Bristow Group Inc (VTOL) 2021 Q1 法說會逐字稿

Good day, and welcome to the Bristow Group Reports Fiscal Q1 2021 Results Conference Call. Today's conference is being recorded.

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

Thank you, Travis, and good morning, everyone. Welcome to Bristow Group's First Quarter Fiscal Year 2021 Earnings Call. I'm joined on the call 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 investor slides.

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 thank and commend all of our Bristow team members for their focus and dedication to play safety first every day, despite the numerous potential distractions in the world around us. Since the close of the merger, we have achieved our target of 0 air accidents and have experienced just 1 minor lost time workplace incident. We remain committed to achieving a highest safety standard to ensure that all of our customers and employees return home safely.

Since we last spoke to this audience in early May, we have successfully completed the merger between Bristow and Era, well ahead of the originally contemplated schedule. We are pleased to report that the integration project is going well. We have increased the amount of identified synergies to at least $45 million of annualized run rate cost savings, which was $10 million higher than the previous total. As of July 30, synergy projects representing $16 million of annualized savings have already been completed. We expect the full amount of the identified synergies to be realized in the next 12 to 24 months, resulting in a more efficient cost structure for the company. The timing of the merger has proven advantageous as the benefits of the combination are more important now than ever. The new Bristow is a larger, more diversified and financially stronger company, better positioned to manage industry challenges.

As you have seen, our Q1 fiscal 2021 financial results were adversely impacted by the COVID-19 outbreak and dislocation in oil markets. As flight hours decrease and certain customers exercise their contractual rights to terminate contracts.

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

Thank you, Chris. Pro forma adjusted EBITDA for the 12-month period ended June 30, 2020, was $172.5 million. This number represents what the results for the combined company would have been had the merger been in effect for the full 12-month period. Please note that this number is before the positive impact of synergies as it only includes a de minimis contribution from synergies in the last 3 weeks of June. With respect to the company's results as reported in our SEC filings, given the close of the merger on June 11 and the fact that Bristow was the accounting acquirer in the transaction, the current quarter only includes 19 days of operating results from legacy Era Group Inc. prior periods only include operating results of legacy Bristow Group, Inc.

Please note that the accountants of the merger as well as the impact of fresh start accounting following legacy Bristow's Chapter 11 restructuring process will impact the comparability of financial results for the next several quarters.

With that established, I will now turn to a sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $46 million for the first quarter of fiscal year 2021 compared to $21.5 million in the fourth quarter of fiscal year 2020, or an increase of $24.5 million. This increase was primarily due to foreign currency gains of $1.4 million versus losses of $14.8 million in the previous quarter and a decrease in expenses. Excluding the impact of these foreign currency fluctuations, the increase in adjusted EBITDA would have been $8.4 million.

Revenues decreased $12.9 million, primarily due to lower utilization related to lower oil prices and COVID 19 impact.

Operating expenses were $21.5 million lower due to decreased personnel maintenance, fuel and other operating expenses due to decreases in utilization previously outlined.

General and administrative expenses were $7.2 million higher due to increased professional service fees and other costs related to the merger. Additionally, we took an impairment on our joint venture in Brazil, Lider, due to actions we have taken to exit that investment.

Finally, we generated adjusted free cash flow of $26 million for the quarter.

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

Thank you, Jennifer. We expect challenging conditions in the oil and gas industry to persist for the foreseeable future. Visibility remains limited, and we cannot predict the timing or shape of the eventual industry recovery. However, it has always been our team's strategy to maintain a business model that is viable and generates positive cash flow regardless of the commodity price environment. We demonstrated the ability to do that during the prior downturn, and we are committed to doing so going forward. We have a strong balance sheet and $300 million of total liquidity, including $260 million of cash on hand. With our robust financial position, sufficient cost structure and experience managing through industry downturns, we are well prepared to navigate through difficult industry conditions. Furthermore, the timing of the merger presents opportunities to create value by realizing cost synergies and operational efficiencies, supporting continued positive cash flow generation for the company.

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

(Operator Instructions) Our first question comes from Bill Mastoris, Baird.

Chris, congratulations on completion of the merger. If you could give us a little bit about your thinking right now, just in this really tough operating environment, which could unfortunately involve other contract cancellations. Is this going forward at least in a near term, going to be a matter of reducing costs just to go ahead and kind of shrink yourself into profitability? Or do you say hey, we aggressively have to go out into other areas such as search and rescue contracts and maybe accept lower margins, but at least it would give us a baseline revenue from which we could build that at some future point. So that's my first question. Looking forward, how do you create value and improve your credit metrics?

Bill, thank you for the question. As you noted, we expect to face a tough operating environment. However, we know the playbook for that. In fact, the playbook from the last downturn hasn't even been on the shelf long enough to gather dust. So we know the steps that we need to take, the levers that we need to pull. Certainly, addressing our cost structure is a big part of that. We need to make sure that we have the most efficient cost structure possible. And again, we know the areas to address there. This is a downturn, but we've seen downturns before, and we know how to react to those. And again, we believe that our job really is to have a business model that can generate positive cash flow regardless of the commodity price environment. I'm glad you asked about other end markets. We do have a diversified business today, including a stable base of revenue in our government services contract. Including the U.K. SAR contract that we have. We do believe we have the ability to leverage our core competencies as a company to continue to diversify into other end markets, and we are looking for opportunities to do that.

Okay. And then, Chris, a quick follow-up. You've been really good in generating free cash flow at your time at Era. And with the prospect for generating free cash flow, what does the playbook look like right now? Is it one that is involving taking that and allocating that free cash flow just to build liquidity? Or is this one where you say we're going to go ahead, and we're going to delever our balance sheet a little bit further. And I recognize that that's a delicate balancing act. And please feel free to go ahead and elaborate if there's any other factors that I might not have mentioned.

Important question. And we do have a sizable cash balance today, and we do expect to continue to generate a positive cash flow. In terms of the alternatives we have to deploy that capital, broadly speaking, of course, we can return capital directly to shareholders. We can pay down debt to deleverage the balance sheet. We could use it to effect M&A or consolidation or we could deploy it for growth CapEx. I think the last one is pretty low on the list given the industry conditions today. But I think given where we are today and what we're seeing in the industry and the unlimited amount of visibility, certainly, protecting the balance sheet will be important. And so you may see us use cash to reduce the amount of debt that we have outstanding. But I think it's important to note that it's not mutually exclusive from returning capital directly to shareholders. We'll continue to evaluate that opportunity and approach that opportunistically, and we can do both over time.

And so that bakes the question, Chris. What level of cash or liquidity do you feel like you comfortably need to operate the company?

We haven't disclosed a specific number. However, the amount of cash we have today on the balance sheet is well in excess of that. What would be our normal minimum cash balance in a typical environment is going to be higher at a market like today, where there is more limited availability and difficult industry conditions. So we may hold more cash than we would need to in a more positive market. But that being said, we do have some cash that we can put to use. And again, I think our priorities near term are going to be protecting the balance sheet but that's not mutually exclusive over time from returning capital.

Our next question comes from Adam Ritzer, Investor.

So I've got a number of questions, obviously. In the Q, it said that pro forma revenue, if you would have had the operations for the full quarter would have been $305 million versus the $270 million reported, could you give an EBITDA number off that pro forma revenue number?

Adam, yes, we haven't disclosed a pro forma EBITDA number for the quarter. We have disclosed is that if you look at the last 12-month period ending June 30, the pro forma EBITDA for the combined company would have been $172 million. Important to note that's before the positive benefit of synergies. And as we noted in our prepared remarks, we did increase our synergies to $45 million on an annualized run rate basis.

Okay. Good. You can't say directionally what it would have been if you had the business for the whole quarter. Okay. Can you talk about Lider? I know you guys -- it looks like, did you take a full impairment and wrote that down to 0 now?

That's correct. We did. And we have taken steps to exit the investments in Lider. We're doing that under a partial dissolution provision of the Brazilian constitution. So we will no longer be a shareholder and leader by the end of this month. We've made the decision to focus our resources and investment on the legacy Aeroleo, now Bristow platform in Brazil going forward. And use that business, the 100% owned and controlled former Aeroleo platform to pursue further opportunities in Brazil in the future.

Got it. And not being an expert on the Brazilian constitution, do you think you're going to be able to generate any cash proceeds from selling that? What do you -- can you talk a little bit about what expectations there might be for any value realization from Lider?

We do expect to receive proceeds from our minority shareholder interest. However, it would be preliminary at this point to speculate on the amount or timing for receiving those proceeds.

Okay. So anything you get is better than 0, right?

I think that's fair to say.

Okay. Can you talk a little bit about the progression during the quarter? Was March, April, May, June, was there any month that you said, "Hey, this was really the worst month." And maybe now in July, you're coming into August, things are getting better. Can you talk about the progression at all?

Good question. Certainly, an unusual quarter that played out. I would say at the beginning of the quarter, the impacts that we were seeing were more directly related to the virus. And our customers trying to adjust their workforce logistics to the new reality in a COVID-19 environment, and there were some reduced flight hours as that happened. And as there were needs to bring people offshore when there were suspected events on an offshore platform. As the quarter progressed, I think the activity that we observed was probably more related to the commodity price environment and the situation that our oil and gas customers find themselves in. And so that's where we did see certain customers provide notice of reducing their contracted aircraft fleet. So that did play out as the quarter progressed.

I think as we've now gotten to the post June period, we've seen some more stabilization of our activity in terms of knowing what our customers are planning to do a little more comfort from everyone operating in this new environment with COVID-19 and needing to try to mitigate the spread of the virus wherever possible.

I think going forward, we do expect to see some headwinds in our offshore oil and gas business, given what's going on in that industry. But again, we think we're well positioned with our financial strength, our efficient cost structure, certainly our experience managing through downturns like this and are confident in our ability to weather this difficult period and continue to generate positive cash flow as we do that.

Okay. So net-net, does that mean July and August was a little better than May, June with COVID and oil? And there's so many issues going on, it's kind of hard to get a real read on this. Can you -- any insight on to where things stand now versus a few months ago?

Yes. So I think you're right in pointing out, Adam, there is limited visibility. And for that reason, we're not providing forward-looking financial guidance and not commenting at this time about future periods beyond June. We do expect that there will be headwinds in our offshore oil and gas business. But again, we know the levers we need to pull to address those challenges that we face. We're prepared to do that. And we're actively managing the business to make sure that we're rightsized and competitive for the level of activity that does exist in the market.

Got it. In terms of cash and free cash, is the $12.5 million of interest expense in the quarter, is that a good run rate to use on a go-forward basis on like a $50 million annual interest expense?

Directionally, yes. I mean, obviously, there will be some variability from quarter-to-quarter. And as I noted, we may use some cash to pay down debt. So it's not a static number.

Okay. Okay. Got it. And what about CapEx? What do you think the -- obviously, you said you're not going to spend any money on growth CapEx. Looks like there's no need to buy any further equipment. What do you think the maintenance CapEx is for the combined companies now on a full year basis?

I won't update the guidance, but there were some disclosures in our S-4 related to the merger that showed combined CapEx in that low $30 million range for maintenance. And again, that really is either spare parts, addressing facility needs, IT systems, ground support equipment, et cetera.

Okay. So you think it's still going to be that high, even though in the quarter seemed like you only spent a few million bucks?

Well, given the conditions we will be active in managing our spend in all categories and making sure that every dollar is densified.

And how about cash taxes? What kind of cash taxes do you think you guys should be or could be paying?

We're not going to provide specific disclosure on any one financial metric. We are -- given the limited amount of visibility and consistent with what a lot of our peers in the oilfield services industry are doing today, not providing specific financial guidance.

Okay. And I know you guys still have a significant number of S-92s that are still being leased. I think it was like 32. What's the -- are any of those rolling off over the next 12, 24 months so your lease expense directionally can start coming down. Can you talk about that at all?

We do have some leases that will be expiring over the next 12 to 24 months. We haven't discussed specifics there, but we are focused on maximizing the utilization of the owned fleet and if there are certain aircraft that aren't needed, we may return them to the lessors and reduce our cash expense for those purposes.

Can you give any more details? How many? How much it could be? I'm just trying to see where there's some ability to return these planes that aren't really utilized right now?

Yes. We're not providing specifics on a per lease basis, but we will have the ability to reduce our lease costs over the next 12 to 24 months as some roll off.

Got it. And I noticed recently Babcock pick up some contracts. I think the one contract that you guys didn't renew. They also picked up a decent contract from CHC. And CHC is out there saying how Babcock is low balling numbers and they're just trying to grab business. Can you talk about what's going on in the industry? Who's hurting? Babcock seems to win a couple of contracts, but their business, I guess, rumored to be still for sale. Can you talk about the competition at all?

I won't get into the specifics of any one customer, certainly won't get in the middle of the matter that you referenced. But I think it is fair to say that it remains a very competitive environment. Particularly in certain markets where there are, frankly, too many operators to sustainably be supported by today's level of market activity. From our standpoint, and this has always been our approach, we need to remain disciplined and exercise financial rigor and worry about ourselves. And I think that will continue to be our plan moving forward, take care of what we can control.

Okay. I have 2 more questions. I'm sorry to bother you, but it's been a while since we've chatted. There was a pretty interesting helicopter call back in the middle of July. I don't know if you guys listen to these things. But one of the gentleman was talking about the potential for offshore wind contracts. And there was a pretty significant numbers being thrown around over the next 10 years. I know that you guys have some of the helicopters that they mentioned that would be amenable to do offshore wind. Can you talk about that at all? Have you done any of that business? Are you looking into that? Just a little bit of information would be helpful.

Sure. And thank you for the question, Adam. I am familiar with the call that you referenced and the information. And certainly, we've been looking at that market for a very long time. We do believe that we have an opportunity at Bristow to leverage our core competencies to expand into other end markets and diversify our exposure. Offshore wind is one that, again, has long been on the list of attraction for us as a team. If you think about the fact that it's not tied to the price of oil. We do expect that it will be a long-term secular growing market. And it's one where, again, we have the ability to operate offshore in difficult operating conditions. And we have a lot of experience and hoisting through our search and rescue business, and that's a part of skill set that is needed and useful in offshore wind work. It is really a nascent market in the U.S., but we have been following developments. And as that market grows here in the U.S. which will be principally on the eastern seaboard over the next several years. It is something that we're looking at. It's a more mature market in parts of Europe and Asia, and now with the combined Bristow that we have exposure in some of those markets, it is, again, an area that we're interested in pursuing for the reasons that I mentioned and the attractiveness of the market characteristics.

Okay. That's interesting. And then the final question, I know you guys currently don't have a buyback in place. Have you had a Board meeting to discuss that and with all of the cash you have, the free cash, the asset sales, is there any reason why you would not want to at least have a buyback in place in this environment?

Yes. I don't want to comment on specific Board actions or timing. But certainly, we are monitoring the opportunities. As you noted, we do have a good cash balance, and we expect to continue to generate positive cash flow. We want to make sure we protect our balance sheet, as I noted earlier, given the limited visibility and the difficult conditions we're facing today, but that is not mutually exclusive from being able to return capital to shareholders. So we're going to continue to look at that opportunistically. And just we'll monitor the conditions and make the announcements when appropriate.

(Operator Instructions) Our next question comes from John Deysher, Pinnacle.

So taking out all of the noise from the first quarter, it looks like the quarter was actually pretty good. And I'm just wondering, do you feel the same way, obviously, there was a lot of numbers and noise. But to our analysis, it actually looked like a pretty good quarter, even though revenues were down about 17% quarter-over-quarter.

I would agree with that characterization, John. I think -- I do think, given the conditions that it was a good performing quarter for the company. There is a lot of noise, as you appropriately reference between the merger and then comparability of prior periods given fresh start accounting for the Bristow books, et cetera. But all of that said, I think your assessment is fair. It was overall, I think, a good performance given the conditions.

Okay. Well, congratulations on that. Regarding Adam's question on the buyback, at quarter end last quarter, you actually had a buyback in place with Era. Does that continue with the Bristow reorg? Or is that canceled? Or what is the status of that buyback that was in place?

Yes. We do think, John, that if we are going to execute upon some share repurchases, we may put in place a new plan. So that's an opportunity that we will look at.

Okay. So the old plan was effectively canceled with the reorganization?

We do believe we'll need to put a new one in place.

Okay. All right. Good. The sale of the 10 H225s, when do you expect that to close? And what do you think the proceeds will be?

So any day now, we've already collected the vast majority of the payments. It was a total of $45 million for the entire package. We're pleased by this transaction and welcome the opportunity to monetize those assets and redeploy the capital elsewhere. So any day now, we should close out the final portion of it.

Okay. So you got the $45 million before quarter end or you've got it sometime in July or August?

A mix. Some of it was received prior to the quarter end, and a chunk of it was received subsequent to June 30.

Okay. Can you tell us how much was received post June 30?

Jennifer, you might need to help me out here. I think it's somewhere in the $12 plus million range.

That's about it.

Okay. Good. And in the assets held for sale, is that all helicopters? Or are there certain businesses -- certain business assets that are held for sale as well?

It's not businesses, but there are a couple of fixed-wing aircraft in there. Is it fair to say that it's all aircraft.

Okay. It's all aircraft. Okay. And in terms of rationalizing it, you're coming out of the Brazilian operation. Are there any other operations that are not core going forward at this point, in your opinion?

Without getting into one specific one, we are taking this opportunity, having now come together with the merger to evaluate all the components of our portfolio and make sure that each of the region, each of the business deals that we're in, justifies itself through sustainable profitability. And so we're in the process right now of carrying out that evaluation. If there are any changes that we feel like we need to make, we'll do that.

Okay. Fair enough. I guess, and finally, on the M&A side, maybe you can elaborate what your thinking is there. Obviously, a lot of your competitors are probably struggling maybe they've got key market shares in certain regions you want to be in, maybe there's an opportunity to advance the search and rescue operation by convincing governments to outsource it to you. Kind of how does all of that enter into your thinking?

So we do believe, as you've referenced, John, that there will be other potential M&A opportunities out there. We are evaluating the opportunities for consolidation. We think there may be attractive situations in certain international markets that have a lot of the similar benefits that inform the Bristow Era merger. And the ability to consolidate a market, take out costs, get better absorption of the significant cost required to run an air carrier. So we are looking at those. I think there are markets in the North Sea, some perhaps in Brazil, that would be at the top of that list. So we are -- we will continue to monitor those situations. And if something becomes actionable and is compelling from a value creation standpoint, we may proceed with it.

Our next question comes from Sam Mitchell, Empyrean Capital.

So you put out $172 million of LTM EBITDA. Can you provide an estimate of what that would be pro forma for Bristow's post-bankruptcy lease costs?

Sam, thanks for the question. We haven't disclosed that, but we can follow-up with you on that what the specific run rate benefit would be adjusting for what was already captured in the reported LTM period.

Great. And it sounds like you expect pressure on activity levels, given pressure in oil and gas. Can you comment that on the pricing environment? And any, I guess, either pressures or opportunities you expect on pricing?

Well, for competitive reasons, I won't discuss the specifics of pricing. However, I would note that in our sector, really, there's not much to give on pricing, given the situation that we've been, the conditions that we've been in for the last several years. So when we have customers who are looking to reduce their cost exposure, we'll work with them to see if there's a more efficient way to structure the operations and support for them. But again, on the pricing front, there's just really not much of anything to give.

Great. And then following up on kind of the last series of questions. Well before the Bristow Era deal, you spoke about the need for consolidation. I guess, as the environment seems to be becoming more distressed, and you're the only free cash flow generating company with a healthy balance sheet. Do you have any updated thoughts on whether that consolidation evolves via M&A or just simple organic share gains?

It could be both. And certainly, I think the level of stress on the industry today may accelerate the actionability of some of the consolidation opportunities, of course, all of it would have to make sense financially and be value creative relative to our other opportunities to deploy capital. But we do see some promise and believe that there could be some attractive opportunities for us to pursue on the M&A front?

Great. And then last question for me. So recognizing that you're not providing guidance at the time -- at this time. During your January presentation, you provided a target of $240 million of pro forma EBITDA. You've increased the synergy number today. But you've also noted pressure in oil and gas. I guess, given your confidence around synergies given the lack of cyclicality in the U.K. SAR business. Is there kind of sort of a minimum level you can provide or comment on, if it's $200 million or more over the next 24 months possible there? And just kind of any higher level color without specific guidance that you can provide.

Well, what I would say is that there are some gives and takes. I think you rightly point out that we have a very stable portion of our business and our government services work, including the U.K. SAR contract that you mentioned. In our offshore oil and gas business, we think that, that industry globally, that market globally is going to contract given the pressure that it's under. And that may largely come in the form of reduced exploration and development activity. And so paring back to largely production support. Understanding that there will be some exploration and development activity that moves forward even in a difficult environment like today. For example, the work that we support in Guyana is a good example of that. We do think that, that drilling and development activity will continue and will be a relative bright spot globally, and we benefit from that being the one provider in the country as well as across the border in Suriname, very similar dynamic. We're the helicopter provider today in Suriname, and we expect that, that activity will continue to be a relative bright spot globally given the promise of the reserves in that basin.

And then, of course, we're very focused on what we can control and what we control -- can control is our cost structure and making sure that we're as efficient as possible and looking for opportunities, not just in the synergies, where we did increase the identified target, the $45 million, as you noted, but also in nonmerger synergy-related areas where we can just operate more efficiently around the world. We will be looking at opportunities to do that so that we can continue to generate the positive cash flow, which we expect.

(Operator Instructions) Our next question comes from Chris Vale, Tier One Capital.

Great quarter and congratulations on getting this merger done. So one question from me on the EBITDA in the quarter. From legacy Era, was there only a de minimis contribution to the $46 million from legacy Era? Is that correct?

That is correct, Chris. We just had 19 days of contribution in this current quarter from the legacy Era business. So your de minimis comment is very accurate.

Okay. And then I know you're not doing a pro forma, but you did disclose the full year legacy era EBITDA. And of course, it has been reported quarterly up until now. So to me, it looks like it would have been $7 million of EBITDA just doing that arithmetic in Q2 at legacy Era. Am I doing my math right?

Jennifer, I don't know if you want to address that one.

I mean, I haven't -- you're in the ballpark, right? If you take the last 3 quarters and back into the number. And on -- the Page 15 of the presentation has details.

Okay. So would I be crazy to say that it might have been $46 million plus $7 million or $53 million had we included legacy Era or in that ballpark?

Yes. I think that's the right neighborhood, Chris. And again, I think important to stress, that's really all pre synergies because given that there are only 19 days in the period, just a de minimis amount of benefit from synergies during that time.

Great. Well, listen, congratulations, again. That's all I had. You guys are rock stars, when everybody else is going down, you guys are the last man standing and doing great. So good job.

I appreciate the kind words. Thank you, Chris.

There are no further questions in the queue at this time.

Great. Thank you, Travis. Thank you, everyone, for joining the call. We look forward to talking again next quarter, which will be the first full quarter for the combined company. And we look forward to updating you then. In the meantime, I hope everyone stays safe and healthy. Take care.

Thank you, ladies and gentlemen, this concludes today's teleconference. You may now disconnect.