Bristow Group Inc (VTOL) 2017 Q1 法說會逐字稿

Good day, and welcome to this Era Group Inc. Q1 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Shefali Shah, Senior Vice President, General Counsel. Please go ahead.

Thank you, Shannon. Good morning, everyone. Thank you for joining Era's first quarter 2017 earnings call. I'm here today with our President and CEO, Chris Bradshaw; our SVP and CFO, Andy Puhala; our SVP, commercial, Paul White; our SVP, Operations And Fleet Management, Stuart Stavley; our VP, CAO, Jennifer Whalen; and our FP&A Manager, [Seema Parikh]. If you have not already done so, you may access our most recent earnings press release and presentation slides on our website, erahelicopters.com, or the SEC website, sec.gov.

Forward-looking statements expressed on this call are subject to a number of risks, uncertainties and other factors including those described in our most recent annual report on Form 10-K and the other filings we made with the SEC. These risks, uncertainties and other factors could cause actual results to differ materially from those expressed in the forward-looking statements.

In addition, we will discuss certain non-GAAP financial measures such as EBITDA and adjusted EBITDA. Please refer to our earnings press release or the presentation slides for the calculation of these measures and the appropriate GAAP reconciliation. I'd now like to turn the call over to our President and CEO. Chris?

Thank you, Shefali, and welcome to the call, everyone. As always, I will begin our prepared remarks with a note on safety, which is Era's most important core value and our highest operational priority. We are pleased to report that Era achieved our goal of 0 air accidents and 0 OSHA recordable incidents through the first 4 months of 2017. The hard-working men and women of Era have continued to demonstrate teamwork and a commitment to excellence throughout the offshore industry downturn, and I want to thank them for their dedication and focus in achieving our key objectives. In broader industry developments, the operational status of H225 and AS332 L2 model helicopters, continues to be a major safety-related issue impacting the offshore helicopter industry. The Accident Investigation Board Norway released an updated preliminary report on April 28, and the investigation remains ongoing.

Since the fatal accident off the coast of Norway in April 2016, we believe H225 helicopters have only returned to service and offshore oil and gas missions in a few countries in Asia. The civil aviation authorities in Norway and the United Kingdom, the major European markets for the H225, have not lifted the operational suspensions in those countries.

Beyond regulatory approval and the completion of the accident investigation, the other key milestones for a potential broad-based return to service of these helicopters include confidence amongst the helicopter operators and our oil and gas customers as well as support from certain industry labor unions. As previously disclosed, Era filed a lawsuit in November 2016 seeking damages from Airbus related to our purchase of H225 helicopters.

Turning now to our Q1 2017 financial highlights. Despite the persistence of very challenging conditions in the offshore oil and gas industry, Era continued to generate positive operating cash flow even during what is historically our weakest seasonal quarter. We continue to prioritize the protection of our balance sheet and liquidity position, with total liquidity of almost $150 million as of March 31.

We maintain an order book that provides optionality for growth should market opportunities present themselves while limiting our noncancelable capital commitments to just $12 million in 2017 and less than $3 million in 2018. In addition, our efforts to realize value from the sale of underutilized assets are helping us fund these capital commitments. In the month of April, we took delivery of our third S92 helicopter for final payment of $2.8 million, and we sold 1 Bell 212 medium helicopter and a hangar in the Alaska for aggregate proceeds of $4.6 million.

I will now turn it over to our CFO, Andy Puhala, to provide a review of our Q1 financial results. Andy?

Thanks, Chris. As many of you know, Q1 is historically our weakest quarter with no flightseeing activities or other seasonal work as well as poor weather conditions and fewer hours of daylight which impact our oil and gas operations. Q1 of 2017 was no exception.

For the first quarter of 2017, we reported a net loss attributable to the company of $5.6 million or $0.27 per diluted share on operating revenues of $54.5 million compared to a net loss of $3.8 million or $0.19 per diluted share on operating revenues of $62.6 million in Q1 of 2016.

Revenues were down $8.1 million or 13%, primarily due to lower utilization in our U.S. oil and gas operations, fewer search-and-rescue subscribers, and the end of certain dry-leasing contracts, partially offset by higher international oil and gas revenues in Brazil and Suriname.

Operating expenses were $37.8 million in the quarter, down $6.6 million or 15%, primarily due to lower repair and maintenance expenses, personnel costs and insurance premiums.

G&A expenses were $10.4 million in the quarter, up $1.2 million or 13%, primarily due to nonroutine legal and audit fees related to ongoing litigation and the fixed asset accounting corrections recorded in the fourth quarter of last year. We sold no helicopters during the quarter but recorded a $0.1 million on the sale of some nonaircraft assets.

EBITDA was $7 million in the quarter compared to $12.2 million in Q1 of 2016. Adjusted EBITDA, excluding gains on asset sales, was $6.9 million in the quarter, a 13% EBITDA margin compared to $9.3 million, a 15% margin in the prior year quarter. Excluding the impact of the $1.2 million in nonroutine professional services fees, adjusted EBITDA margin would have been 15% in the current quarter, in line with the prior year.

Sequentially, revenues were down $1.8 million or 3% versus Q4 of 2016 due to lower utilization of light helicopters in our U.S. oil and gas operations, the loss of a SAR subscriber and the end of air medical contracts. These decreases were partially offset by higher utilization in Brazil. Operating expenses were flat sequentially, and G&A expenses increased by $1 million or 11%, primarily due to the professional fees previously mentioned.

Moving to the balance sheet and our liquidity. We generated $4.3 million of cash flows from operations in the quarter and used these funds to reduce the outstanding balance on our revolving credit facility. Even with the downturn and the seasonal weakness mentioned earlier, we have continued to consistently generate positive operating cash flows.

Based on our Q1 results, our total available liquidity is $147.5 million, which includes our cash, refundable escrow deposits and additional , availability under our revolving credit facility. We believe we have sufficient liquidity to continue to manage through the current downturn and execute our strategy.

At this time, I'll turn the call back to Chris, for further remarks. Chris?

Thank you, Andy. Looking forward, we believe the challenging industry conditions are likely to persist throughout 2017. Activity levels in the U.S. Gulf of Mexico remain stable but subdued. Although there are discrete opportunities on the radar, competition remains intense with excess equipment available in the market, and there's little visibility on a near-term catalyst that would lead to a significant broad-based increase in activity.

Fortunately, we benefit from a favorable customer mix as our largest customer is a large independent oil and gas company that continues to invest in the deepwater Gulf of Mexico. And our second largest customer is the Bureau of Safety and Environmental Enforcement, whose mandated inspection work is required regardless of the prevailing commodity price.

Internationally, we are seeing signs of positive activity trends in other areas of the Americas, though it should be noted that visibility remains limited. We believe our expansion into Columbia and Suriname over the last couple of years as well as the integration of our business in Brazil place us in a good position to capitalize on opportunities in these markets if they materialize. In conclusion, Era is well-positioned to withstand the pressures of a prolonged market downturn, and we have demonstrated our ability to generate positive operating cash flow even at these subdued activity levels. This stability is largely due to our adherence to 4 key priorities throughout the downturn: maintaining the highest safety standards, maximizing the utilization of our helicopter fleet, realizing operational efficiencies and cost savings wherever possible and protecting our balance sheet and liquidity position.

With that, let's open the line for questions. Shannon?

(Operator Instructions) We have Bill Mastoris with Baird & Co.

Chris, I'm just wondering, what do your customers tell you about their long-term plans on -- these are multinational and national oil companies for offshore CapEx? And we know that 2017 is going to be pretty much the same as 2016 but maybe a little bit further out in 2018, maybe 2019. Have they signaled that there might be an uptick? Or have they signaled that there's going to be more activity or planned additional activity in any one of your areas, either in the Gulf or obviously further down in the Americas?

So the signals that we perceived vary, as you might expect, by customers depending upon their confidence and the quality of their asset portfolios. What we've seen is that in the Gulf of Mexico, our largest customer has a first-class portfolio of assets and has continued to invest actively in the deepwater Gulf of Mexico, and they have provided public disclosures about what their expected plans are in 2017. And we believe, given the quality of the assets that they have, both tie-back opportunities as well as exploration potential, provides us with good comfort on visibility on their activity in the Gulf of Mexico. Other than that favorable customer mix, we believe the Gulf of Mexico remains -- activity remains subdued. We do see potential increased demand for helicopters at the end of this year, getting into 2018. But again, I want to caveat that by saying visibility remains quite limited. If you look elsewhere in the Americas, we are encouraged in Brazil by the structural changes that have happened there with the liberalization of the ownership requirements for pre-salt reserves. You've seen a growing influence of the international oil companies taking a more active presence in Brazil, both in some acquisitions of pre-salt -- existing pre-salt developments from Petrobras as well as moving forward with developments in the northern part of the country on some leases that they acquired in options a couple of years ago. So we'd like to see the increased activity from those IOCs in Brazil, and we've also seen some positive activity trends with exploration moving forward even throughout the downturn in the Suriname Guyana basin and also, to some extent, in Colombia. So for a good portion of our customer base, we believe that deepwater oil and gas continues to be an integral part of their long-term exploration and development plans.

And so, Chris, without getting into any type of proprietary strategy, but in general, have you seen that rates have stabilized? Or are they still hemorrhaging just a little bit?

Per our long-standing policy, we don't comment specifically on rates. What we have disclosed is that if you look at the first part of 2016, that continued to be a difficult time in the industry. And if you think about the pressures that existed at that point of time in February of 2016 with oil dropping to about $26 a barrel, customers redoubled their efforts to reduce costs wherever possible, whether that was dropping helicopters, efficiency gains on helicopters or pushing on rates. So we saw a continued and steady decline throughout the first part of 2016 in activity levels and revenues that we were recognizing. And then about the mid-2016, what we witnessed in the markets in which we participate was a stabilization of activity, admittedly, at subdued levels, but a stabilization. And we've have seen for the last several months that activity has continued to bounce along the bottom. And so we've -- while they're not at levels that we would necessarily like in a normal course, we have seen some stabilization.

And then lastly, Chris, and I think you probably hinted at this in some of your prepared remarks, would it be fair to say that other than your firm commitments on helicopter purchases that free cash flow will be applied towards reduction of the revolver? Would that be a fair statement?

Well, we'll continue to evaluate all opportunities on an opportunistic basis. But we have maintained throughout the downturn, and it continues to be our priority, to protect our balance sheet and our liquidity position. So as we continue to generate positive operating cash flow and to the extent that we realize any proceeds from the sale of assets as we announced we did in April, the priority will be to reduce our debt.

(Operator Instructions) We next move to Christopher Hagedorn with Redwood Capital.

Just 2 quick ones. In the press release, you refer to that -- professional service fees around $1 million. Can you elaborate what exactly that is?

Now what we've said is there was about $1.2 million in nonroutine professional services fees related to both legal and audit fees.

Okay, got it. So I think -- and the second question I had in terms of the covenant on the RCF, I think they're a little bit different to the numbers we would see on the balance sheet or in the income statement. Is there any where that it would be getting sort of -- you would be running up against limits? Or any source of concern?

Christopher, this is Andy. We don't have any concern at this point. We feel very comfortable about the covenant package that we have and our ability to maintain compliance. So no concerns there.

Got it. Okay. Actually one last one. I saw that on the helicopter count, those went down I think in the -- sort of in the mediums a little bit. And from what I was able to see, those were largely managed helicopters that you sort of returned as there weren't any proceeds from asset sales or not any really material. Is that fair? I guess, like can you explain what happened there?

Sure. As we discussed on last quarter's call, our air medical contracts in the U.S. were scheduled to conclude in the first part of 2017, and we have seen those contracts wind down in year-to-date 2017. And the managed aircraft that we had in our fleet, all related to our air medical business. These are helicopters that were owned by the hospital systems, and we were paid to operate them for -- those for them. So as those contracts have wound down, those managed helicopters have been returned to the hospital system and come out of our fleet counts.

Next question comes from Kirk Ludtke with Cowen.

A couple of things. Have you noticed any change in the market since CHC emerged from bankruptcy?

We have followed the Chapter 11 reorganization process for the competitor you mentioned. We have noted that they emerged from that reorganization process with what appears to be a more competitive cost structure, having eliminated a large portion of their debt load and having rejected a number of helicopter leases and returning those helicopters to the lessors. We overlap with them in Brazil. That's the only market in which we compete today. And as of now, we have not seen any substantial structural shifts in the competitive dynamics in that market.

Or for that matter, I guess, in the Gulf? I mean, it's not as though they're changing their strategy.

Yes. CHC doesn't operate in the Gulf of Mexico today. So the only area of overlap we have with CHC today is really in Brazil.

Great. With respect to the -- I think CHC lost an S92 in March. Has there been any -- does that have any impact on the market, particularly the heavy market?

Yes. We are aware of the tragic accidents involving the Irish Coast Guard search and rescue S92 in March of this year. The preliminary reports, which have been issued indicate that there was no mechanical malfunction. And therefore, as of today, there are no known considerations that would impact the global S92 fleet.

Okay. But there has been no shift from heavies to mediums or anything like that as a result?

No, nothing specifically related to that incident.

Okay. You mentioned that really, it doesn't sound like there's really any change with the E&P industries posture toward the 225 since last quarter. But has there been any -- can you comment at all on interest in 225s in non-E&P applications?

As you might imagine given the situation with that particular helicopter model at this point in time, there's really very limited activity in the secondary market or really any fundamental change in demand across any end markets that we observe on the commercial front. So I think time will tell how the accident investigation plays out, what the regulatory authorities do, what operators like ourselves decide to do in terms of confidence in the safety case, whether that's supported by the customer base and then, in certain end markets, whether the labor unions are supportive of operating the machine as well. So it would be preliminary at this point to speculate given that the investigation remains ongoing.

Great. And the last topic: I know there's very little you can say with respect to the Airbus litigation but has -- have any other firms joined you in pursuing this?

We are not the only company that has filed a lawsuit, but our lawsuit solely involves Era. There are no other parties involved with our dispute at this time.

Okay. And is that logical that there would be more of joint effort to try to keep the costs down?

I think it'd be preliminary for us to say at this point how the strategy or whether or not our suit is joined by others might play out over time. So I would just say that we are aware that there are other disputes that have been filed against Airbus related to the 225, but there are no other parties involved in our dispute at this time.

Okay. And lastly, can you talk about the process and maybe the tiny time line -- any key dates that we should have on our calendars in terms of hearings or rulings?

So as this is an ongoing legal dispute, per our previously stated policy, we will not be making any comment upon the process or disclose information about this content, status or timing of those proceedings.

(Operator Instructions) And with no further questions in queue. I'd like to turn the conference back over to management for closing remarks.

Thank you, Shannon, and thank you, everyone for joining the call. We look forward to speaking again next quarter. Be safe.

Thank you, ladies and gentlemen. That does conclude today's conference. We do thank you for your participation. You may now disconnect.