the impact of gains on asset dispositions from both periods, adjusted EBITDA increased 19% and the adjusted EBITDA margin improved to 26%.

Slide 12 highlights the key variances between Q2 and Q1 of this year. Operating expenses were $5 million or 10% higher primarily due to an increase in personnel cost and R&M expense. G&A expenses were $1.3 million lower primarily due to share based compensation expense related to changes in senior management that occurred in Q1. Q2 results were adversely impacted by the previously noted impairment charge. Excluding the impairment charge this quarter and the impact of gains on the asset dispositions from both periods. Adjusted EBITDA increased 19% and the adjusted EBITDA margin improved from 24% to 26%. This improvement is a result of the higher utilization of our equipment due in large part to the seasonal factors that Sten mentioned.

Turning to slide 13, our liquidity position and credit statistics remain strong, providing us with the flexibility to deploy capital for attractive opportunities, whether that be growth or organic CapEx or strategic acquisitions or the return of capital to shareholders. As of June 30 we had cash balance of $15 million and total debt of $284 million. At quarter end our total liquidity was approximately $216 million, our total debt to adjusted EBITDA ratio was 3.2 times, our interest coverage ratio was 5.7 times and our total debt to total cap of 39%.

Slide 14 depicts Era's net asset value which primarily consists of the fair market value of our helicopter fleet. As usual, we have shown the NAV per share of both with at $34.34 per share and without at $44.74 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.

With that, I'll turn it back to Sten for concluding remarks.

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

(Operator Instructions) Charles Fisher, LFPartners.

Good morning, gentlemen. Thanks for taking my phone call. I think you guys are really doing a great job and I love the position the Company is in. I was wondering if you guys could talk a little bit about capital allocation, especially how you're managing your capital environment with some interesting opportunities where you've got the stock below $26 and then NAV north of $35.

Sure. When you see that chart it kind of begs the question certainly. As we indicated really from the moment that we spun off and became public, share repurchase and other means of returning capital to the shareholders wouldn't make sense. It's definitely something that would be in our arsenal. I would point to the fact that our Chairman, Charles Fabrikant has a long history of that with SECOR and I think most of his investors who to the extent they are many of our investors would agree that the appropriate time to return capital and this is something that we expect that we will have in our arsenal as well.

But as we look at opportunities, what I would say is really strategically as I mentioned on the quarter book slide, flexibility, optionality are really key strategic strengths of ours that we try to make sure that both from a capital structure standpoint, from our availability to access capital if needed but not get in a position to get over levered because if opportunities present themselves, we want to have that flexibility to do so. So, I would say we constantly balance that but certainly are paying close attention to where the stock price is relative to the NAV.

Is it fair to say, am I correct that you can do 1031 exchanges on the older helicopters when you need to move into the newer helicopters so the tax liability almost becomes a permanent deferment?

That's correct. We are able -- Sure. thanks, Sten. We are able to take advantage of 1031 exchange rules in certain circumstances. They have to be like kind assets and they have to be identified and delivered within the specified period of time for the regulations but we can and do often take advantage of that treatment when we make asset sales.

Great. When you guys think about the service area, obviously the Gulf of Mexico is our primary area. Are you considering expanding that area or is there enough in the Gulf to keep you busy?

I guess what I'm saying is yes. All of the above. The Gulf is an excellent place to be. We're very positive about what we see going forward for the foreseeable future in the Gulf. That said, from a diversification standpoint, obviously we think there are also opportunities in different places around the world. Now, as we've mentioned from the time that we spun off, as we look internationally now, remember because of our unique hybrid model of being a lesser of assets as well as an operator of assets, we have a couple different avenues by which we can asset the international markets, really based on what makes the most sense.

So, in some of the markets that are very competitive, already pretty full of competition, for instance in the North Sea, you'll see us leasing aircraft into that market and let other folks fight that out and instead just lease into those markets and then where we're trying to expand internationally from an operating standpoint, these are going to be areas where there are going to be relative nascent, where you don't have five or six operators already operating but we can essentially follow in our existing customer base into some of these international locations that are starting up.

For instance, as we saw in Uruguay, that went through the -- we were supporting a seismic project there and not looking to find projects. It moved into the drilling phase. We're the incumbent in those locations. The answer is really all of the above. The Gulf is a great place to be. We will continue to add aircraft into the Gulf. Frankly those first 4 AW189s, once they come in and of course once they're certified, those will all go to work there in the Gulf.

And I'd like to ask one more question. Can you talk a little bit about how adding that new plane type like the Sikorsky will help you as you try to gather more business?

Sure. It helps on a variety of levels. One is kind of really just a fundamental concept, the example I always use is to say at the end of the day some people are Ford people and some people are Chevy people and you can't -- there's just nothing you can do to convince them that you should be trying the other. And customers are the same way. There are some customers who adamantly prefer the 225 and there are some that adamantly prefer the 92 and there's no amount of data you can show them that will convince them otherwise. So, if you want to be able to truly be a global operator and excess all the opportunities that we see in the deepwater you really need to be able too provide both.

Secondly, it's really a good risk diversification standpoint as we saw quite painfully from the EC225, if there's an issue and they're just with about every model at some point there has been during the course of its service life some sort of issue that comes up. If you're all in on only one type of aircraft as we saw with the EC225 that means you're going to have to start backing it up with mediums and so forth. So, it's also a risk diversification as well as a client diversification aspect.

Thank you very much. Keep up the good work, guys.

Thank you.

Thank you. There are no further questions at this time. Presenters, I'm turning the call back to you.

Great. Thank you, Steve. We appreciate the participation and, Charles, thanks for the questions. And we look forward to speaking with everyone again next quarter.

This concludes today's conference call. You may now disconnect.