Bristow Group Inc (VTOL) 2018 Q3 法說會逐字稿

Good day and welcome to Era Group Reports Third Quarter 2018 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tomas Johnston, Acting General Counsel. Please go ahead.

Thank you, Ryan, and good morning, everyone. Welcome to Era's third quarter 2018 earnings call. I'm here today with our President and CEO, Chris Bradshaw; our SVP and CFO, Jennifer Whalen; our SVP, Strategy and Corporate Development, Grant Newman; our SVP Commercial, Paul White; our Corporate Controller, Tricia Shroeder; and our Finance Manager, Seema Parekh. You may access our recent earnings press release and presentation slides on our website, erahelicopters.com.

Let me remind everyone that during the call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3.

I'll now turn the call over to our President and CEO. Chris?

Thank you, Tomas, and welcome to the call, everyone.

As always, I will begin our prepared remarks with a note on safety, which is Era's more important core value and our highest operational priority. We are pleased to report that Era has achieved our dual goals of 0 air accidents and 0 recordable workplace injuries through the first 10 months of 2018. I want to commend our entire team for their hard work and dedication in achieving this excellent performance.

Turning now to the strength of the company's financial position. We have total available liquidity of approximately $172 million, including almost $50 million of cash on hand. The company continues to have a strong balance sheet with limited debt maturities prior to 2021 and manageable fixed charge obligations. In addition, we are not obligated to spend any new capital on helicopter deliveries, as our entire order book is cancelable. We have worked hard to achieve and maintain an efficient cost structure, which has proven to be an important competitive advantage. Based on these factors, we believe Era possesses industry leading financial flexibility, and the company's positive cash flow generation presents multiple opportunities to create value during the expected market recovery.

For a review of our Q3 financial results, I will now turn it over to our CFO. Jennifer?

Thank you, Chris.

Turning to the financial highlights for the third quarter compared to the second quarter of this year, revenues decreased by $3.1 million. The primary drivers for the decrease were a lower utilization of helicopters in our U.S. oil and gas business, and the weakening of the Brazilian real relative to the U.S. dollar. Operating expenses were lower by $3.8 million due to decreased repairs and maintenance expense. Of the sequential quarter decrease in repairs and maintenance expense, $1.2 million of the variance relates to the return of leased-in helicopters. General and administrative expenses were $6 million lower in the current quarter due to nonroutine professional fees in the preceding quarter related to the litigation that was settled early in the third quarter. Please note that the litigation settlement proceeds are presented as a separate line on the income statement. In addition, the foreign exchange loss that was experienced last quarter was less pronounced this quarter, creating a favorable variance of $1 million. Due to the receipt of the litigation settlement proceeds previously discussed, we recorded tax expense for the quarter. As of this time, we expect to pay less than $3 million in cash taxes for 2018.

Moving on to the quarter over prior year quarter results. Revenues were lower by $6.8 million. The revenue decrease was due to lower utilization of light and medium helicopters in oil and gas operations, weakening of the Brazilian real relative to the U.S. dollar and the absence of flightseeing revenue as the flightseeing assets were sold in early 2018. Operating expenses were $7.5 million lower due to decreased repairs and maintenance, personnel and other costs. General and administrative expenses were $2.1 million lower due to nonroutine professional service fees related to a litigation that has now been settled.

Transitioning now to our liquidity and cash flow position. Cash flow provided by operating activities in the current quarter was $45.2 million. If you exclude the litigation settlement proceeds, operating cash flow for the quarter would have been $3.2 million. In addition, we received a $1 million dividend from our Dart joint venture. As Chris noted, our total available liquidity is $172 million, which includes our cash balances and additional availability under the revolving credit facility. We believe we have more than sufficient liquidity to manage the business.

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

Thank you, Jennifer. Last quarter we noted that the offshore oil and gas market recovery has begun, but it will not be linear. The cadence of customer projects may cause some quarter-to-quarter variability during the recovery, as was the case in the third quarter. In addition, the pace and slope of the offshore oil and gas market recovery will vary by geographic region.

On that note, we are very pleased to announce the initiation of leasing contracts with a new customer in Mexico. During the fourth quarter, we placed 2 previously idle AW139 helicopters on lease with this customer, capitalizing on growing demand generated by international oil company activity in Mexican waters. We believe this new commercial partnership could grow to include additional aircraft in Mexico over time.

(Operator Instructions) Our first question will come from Bill Mastoris, Baird and Company.

Chris, maybe a little bit more color or what you're seeing as far as plans that your clients may have for offshore spending going into next year, acknowledging that the recovery is going to be lumpy, uneven and it's hard to project anything that's linear or even exponential at this point. But just in terms of activity levels, do you perceive, given your conversations with your clients, that those activity levels are going to start to accelerate next year? Or is this still a relatively uncertain time period where capital budgets have not been finalized? Any color that you could lend there would be greatly appreciated.

Hey, good morning, Bill, and thanks for the question. I think you phrased it well in the question, and it really speaks to some of the way that some of our larger peers in the offshore industry have framed it, which is that this market recovery is likely to be a protracted and phased one. And there could be some variability from quarter-to-quarter as the recovery progresses. That being said, in terms of color, as we look at the number of tenders that are out there in the market for floating rigs, as we look at the conversations that we're having with our customer base about their plans for additional exploration and development work, we do have a high degree of conviction that the offshore oil and gas market recovery is underway. And while it may be lumpy for quarter-to-quarter, we feel that when you get into 2019 and beyond, we should see better activity levels than what we've seen over the last few years.

Okay. And so the next question is with that in mind, and given the fact that this is a better liquidity level than you've really had in really quite some time, how are you thinking about what is the appropriate liquidity level? And is there any thought about how you might now deploy any excess cash? And I would also note you're still generating an actually very healthy amount of free cash flow. What would be the capital allocation priorities? And I know that's a little bit difficult, but kind of reading through the press release you talk about heavy utilization potentially picking up. Does that imply that you will order, for instance, the AW139s next year and maybe wait or hold off a little bit on some of the light twin new deliveries? How are you thinking about that?

Yes, I'll start perhaps with the second part of the question and then circle back to the more general capital allocation question. As it relates to new aircraft deliveries, we have worked hard with our partners at the OEMs to build in a great deal of flexibility into our order book, so we do have the option should market opportunities present themselves to bring in new aircraft, whether it be 189s or some light twins. That being said, as of today, if all of these options were expiring tomorrow we would probably cancel them and preserve the capital. Fortunately, we have a good amount of time left on these options, and as you know better than I do, one of the main drivers of option value is that time value. And so we'll retain that and we'll see how things play out in terms of market opportunities. Right now we don't have any current plans to bring in new aircraft. I would think, though, that to the extent that we bring in new aircraft deliveries in the near term, probably the more likely candidate is the AW189 aircraft. We've seen that model receive good demand from our end customers. It's offering a very compelling value proposition. We have good utilization of those currently in our fleet. So if we win new business or see additional market opportunities in that asset class, we probably would go back to the OEM to bring in the equipment if the opportunity justified doing that. Circling back now to the broader capital allocation question. As you noted, we do have liquidity today which is more than sufficient to run the business, and we believe our current cash balance and our expected cash flow generation present multiple opportunities for us that create value. That may come in the form of a return of capital to shareholders. Other alternatives that we are actively evaluating at this time include value-added strategic opportunities. Given the current state of our industry, there are multiple opportunities that appear to be potentially actionable in the relatively near term, and those strategic combinations come with the long-term benefits of increased scale and diversification, and perhaps most importantly value creation via synergies through cost savings, as well as the benefits of consolidating the market where we have existing overlap of end markets and geography. So that is an area where we are spending a good amount of time today, is evaluating those strategic alternatives which, if in the right context, could be one of the more compelling long-term value creation opportunities for us.

And could those strategic opportunities include partnerships, or might they just include something similar to what happened in other -- what's happened in a lot of other industries [in which they] all stop transactions?

Yes, I think there are a spectrum of potential structures through which we could realize that. In recent weeks, we've announced a commercial partnership with Bel Air Aviation in the North Sea, which is an opportunity that we're very excited about. Bel Air is known worldwide as being one of the highest quality operators of Leonardo helicopter project -- sorry, products, namely the 139 and 189 models. And this commercial partnership provides us with a preferred channel to lease aircraft into the North Sea market in partnership with Bel Air. And it gives them the ability to offer their end customers in that market via access to our large and diverse fleet more flexible fleet solutions. And in addition to that, we last night announced the commercial partnership with a new customer in Mexico, which again gives us some preferential rights to lease 139 helicopters into that market, which we think is one of the more promising offshore oil and gas markets globally today. Those are more on the commercial partnership end of the spectrum, but we're also evaluating some be opportunities that would be more entity-level combinations, either outright acquisitions or mergers that could present some, again, long-term value creation benefits.

Our next question will come from Adam Ritzer, Pressprich.

Just going back to the new leasing opportunity. You said it's 2 AW139s. Is it with an international oil company?

Yes, good morning, Adam. Thanks for the question. So this new opportunity in Mexico is actually with an operator. So we don't have an air operator certificate in Mexico. We do not satisfy the local content requirements to have an AOC in Mexico, but our new partner there is one of the larger, most established operators with a long-term history of quality operations in Mexico. We're partnering with them to introduce this new model, the AW139, into their operations. And it's really capitalizing on growing demand from the international oil company community. If you recall a few years ago, Mexico liberalized the ownership requirements for their natural resources, effectively ending what had been the long-term monopoly for Pemex. And in conjunction with that, a number of large international oil companies invested significant capital to acquire offshore leases in Mexican waters, and they're now moving forward with spending dollars on exploration and development plans in that country. And a lot of them are looking for newer, higher technology equipment like what we have in our fleet. And so this partnership with the existing operator there, again, provides us with a preferred channel to lease 139s into that market and capitalize on that growing demand from the IOC community.

Got it, understood. When does this start up?

So these leases commenced after the end of Q3, so they didn't have any impact on Q3 results. They have now commenced. They're in Q4, and so we'll start to see the benefit of the leases in Q4 and then, from a full period standpoint, beginning in 2019.

Got it. How long is the lease for?

I don't want to get into the specification of the individual contracts. They are, I would call them, mid-term leases with options to extend. I think given the demand that we're seeing and the promise that we think exists in the Mexican market, this partnership could grow to include additional aircraft over time.

Got it. And one last question on that. How much capacity, or how many AW139s do you have available in the fleet if this kept growing?

Right, good question. So per our policy, we don't discuss specific utilization numbers for competitive purposes. That being said, we have observed that one area, one asset where we have more excess supply in the fleet today is in this asset class with the AW139 helicopters. I would also reiterate something that we've said before, which is that this market globally for 139s is one that has improved significantly over the last several months. If you go back earlier this year, if you needed a 139, you really could have gone to any number of lessors and received multiple bids at very competitive levels. A lot of that excess capacity has now been absorbed, and we think the global 139 market has come more into balance, which is encouraging for utilization, it's encouraging for leasing rates and ultimately positive for the residual value of these assets. And this is, if you look at our fleet today and our current level of utilization, the 139s are the greatest area organically where we can drive revenue and cash flow improvement by increasing the utilization and putting those aircraft models to work on new contracts.

Great. Well, if you gave the utilization, we'd be able to figure that out, right?

Touche, touche.

Sorry, sorry, sorry. I know you covered M&A activity. The only other real question I had is I think last time you had a call, or when you spoke you talked about tender activity being at, I don't know if it was all-time highs, but recent highs, obviously. I think you mentioned a number like 50-plus. ESV had a call recently and they spoke about tendering activity being over 100 worldwide. So I don't know if yours is worldwide, if your tender was only in areas that you participate in or maybe you've seen an increase in tenders. Could you help bridge that gap?

Sure. So it relates to the type of asset that we're talking about. So the numbers that we had quoted in our previous quarter and at an investor conference earlier this fall related specifically to floating rigs, so drill ships and semisubs. And then the larger number which you referenced from one of the offshore drilling companies includes all offshore drilling rigs, namely jackups, so it includes jackups, drill ships and semisubs. So that's really the delta. It's a bit of apples and oranges just talking about the asset class.

Got it. No, that's very helpful. Has that tender number in those -- in the floaters and semisubs, have you seen that go up as well? Or it's still, call it, 50-plus?

It's actually come down modestly as there have been some awards. Some of those tenders have turned into awards for floating rigs, but it's still at a high, an attractive level and a level which I think speaks to the ongoing recovery in the offshore oil and gas market.

Got it. I guess you have to get tenders, then they become active, then you got to get more. So it's like a stair step kind of thing over time. Okay, great.

That's right.

(Operator Instructions) We will take our next question from Bill Mastoris, Baird and Company.

Chris, I'd like to follow up on Adam's last question, and that just has to do with the number of floating rigs as well as all the 100-plus for all jackups and floaters. Just to be perfectly clear, that is worldwide, and that's just not specific to any one or a couple of different regions. Would I be correct in that assessment?

Yes, that's correct, Bill.

(Operator Instructions) Okay, it looks like there are no more questions at this time. I will turn the conference back over to Chris Bradshaw.

Okay. Thank you, Ryan, and thank you, everyone, for participating. I know that our earnings announcement wasn't the only news in the market yesterday. There's some other things going on around the country, so appreciate your participation. We look forward to speaking again next quarter. Take care.

Thank you. Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your phones and have a great day.