Bristow Group Inc (VTOL) 2021 Q4 法說會逐字稿

Good day, and welcome to the Bristow Group Fourth Quarter and Full Fiscal Year 2021 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, Olivia, and good morning, everyone. Welcome to Bristow Group's Fourth Quarter and Full Fiscal Year 2021 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.

Let me remind everyone, 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 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 measures 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, and welcome to the call, everyone. 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. I want to applaud all our Bristow team members around the globe for their excellent safety performance in FY '21, despite the numerous potential distractions in the world around us. We achieved our target of 0 air accidents in FY '21, and we realized a 57% year-over-year reduction in lost workdays. This improved workplace incident rate included 0 recordable incidents in the U.S. Gulf of Mexico, which is the region most impacted by the merger integration changes that occurred during the year.

I want to thank and commend everyone on the Bristow team for their hard work and dedication to deliver safe, efficient and reliable service to our valued customers every day.

On our last investor call, we discussed the importance of protecting the company's strong balance sheet position, and we were very pleased to complete a significant refinancing transaction in February, when we closed a $400 million offering of 6.875% senior secured notes due in 2028. We used the proceeds from that transaction, combined with $100 million of cash from our balance sheet, to repay approximately $500 million of existing debt. The benefits of this refinancing include a much cleaner capital structure and extended debt maturity profile, a reduction in mandatory amortization requirements and the elimination of operational friction costs related to the former credit facility. Bristow continues to possess industry-leading financial flexibility and this transaction further enhances our strategic and operational flexibility as well.

The company continues to make significant integration progress following the merger of Era and Bristow in June 2020. We increased the amount of identified synergies to at least $50 million of annualized run rate savings. As of March 31, synergy projects representing $30 million of annualized savings have already been completed. We expect to capture over 80% of the total synergy projects by the 1-year anniversary of the merger, resulting in a more efficient cost structure for the company.

Turning now to our recent financial performance. In addition to challenging conditions in the offshore oil and gas industry, the company's current quarter results reflect the typical seasonality in our business as the March quarter represents the period of lowest flight activity due to fewer daylight hours and more inclement weather days. Historically, the fiscal fourth quarter has accounted for approximately 20% of the combined companies full year adjusted EBITDA.

Despite the challenging industry conditions, Bristow continued to generate a substantial amount of free cash flow in the quarter, further demonstrating the resiliency of our business model.

I will now hand it over to our CFO for a more detailed review of financial results. Jennifer?

Thank you, Chris. I will begin with a sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $30 million for the fourth quarter of fiscal year 2021 compared to $48 million in the third quarter or a decrease of $17 million. The 3 main contributing factors to the decrease were $10.5 million from our joint venture, Cougar; $3 million from foreign exchange and a $2 million catch-up accrual of incentive compensation.

Revenues decreased $18.8 million, primarily due to lower utilization in oil and gas operations, including a $9 million decrease due to a change in revenue recognition from Cougar, all of which directly impacts EBITDA. Operating expenses were $8.7 million lower due to decreased personnel costs resulting from head count reductions during the quarter.

General and administrative expenses were $3.1 million higher, primarily due to incentive compensation expenses. In addition, there were merger-related and restructuring costs of $16.5 million and $7.9 million, respectively, related to reductions in force. I will also note that we recognized a loss on extinguishment of debt related to our refinancing that occurred in February. This loss was primarily noncash and related to accounting adjustments from the fair value of debt.

As a reminder, the close of the merger was on June 11, 2020, and due to the fact that Bristow was the accounting acquirer in the transaction, the previous year comparable quarter does not include the results from legacy Era Group Inc. Prior periods only include operating results of legacy Bristow Group Inc.

To help with the comparability of the periods presented, I'll focus on the pro forma results as if legacy Bristow and Era were merged in the prior year quarter. With that reminder, the current year quarter versus pro forma prior year quarter EBITDA adjusted for special items and asset dispositions was $30 million for the current quarter compared to $31 million in the prior year results. The prior year quarter results were impacted by $16.5 million in net foreign currency losses versus $2 million in the current year quarter results.

Revenues decreased $50 million, primarily due to lower utilization in oil and gas. Operating expenses were $32 million lower due to decreased activity and lower head count. General and administrative expenses were $8 million lower, primarily due to lower compensation costs. In addition, the prior year results included $6 million of equity earnings versus a $400,000 loss in the current year.

Finally, we generated adjusted free cash flow of $55 million for the current quarter. The adjusted free cash flow was higher than the previous quarter, primarily due to changes in working capital. The average of the 2 quarters is approximately $46 million in free cash flow normalized for timing of payments.

Since the merger last June, we have generated $141 million in adjusted free cash flow net of CapEx and continue to believe that this business model will have strong free cash flow.

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

Thank you, Jennifer. Looking beyond seasonal activity trends and currently depressed offshore oil and gas customer activity, we have a positive outlook on the future demand for our services. We believe global oil demand will recover as pandemic effects recede. Inventory levels will continue to decline, creating a positive macro environment for oil prices. As a result, upstream spending will recover and additional spending will likely be required to address the supply gap following years of underinvestment.

Essentially, all industry indicators are trending in a positive direction, including increased offshore equipment orders and improved utilization levels for offshore drilling rigs. While we do not claim to have a crystal ball, our current expectations are that the next few quarters will see middling offshore activity as oil and gas companies maintain spending restraints in 2021. But we believe this will be followed by a multiyear growth period beginning in 2022 and beyond. Bristow will benefit from this multiyear growth cycle as idle equipment goes back to work and drives improved financial results. In the interim, we expect the company will continue to generate a substantial amount of positive free cash flow, as demonstrated in our current quarter results.

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

(Operator Instructions) Our first question is coming from James West with Evercore.

Chris, was the -- this fiscal fourth quarter or the calendar first quarter more seasonal than typical or about the same? I'm just curious, it missed our estimates by a little bit, but again, a combined company, and we're still kind of working through the combined company financials.

Sure. Certainly, the March quarter is our lowest activity quarter in a given year due to fewer daylight hours and more inclement weather days. So we would always expect some seasonal weakness in the March quarter. Of the decline in oil and gas revenues, which is really accounting, our other service lines were actually positive on a sequential quarter basis on an aggregate basis.

But in oil and gas, revenues were down about 10%. Of that amount, we would say that between 1/3 and 1/2 of that would be consistent with typical seasonality patterns that we would expect. In addition to that, the change in revenue recognition at Cougar, the joint venture in Canada that Jennifer spoke about, accounts for about 1/3 of that sequential decline as well. And the balance would be more just full period impact of some activity declines that were witnessed in prior periods.

Okay. Okay. Fair enough. And then as we look out into the balance of this calendar year and into next year, we're obviously hearing more and more about cyclical recovery, offshore activity improvements. How would you see -- I mean, you alluded to -- it looks like '22 is going to be better, up to the right multiyear. But what types of -- or how should we think about the magnitude of the improvement in flight hours or revenue? However you want to describe it as we think about next year.

Yes. Looking forward to 2022, where we do expect a more broad-based recovery globally. And I just want to point out before getting there that we are seeing some projects move forward even today in 2021, including some exploration projects that are moving forward in our Guyana Suriname Basin as well as the U.S. Gulf of Mexico, where we are supporting some new drilling projects today. But again, those are more isolated in 2021.

In 2022, coming back to the gist of your question, we expect that there could be a broader base, stronger global recovery. Maybe the best way to reference that is declines that we've seen over the last 12 months. So if we look at Nigeria, for example, our activity there, or the customer activity in Nigeria that we support is down about 40% year-over-year from where it was before the pandemic. Now does all of that come back in 1 year next year? I don't know, but we expect that the market will recover, and Bristow will benefit significantly from that recovery when it does happen. So that maybe order of magnitude frame some of the decline we've seen in certain business areas around the world.

Okay. That's very helpful. Maybe I could squeeze one more in here, Chris. As you look at additional search and rescue outsourcing opportunities. How are those firming up as we think about the next couple of years? I know there was a lot that was about to be bid, kind of pre-pandemic. And as we get back to normal, are there -- should we expect to see additional awards and wins in that part of your business?

Yes. We expect that will continue to be a nice growth opportunity for our business. We believe Bristow remains very well positioned there as a global leader in search and rescue to support to government customers. In terms of timing, no material contract updates to give at this time. We do believe that the winner of the Dutch SAR contract award supporting the Netherlands should be known by the end of the summer. The U.K. SAR 2G, which is, obviously, a very important contract that we support, the initial proposals for that will be due at the end of the summer.

But depending upon the contract time line, which is subject to some variability, it's likely that we won't know the winner of UK SAR 2G until the end of calendar 2022. In between now and then, there are some other opportunities like Dutch Antilles and the Caribbean, where, again, we think represent good opportunities for Bristow to leverage our existing experience and presence in the SAR market.

Next, we will go to [Adam Ritzer], a private investor.

I guess one of the questions I had is it seemed like Q4, there's a lot of noise in terms of charges, expenses, costs, et cetera. Is this because it's the end of the year? And do you expect things to get a little cleaner going forward?

Adam, some of it's related to the merger, and some of it is related to the refinancing transaction and others. I think to the gist of your question, going forward, particularly once we get past the 1-year anniversary of the merger, we do think that some of these nonrecurring onetime items will be much wider. In the period that we've just reported on, there were merger-related costs that Jennifer spoke to of about $16.5 million as well as additional restructuring costs of about $8 million. And then we had a large charge related to the extinguishment of debt related to the refinancing transaction that we completed during the March quarter. So those were very much onetime nonrecurring items there.

Okay. I guess the other thing is you -- I know you talked about your savings so far, the synergies. But if you look at your G&A expenses, sequentially, year-over-year, you don't really see much of an improvement there. Is that hidden somewhere because of costs or do you think that's going to start coming down over the next year?

So we are realizing a significant portion of the synergies from corporate and G&A. If we look at it on a year-over-year basis today, comparing Q4 of FY '21 to pro forma Q4 of FY '20, G&A expenses on a pro forma basis were down about 16% year-over-year. So you are seeing a significant amount of cost coming out of that portion of our cost structure as well. And as we get through the remainder of the synergy projects that we have and are making good progress towards, we expect that will only increase.

Okay. Because it looked to me that 2020 versus '21 was about flat, $153 million versus $153 million, but maybe I'm looking at it the wrong way, I guess, I don't know. What about the buyback? I know you guys have a ton of excess cash, generating a ton of free cash plus asset sales. How come you not being more aggressive on the buyback now that the refi is done?

So in terms of the capital allocation, the March quarter presented us with a great opportunity to really clean up our balance sheet and position the balance sheet for the future, which we did. We deployed $100 million of cash as part of the refinancing, which reduced our gross debt significantly. So we think we're in a great position now given the capital and the cash that we allocated to those balance sheet needs in the March quarter.

Going forward, certainly, return of capital to shareholders, including through some opportunistic share repurchases will be an important consideration, an alternative that we look at for capital allocation, along with continued protection of the balance sheet and also with an eye towards M&A opportunities as we do think that there are still some attractive consolidation opportunities that could be good long-term value-creation opportunities for the company. But again, very pleased with what we were able to do on the balance sheet and putting cash to work there in the March quarter and going forward, to your question, return of capital to shareholders will be an important consideration and alternative for us as well.

Okay. In terms of M&A, have you guys seen any differences yet in terms of bidding or less competition with the Babcock sale to CHC?

So no specific comments around individual situations. I would note, though, that we've spoken about and you've heard from us over the last several years the benefit that the industry will realize from consolidation. And because of the excess capacity that has existed in terms of too much equipment, too many operators, consolidation is a positive in our view for the industry overall. And so we expect there will be additional opportunities for that. Hopefully, Bristow can participate in that, but also more broadly in the industry, we think consolidation is good.

Okay. It's not that many guys left, it seems like. Is there any progress on the leader, I guess, sale or closing out leader down in Brazil?

No material updates on that situation.

Okay. And then one last question. I know CapEx looked like it was about $15 million last year. Where you expect it to be for '22? And what about cash taxes? Did you pay cash taxes last year? Do you think you'll become a cash taxpayer? And that would be about it.

Adam, it's Jennifer. On the CapEx front, in our F-4 and the merger document, we did have what we expected CapEx to be between, I think, $20 million and $30 million. I still think that's a reasonable expectation. And then from a cash tax perspective, same, we had somewhere around $15 million, $20 million in there, primarily in other jurisdictions, not in the U.S. that is all conditioned upon the -- if we sell more aircraft, et cetera, that will change that. But as it stands today, it's still in that $15 million to $20 million range is a reasonable expectation.

Next we will go to Jason Stankowski with Clayton.

When you look at sort of where you're at right before the merger last year in the environment, kind of this time frame to today, do you see this year between now and, say, this time next year as being -- has the environment worsened such that the business is less healthy on a year-over-year basis? Or is it kind of flat? Just curious. I know you think 2022 is going to improve but just trying to understand whether we're sort of still searching for the bottom or we kind of hit it in the last 9 months of calendar 2020?

Certainly, the overall industry and the impacts on our business have declined significantly resulting from the pandemic and the related impact on global oil demand. And the level of decline has varied in different parts of our business. In our government services businesses, for example, it's been fairly flat or consistent, not any direct impact. In our oil and gas services line of business, the impacts have varied from market to market. I referenced earlier that Nigeria has been an area particularly hard hit with activity levels down more than 40% on a year-over-year basis.

And in contrast to that, we've seen better stability in other markets, such as Norway and even some growth in some frontier regions like the Guyana Suriname Basin. But overall, the oil and gas business is at much lower levels of activity than what we witnessed pre-pandemic. And you're seeing that certainly in our financial results.

We do expect that there will be a recovery. Again, we're expecting that, that recovery really begins in earnest next year, and will create another multiyear growth period of upstream spending that will flow through to our business as well. But yes, right now, we are seeing the impact, including in the March quarter, which is really seeing the full period impact of some activity declines that occurred in earlier periods, along with the typical seasonality that we've spoken about that we always see in our March quarter.

Okay. That's helpful. And can you -- on the M&A side, I guess, in particular, with regard to wind projects globally, can you characterize sort of -- are there dozens of companies you would be looking at? I think you've alluded to the fact that it'd be nice to make a bolt-on acquisition in that space to kind of give you a toehold there for future business and awards. Can you give us a sense of whether there's a multitude of players? Or there's really only a few for those of us that aren't sort of in the weeds in the industry, kind of what the opportunity set looks like? And could you build it if you can't buy it?

Yes. Appreciate the question on offshore wind, which we do think will be a long-term secular growth market opportunity for us. There are -- that industry is in various stages of development in different regions around the world. In the United States, it's very much a nascent industry with no helicopter supporting offshore wind projects today, but they're coming. In fact, just in recent days, the first commercial scale offshore wind farm in the U.S., Vineyard Wind received final approval to move forward. So we're excited about that milestone and development for the industry.

So in the U.S., it's likely that we would do it ourselves organically. We have all the experience that we need operating in difficult offshore environments. We also have thousands and thousands of hours of hoist experience from our search and rescue business around the world that will be relevant in the offshore maintenance phase of those offshore wind farms.

Now when we think about Europe, which is a more mature market today for offshore wind, although still with high-growth rates expected, I think that gets to the heart of your question, Jason, which is we will have a buy or build decision to make there, whether we want to go alone in that market or look at a potential acquisition of some of the existing players, many of which are smaller companies. In terms of magnitude of the number of players, I would probably most accurately describe it as a handful of potential companies there that we would evaluate as part of that analysis.

Our next question is coming from Brian Joseph with Empyrean.

Just with all the questions on the capital return, how much -- and the comment about fortification of the balance sheet, how much cash do you actually need pro forma on the balance sheet to operate the business?

We think in terms of day-to-day operations, anywhere in the $125 million to $150 million of cash to support that would be adequate for our global cash management needs. We, obviously, do have more cash on the balance sheet today. We used a big chunk of $100 million put to work in March on the refinancing transaction. But we will continue to look at other capital allocation alternatives for the available cash that we have.

Got it. Okay. And I just want to confirm, given how satisfied you are so far with how the merger is going. If another deal came up, you would consummate it here?

We think we're in a position to capitalize on M&A opportunities should they present themselves. We're making great progress on the integration of the Bristow-Era merger, and we are positioned to move forward on additional M&A if it's there and it could be completed on the right terms.

Our next question comes from John Deysher with Pinnacle.

On the wind side, does any portion of the fleet have to be reconfigured to be able to service, construction of an offshore wind farm? Or is it the same fleet you already have?

John, there are really 2 separate phases of the offshore wind farm support for helicopters. The first is in the construction and development phase. And in that stage, we're really moving the construction crews. And that part of the business is very similar to our offshore oil and gas crude transportation business. So we would use existing aircraft and existing configurations to support that phase of the wind farm.

Once the wind farm is online and producing electricity and transitions into the more operations and maintenance phase of its life cycle, it's really a different type of aircraft specifically the latest variance of light-twin helicopters, namely the AW169 and the H145 that are best served to complete those missions as the requirement there is to hoist the technicians down to the top of the piston, so they can complete the required maintenance work. And so that part of the wind farm support would likely require new additions to our fleet going forward.

Okay. But I mean, you got to build it first and you can service the building construction element of it with the current fleet?

That's correct.

Okay. Good. On the 2022 multiyear growth cycle, what should we as outside investors be looking at to see how that's materializing? There's no backlog disclosed. I know 80% of your business, I think, is contract based. So what's going to be the indication that what you say is going to happen is actually happening?

Well, upstream spending by our oil and gas customer base is ultimately what drives our revenues. So looking at the budgets and spending plans for the offshore oil and gas companies will be important. Some of the indicators of that will include offshore equipment orders as they place orders for things like subsea trees, for example. Other indicators would be offshore drilling rigs that are going back to work on exploration projects. But ultimately, the best indicator for our revenues really is upstream spending by the customers.

Okay. And right now, that's stable. It's not increasing or decreasing, correct?

Correct. The spending levels themselves are expected to be roughly stable in 2021 with most third-party estimates, really all the ones that we're familiar with, pointing to an increase beginning in 2022.

Okay. That's helpful. Just a couple of financial questions. How much is left on the share buyback program at this point?

The Board approved a $75 million program in the fall. Of that amount through March 31, we had used $10 million. So there's a $65 million remaining under the currently approved program.

Okay. Good. And there was a discussion of the SG&A. What's a reasonable run rate on a quarterly or yearly basis that we should use on the SG&A side?

Thanks, John. This is Jennifer. We're -- there's still quite a bit of noise going on as we run the synergies through -- it's likely something less than the quarter that we just completed. But I mean, we don't necessarily give guidance, but directionally, it should stable out in the next few quarters as we get 80% of the synergies, but something less than what it is today.

Significantly less? I mean you were at $28 million in Q2, $36 million in Q3 and now it's $40.7 million. Should we use -- help us in terms of magnitude of decline?

That has some special items in it when you look at G&A, so you have to sort of strip out the special items to get to what the run rate is as well. So I mean, it's not going to be -- I mean, if you strip out the special items, the decrease after that will be not unsubstantial, but not like half or anything. So somewhere -- I don't know what the percentage would be, but it will be less than it is today on an adjusted for special items basis.

That concludes today's question-and-answer session. Mr. Bradshaw, at this time, I will turn the conference back to you for any final remarks.

Thank you, Olivia. Appreciate everyone joining for the conference call today and the questions and discussions. Hope everyone stays safe and well. We look forward to connecting on our next call. Have a good day.

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