Bristow Group Inc (VTOL) 2023 Q1 法說會逐字稿

Good day, and welcome to the Bristow Group Reports First Quarter Fiscal Year 2023 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Crystal Gordon, Senior Vice President, General Counsel. Please go ahead.

Thank you, Tracy, and good morning, everyone. Welcome to Bristow Group's First Quarter Fiscal Year 2023 Earnings Call. I'm joined on the phone today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President, Chief Financial Officer, Jennifer Whalen.

Before we get started, I would like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of our investor presentation. You may access our investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such refers to GAAP is included in the earnings release and our investor presentation.

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

Thank you, Crystal. Welcome to the call, everyone, and greetings from the U.K. where the Bristow executive leadership team and the Board of Directors have enjoyed the opportunity to spend time on the ground this week with our team in Aberdeen. As always, I will begin our prepared remarks with a note on safety, which is Bristow's most important core value and our highest operational priority. The company achieved very good safety performance in the quarter in mid-June 30 with 0 air accidents and a 50% year-over-year reduction in loss workdays.

I want to commend all of our Bristow team members around the world for their continued dedication to play safety first every day. I also want to thank the Bristow team members who have worked diligently over the last several months to successfully deliver on several of the company's strategic priorities. And I would like to highlight a few of those successful outcomes here. At the 2-year anniversary of the close of the merger of Era and Bristow, our team has successfully completed synergy projects representing $60 million of annualized savings, well surpassing all targets within the specified 2-year period. Work will continue on some additional projects related to IT system integration and further U.S. certificate integration. But this is the last time that we expect to update merger-related savings now that we have reached the 2-year mark.

Next, we were very pleased to secure the highly important U.K. SAR2G contract award with the Maritime and CoStar agency. This new GBP 1.6 billion 10-year contract will see Bristow continues to provide critical search and rescue aviation services across the whole of the U.K. until at least 2037. This built upon Bristow's recent success in winning new government contracts to provide critical SAR services throughout the Netherlands and the Dutch Caribbean region. In addition, earlier this week, we completed the GBP 10.4 million all-cash acquisition of British International Helicopters Limited, which expands our government services offering to the Falkland Islands and establishes an important new relationship with the British Armed Forces.

Meanwhile, we have continued to make investments to strengthen our business, such as the new long-term, highly favorable maintenance support agreements for our global AW139 helicopter fleet, while at the same time, returning capital to shareholders with $10 million of share repurchases executed over the last 2 months at an average repurchase price of $23.48 per share. Finally, looking more to the future. We were pleased to release Bristow's first sustainability report and to sign additional partnerships with leading developers of new electric vertical take-off and landing aircraft, highlighting Bristow's role as a leader in sustainability within the vertical industry.

The last few months have been a highly productive time for the company, and I again want to thank everyone on the Bristow team for their efforts to achieve these successful outcomes for the company and our stakeholders. With that, I will hand it over to our CFO for a review of the financial results. Jennifer?

Thank you, Chris. Today, I will start by saying we are pleased to announce that our Board of Directors approved a change for our year-end from March 31 to December 31. We believe this change will provide many benefits, including comparability between periods and relative to our peers. In addition, we intend to initiate financial guidance for calendar year 2023 when we announce our next quarter's earnings.

Moving on, I'll begin with a discussion of the sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $51.1 million for the first quarter of fiscal year 2023 compared to $35.9 million in the fourth quarter of fiscal year 2022 for an increase of approximately $15 million, driven by higher revenues and foreign exchange gains. Operating revenues increased $18.6 million, primarily due to increased activity in our fixed wing services, higher utilization in oil and gas in Africa and the Europe region and increased activity from government services.

Operating expenses were $6.8 million higher, primarily due to higher fuel and repairs and maintenance expense driven by the increased activity. General and administrative expenses were lower by $1.5 million, primarily due to lower professional service fees and compensation expenses. In the current quarter, we recognized a loss of $5.2 million on impairment of intangibles related to the new power by-the-hour arrangements signed during the quarter. In addition, other income increased by $3.8 million, primarily driven by foreign currency gains.

Finally, Bristow continues to benefit from a strong balance sheet and liquidity position. As of June 30, our available liquidity was $318 million, and our net debt to last 12 months adjusted EBITDA ratio was less than 2x. We generated $26 million in adjusted free cash flow for the quarter. And as Chris noted, we repurchased $10 million of shares in June and July. As we have stated on many occasions, we still believe that this business model will continue to generate strong cash flow. At this time, I'll turn the call back to Chris for further remarks. Chris?

Thank you, Jennifer. Earlier in the call, I highlighted recent wins in Bristow's global leading Government Services business. I will now provide an update on the outlook for the offshore energy services market with reference to 3 third-party industry expert reports. On Page 11 of our earnings presentation slides, we highlight recent comments and research reports from J. David Anderson at Barclays Research. David, who has covered the energy services sector for a long time, has been bearish on the space for a number of years and rightly so, it should be noted. Last year, David changed to a bullish outlook, which predicted a multiyear growth cycle. That was his outlook prior to Russia's invasion of Ukraine, and conviction has only grown following that geopolitical crisis and related oil and gas market dislocation. As noted on the page, Barclays expects a significant increase in upstream oil and gas spending over the next few years. And David sees this as the best investment environment for energy services in almost 20 years.

On Slide 12, we highlight recent comments and research notes from James West at Evercore ISI. James, who is one of the best known and highly regarded analysts in the industry is also bullish on the market outlook and see the offshore sector building momentum over the next 18 months. Despite the risk of an economic recession, James sees upstream spending fundamentals has remained strong, and he notes that E&P upstream spending growth is being driven by ambitions to grow spare production capacity and not by short-term supply-demand dynamics alone. On the slide, we included a couple of charts that show the recent growth trajectory and the number of drilling rigs working offshore, which speaks to increasing demand for offshore helicopter services. We should also note that this positive market sentiment is shared by industry leaders, including Schlumberger, Halliburton, Transocean and others.

Finally, on Slide 13, we are pleased to share new third-party analyst information on market dynamics specific to the offshore helicopter industry. Up until now, the type of industry supply/demand and utilization statistics that are readily available for drilling rigs and other energy services markets were not available from third-party analysts for the offshore helicopter market. Steve Robertson, Founder of Air & Sea Analytics released a new report last month on the heavy and super medium oil and gas helicopter market. It is an excellent report, and we encourage anyone who is interested in this market to go to the Air & Sea's Analytics website to purchase and read the full report. In the report, Steve notes that offshore helicopter utilization has recovered sharply with super medium types at or near full utilization and S-92 model utilization firming up with expectations for continued tightening in that market as well.

The utilization numbers presented in the chart are consistent with the qualitative comments that we shared on Bristow's earnings call last quarter. We continue to believe that the offshore oil and gas market is in the early stages of a multiyear growth cycle, and Bristow's business stands to benefit significantly from this growth in upstream spending. With that, let's open the line for questions. Tracy?

Thank you. (Operator Instructions). We will now take our first question from Josh Sullivan from The Benchmark Company.

Congratulations on the results here. I wanted to start off with the U.K. SAR2G award. They're clearly a big win. But how should we think of the potential incremental contribution versus a vehicle? And then what are your thoughts on additional SAR opportunities now that you have this marquee win on your belt?

Yes. Thank you for the question and the well wishes. We were very pleased to secure the SAR2G contract award. As noted in the prepared remarks, this new 10-year contract has total expected revenues of GBP 1.6 billion. That is an aggregate number, which is lower than the aggregate U.K. SARH revenues, all of which is consistent with messaging from the MCA very early on that they were interested in efficiencies on the new generation contract. We still believe that we were in a favorable position as the incumbent given our established base footprint throughout the U.K., our established employee base and the aircraft that we have in place, most of which will be used again on the new generation contract and obviously have more age and some depreciation on them now. So we had a good position as the incumbent to deliver those efficiencies while still generating attractive returns on capital that meets Bristow's financial return hurdles.

In terms of additional opportunities, we are currently engaged actively in a tender for the Irish Coast Guard contract, which is another 10-year search and rescue contract to support the country of Ireland. And we believe that there are additional governments and military customers that will either be looking to privatize existing public services and/or award new private contracts for RA privatized services. As some of those opportunities get closer to the contracting cycle, we may start to discuss them by name as well. But overall, we believe that the global government services market is a growth one.

Got it. And then on the Pratt & Whitney Renard OGE, Honeywell maintenance agreements, how does this fundamentally change the margin profile? Is there a way to f9rame the incremental or what the incremental would have been if these were in place historically?

We were pleased after a long period of negotiations following the merger of Era and Bristow to sign at the end of June, these new maintenance support agreements for our global AW139 fleet. I should take a minute to explain the context and history, which is that the legacy Era AW139 fleet was maintained based upon limited PBH program for the airframes, with Leonardo, and we did not have PBH coverage for the engines with Pratt & Whitney. Those were maintained on a time and cost of materials basis.

The legacy Bristow AW139 fleet was maintained under a multiple disparate PBH agreements for both the Air France with Leonardo and the engines of Pratt & Whitney. What we've accomplished in these new agreements is to bring everything together under one comprehensive maintenance program for Bristow's global AW139 fleet, which will see all the aircraft and engines maintained on a consistent PVH coverage, essentially a full Citadel PVH program.

The net result, which we were able to accomplish using our increased buying power and some leverage related to bringing the 2 fleets together, is that we will lower our overall maintenance cost over the full life cycle of the aircraft. So that will reduce expenses, and we believe that the cash-on-cash returns are quite attractive for us, approximately 20% on an unlevered cash-on-cash return basis. In addition to those specific investment benefits, we also see benefits from having more predictable cash flows as our repairs and maintenance expenses will be more directly correlated with actual flight hours. And furthermore, we believe that having these aircraft under consistent full Citadel PVH programs makes them more fungible and therefore, more valuable should we reach a point of sale for the aircraft. So we're very pleased with the overall benefits achieved by signing these new agreements.

And then kind of relatedly, you've heard from some aerospace participants this quarter about constraints in castings and forgings and titanium. Are you seeing any impact to OEM delivery times or spares availability?

Yes, we have. I'd say that for most of the helicopter models that we operate, the type of supply chain constraints that you mentioned have been fairly consistent with what we understand is going on in other sectors. I do want to note and recognize that most of the OEMs with whom we deal have done an admirable job of continuing to deliver to Bristow and our peers despite what has been with broader supply chain constraints in the world. So I do want to recognize that and note that we mostly have been able to deal with those in a fairly manageable way.

The one exception would really be the S-92 model helicopter with Sikorsky, where we have had more structural and more significant issues by Sikorsky not delivering the parts we need and certainly not delivering them on time. And so we've had to really provide our own self-help. I think Bristow is well positioned there and that we are by a good margin, the world's largest operator of S-92 model helicopters. But we have been impacted by, of course, the failure to support the product.

And then just one last one. As far as the partnerships you're forming with advanced air mobility players, which of these do you think is closest to be in an operating asset for Bristow?

Yes. Fair question. I'm going to avoid speculating on that, given where we are in the development cycle now. I know we spent a good amount of time and I think we've made good progress over the last 18 months doing the diligence, developing relationships, determining who are the right teams with the right technology and the right capital base that we want to partner with that are going to have aircraft that not only will meet operating specifications but will be good fits for Bristow's mission profile. That being said, I think there's still quite a bit of regulatory certification risk and, in some cases, some continued technology de-risking that needs to occur before we start commenting on specific time lines for individual aircraft.

(Operator Instructions). We will now take our next question from John Deysher from Pinnacle Value.

A couple of quick questions. Lots of good information in the report. On the SARS contract, the amount in total $1.6 billion. Does that all go to Bristow? Or do you share that with your 2 other partners? How exactly is that structured?

We will share some of those revenues, particularly with our fixed wing partner at 2Excel. The significant majority of the revenues do go to Bristow. We are the prime contractor working with our valued partners to deliver that service under the new generation contract.

What percentage would you say goes to Bristow?

We haven't disclosed the percentage at this time. We will be releasing financial guidance, beginning with next quarter. And so overall, the expectations for Bristow will be incorporated in the future financial guidance that we plan to provide.

Okay. So you'll provide more clarity with the guidance.

We will have overall additional financial guidance that will be included in that, and we do anticipate issuing that when we report next quarter's earnings in either late October or early November.

Okay. Fair enough. On the VIH contract, do you plan any significant changes to that operation? Or will it continue as business as usual. I don't know how it fits into the overall Bristow platform. But are there any major changes in terms of shifting helicopters around or reducing headcount or anything like that? Or is it business as usual going forward?

Good question. For context, currently, VIH operates 2 contracts. The largest by far is the contract in the Falkland Islands with the Ministry of Defense here in the U.K. There, they provide both search and rescue services using 2 SAR-configured AW189 new generation helicopters. They also provide crew transportation services using 3 S-61 helicopters.

And then here in the U.K., they have a smaller contract using one medium type in AS365 helicopter. It would be our expectation that over time, I think consultation with the customer, that there will be some fleet changes, mainly related to the 61 model helicopters in the Falkland Islands, which I think there's interest from the customer, and certainly, we're interested in replacing those with newer generation aircraft. And the contract here, the smaller one in the U.K. with that AS365, again, likely to be replaced by a newer generation aircraft. I think there's, again, an opportunity and also interest to do that.

From an operational standpoint, we will be integrating VIH into our operations. They will adopt the Bristow name and brand throughout their operations, and we will look over time to combine the operating certificates and workforces. So there will be some operational changes in that regard.

Okay. And the contracts there are yearly contracts or how long do they last?

The one in the Falklands is a long-term contract that has a few years remaining with the extensions. And then there is a shorter amount of time remaining on the smaller contract here in the U.K.

Okay. Great. And on the maintenance buy in on the $55 million that's going to be paid between now and year-end, how was that treated from an accounting standpoint? Is that capitalized? I don't think it wouldn't be expensed, would it?

I can take this, Chris. Yes, John, Good morning. Yes, it will be capitalized on our balance sheet as an asset and amortize over the life of the new agreement. That's typical PVH accounting that any aviation company uses.

Okay. Good. And I guess, finally, your CapEx is going to be ramping up over the next couple of years as you fold in these different contracts. Can you give us a feel for what the CapEx budget is for the balance of this year for the back half through December and what you're looking at for 2023 in terms of CapEx?

We did include in the materials, the expected schedule for the U.K. SAR2G CapEx given that is as a single contract, the largest share that we have. We've also noted that the firm capital commitments is relatively a small amount that we do have, as disclosed in our filings relate to a new delivery AW189 helicopter that we're putting to use on the Dutch SAR contract. We expect that helicopter to be delivered later this month, and we'll make the final payment in. In terms of more specific guidance on CapEx, that will be included in the financial guidance that we plan to roll out with our next quarter's earnings.

(Operator Instructions). We have another follow-up question from Josh Sullivan from The Benchmark Company. Please go ahead.

The strength in the African market this quarter, previously, that has been a region where lower-cost competitors submits inroads. Do you expect a reversal in that trend going forward?

We do, Josh. In fact, the increase that you saw this quarter is exactly that. So for context for everyone, the support market for Africa is one that has contracted significantly over the last couple of years during the downturn. The overall addressable market is about half, maybe a little less than half of what it was prior to the last downturn. So you had some significant overall market contraction. In addition to that, Bristow did lose a couple of contracts with oil and gas customers to a smaller local competitor that charges significantly lower rates.

What we've seen more recently is a failure to deliver for the customers there. And so those customers have come back to us, and were looking for helicopter support. And the additional activity pickup that you saw in the June quarter reflects us recommencing support activities for those pre-existing customers. So we think that this is reflective of what is likely to be a broader market emphasis going forward on availability and reliability of services and not just on price.

At this time, I would like to turn the conference back to Chris Bradshaw for any additional and closing remarks.

Thank you, Tracy, and thanks again, everyone, for participating on the call. We look forward to speaking again next quarter. And I want to say a final thank you to the Bristow team around the world. Again, first and foremost, we're providing a great level of safety and customer service that was delivered again this quarter as well as successfully accomplishing the outcomes I mentioned earlier in the call. Thank you very much. Stay safe and well. Bye for now.

This concludes today's call. Thank you for your participation. You may now disconnect.