Q3 2021 Bristow Group Inc Earnings Call

And then.

[music] net.

Good day and welcome to the Bristow Group fiscal Q3, 'twenty 'twenty One 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 and General Counsel. Please go ahead.

Thank you Jordan and good morning, everyone welcome to Bristow group third quarter fiscal year, 'twenty, 'twenty, one and earnings call.

I'm joined on the phone today, with our President and Chief Executive Officer, Chris Bradshaw, and senior Vice President and 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 three of our investor presentation you.

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 will now turn the call over to our President and CEO Chris.

Thank you Crystal.

And welcome to the call everyone.

And as always I will begin our prepared remarks with a note on safety, which.

Bristow is most important for value.

And our highest operational priority.

I want to thank and commend all of our Bristow team members.

For their focus and dedication to place safety first every day.

Spike the numerous potential distractions and the world around us.

We have achieved our target zero air accidents, thus far and FY 'twenty one.

And remain committed to achieving the highest safety standards.

To ensure that all of our customers.

And employees return home safely.

We were also pleased with our financial results this quarter.

Which demonstrated resilient revenues and adjusted EBITDA performance.

During the quarter and repaid $41 million of debt.

And the purchase for 100000 shares of common stock.

With our strong balance sheet 345 million.

Total liquidity.

And continued positive free cash flow generation.

Bristow possesses industry leading for flexibility.

The company continues to make significant interest.

And progress.

Following the merger.

June 2020.

We have increased.

And like synergies.

Your line.

And your wife.

And savings.

Which was 50 million higher than the original.

As of January 31.

For two projects, representing $27 million of annualized savings have already been completed.

We expect to capture over 80% total synergy projects.

By the one year anniversary of the merger.

<unk> and a more efficient cost structure for the company.

I want to take a brief moment to note that we do not expect and material impact to Bristow is business from the recently issued executive order that pause, new oil and gas leases and federal waters.

To begin with Bristow is currently servicing just three drilling rigs and the U S Gulf of Mexico.

Which evidences our limited exposure to drilling and exploration activities.

With the exception of a few helicopters supporting gross drilling rigs.

The rest of our helicopter fleet and the U S Gulf of Mexico.

<unk> production work and other activities.

Furthermore, the suspension announced and the executive order applies to the issuance of new leases not activity on existing leases.

This is underscored by the fact that 22, new drilling permits have been issued and the Gulf of Mexico Since President bought and took office.

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

Thank you Chris.

I'll begin with a sequential quarter comparison of breakfast financially as well.

EBITDA adjusted to exclude special items and asset disposition was 47 million and for the third quarter effect for your 'twenty 'twenty, one compared to 54 million and the second quarter or a decrease and $7 million.

This decrease was primarily due to foreign currency gains and the prior quarter.

Revenues increased $4 6 million, primarily due part sales related to helicopters called and increased oil and gas revenues due to higher utilization and nice rate.

Operating expenses were $3 7 million lower due to severance costs recognized in the previous quarter, partially offset by higher maintenance costs.

General and administrative expenses were $1 3 million lower due to lower professional services for you.

In addition, there was an impairment charge of 52 million during the quarter related to the investment and Cougar and Canada. It is considered a special items and not and adjusted EBIT.

As a reminder, the close of the merger was on June 11th and due to the fact that breadth there was the Cathy and acquire and the transaction the previous year comparable quarter does not include 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 will focus on the pro forma results I guess legacy Bristow and era, where emerged and the prior year quarter.

With that reminder, I will move on to the current year quarter versus pro forma prior year quarter discussion.

EBITDA adjusted for special items, and Massachusetts, and with 47 million and the current quarter versus pro forma EBITDA adjusted for special items and the prior year quarter at 53, and I am the primary driver for the decrease and pro forma EBITDA as higher foreign currency gains and the prior year quarter compared to the current year quarter.

Revenues decreased 55 million, primarily due to lower utilization and oil and gas and fixed line services.

Operating and expenses were 50 million and lower due to decreased activity.

General and administrative expenses were 14 million lower primarily due to lower compensation costs and professional services.

Finally, we generated adjusted free cash flow, excluding net capex of 27 million and for the current quarter.

The adjusted free cash flow, excluding net capex was lower than the previous quarter, primarily due to changes in working capital due to the timing of payments.

The average and the two quarters is approximately 42 million and free cash flow normalizing for timing of payment.

In addition, we generated $11 million and net proceeds from the sale of helicopters during the quarter.

At this time I'll turn the call back to credit for further remarks.

Chris.

Thank you Jennifer.

Yeah.

Following our recent merger the combined Bristow has a larger and more diversified company.

With aircraft located in 15 different countries.

We enjoy cash flow stability, resulting from our government services contracts and.

And in oil and gas business that is more than 80 per cent weighted production support activities.

The last two quarters of combined company financial performance clearly demonstrate the benefits of the merger and.

In future periods will benefit from additional synergy capture as we ramp up to the full $50 million run rate savings.

Going forward, we will continue to execute our capital disciplined approach.

Focused on generating positive cash flow and protecting the balance sheet and opportunistically returning capital to shareholders.

With that let's open the line for questions Jordan.

Absolutely so if you'd like to ask for questions. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off for logistic not to reach our equipment again Thats star one to ask the question and I'll pause for just a moment to allow everyone the opportunity.

Yeah.

And it does look like we have our first question for Adam Ritzer.

Please go ahead.

Hi, good morning, Thanks for taking my question.

Okay.

I'm, just wondering how to slot and walk the whole lot.

And especially in the Gulf of Mexico.

How are they still granting permits which we said we don't want any more leasing could you maybe give a little more detail on what's really going on down there.

Sure. So the difference between a lease and a permit is that at least has the right to that plot of water and the seabed underneath it.

Those are awarded and auctions that take place periodically over time.

A permanent would be specific to a well and activity that the oil and gas company is performing on the lease debt. The company has has the rights to so the permits that have been issued and again 22 of them.

President of items for golf has had been issued those are for existing leases. So effectively what the current suspension does is.

Pause the issuance of the new leases are our rights to.

Work on new plots of of water and the underlying seabed.

Got it okay and thanks for the explanation a question on Walnut shelling more and it seems like almost every day.

And as you know new well drilled and coffee.

And as being active and debt and that trend.

And maybe talk about carbon copies.

It's hot down there now and potentially what that might look like over the next carnival read of five years.

Okay.

Sure. So the Caribbean triangle has certainly been one of the bright spots for us and remains a bright spot for us globally.

First and Trinidad where we've had the leading presence for more than 60 years now that that market has been fairly stable over the last 12 months. Despite the overall challenges and the broader oil and gas industry, and then across the waters and Guyana, and Suriname, which you mentioned were Bristow is currently the sole operator today of offshore Hello.

Copper support to the oil and gas companies, who have had such success for.

Finding the prolific reserves and.

And in those two countries thus far.

We currently have a handful of helicopters are servicing.

For the customer and Ghana.

And a few <unk>.

Servicing a variety of customers and Suriname on their exploration projects.

That market has grown during the last downturn, it's growing now and we expect it will continue to grow in terms of a specific number we're not quoting or targeting a specified aircraft count by a certain date, but I do think globally. This will be you know.

Perhaps the highest growth rate offshore oil and gas region that we see.

Okay great.

And I'm sure you guys considered Rousseau air and sea.

Call, which we'll discuss with the council for William.

My simple scrubbers and pencil over 100 aircrafts over the next 10 years to you talked about.

What you have going on there or what.

What are your plans for <unk>.

Dissipate and the wound growth.

Yes, we are optimistic about that model, we do think that offshore wind will be and important part of the global energy transition over the next several years, it's already a fairly mature market in Europe, and Asia, but one that's expected to continue to grow rapidly in those areas and regions.

The market is very much and nascent one here and the U S. But again is expected to grow significantly with multiple.

Multiple projects and billions of dollars scheduled to be invested in and we believe are more on the hills of debt.

It's a day at Bristow, we did not have any exposure and the U S. That's because the one operating wind for them today is so close to shore that it's supported by boats, but the new wind farms that are scheduled to be developed are going to require offshore helicopter support. We think bristow is very well positioned for that given our extensive experience opera.

And difficult offshore conditions, and importantly, the thousands and thousands of hours that we have with hoist experience.

Which is incredibly important when you get into the operating and maintenance phase of the wind for them. So.

A very much a nascent but we'll be growing market and the U S. We think we're well positioned there in Europe.

And post merger this is going to be a strategic priority for bristow to penetrate that market and take advantages of some other growth opportunities that we see there and.

And so we're working now to position ourselves. We do think there will potentially be some more near term work that will be available in Europe, given the already well established nature of that so.

No exposure today, but definitely a share a new strategic priority for the company and one that we're opportunistic about the potential and that market.

Great deal do you have copiers and the food and morale Watson service some of those things and launching or would that require.

And on Capex.

So it's really two important phases to the lifecycle of and offshore wind farm at the beginning and the development and construction phase. The helicopters that are used to support the work, which are really transporting those construction crews to and from the offshore facilities are very much what we have and the fleet today the most.

Competitive model would be and AWS, three nine and crew change configuration. So.

Definitely within our wheelhouse as you know, we're the largest operator of one three times and the world today after.

After the field and the wind farm is is operational you transition into the operations and maintenance phase or O&M phase of our lifecycle.

For that work day mission profile is.

Hoisting the maintenance technicians down to the top of pistol and the pistol to do the work that they're required for either scheduled or unscheduled maintenance.

And for that the most.

Likely helicopter models would be new variance of light twin helicopters.

And this would be either H, one for Pfizer IW, one six nines that are the most popular and that industry today and for that we would need to go.

And spend some capital to bring those new variants into our fleet, but we think the.

Returns and the attractiveness of that would justify that new capex. If we are successful and winning the work.

Got it and I would assume though and for a number of years without contracts.

Purchasing and your bill.

And with that.

For a statement.

We will remain disciplined.

With our capital I.

And I think you know as you referenced this is not a build it and they will come type approach and we're gonna be disciplined with how we would look to deploy capital because we do believe we have other attractive uses for capital allocation.

What happened with Cougar and.

And I looked into Q1 quick and sudden losses submitted to the customer.

And why.

And just wrote down all of a sudden instead of for them.

And what's the bankruptcy.

Just for everyone's talking about bigger yeah, yeah yeah.

Adam.

Good to talk to you as we disclosed in our previous filings. We you know we monitor our equity investments for other than temporary impairment there were events during the quarter that led us to determine that the carrier and that's not with other.

Other than temporarily impaired.

But most notably the loss of a customer who also wrote did and charges and impairment of about $425 million and the consolidation of the market up there.

Which which which led us to imperative and back now we do continue to lease aircraft and fatalities and say okay. Here. It is part of their operations and expect to do so going forward.

The market up there has deteriorated quite a bit during the quarter.

Okay got it and is there any update on what's going on and with it either and negotiations on getting debt.

<unk> sold and finished off.

No update there Adam we have exited our shareholder position and and leader we are working through the procedural process there too.

And to recoup.

Money for our former interest, but no material update there.

Okay.

And what is there anything new going on and consolidation award and notice that pivotal trials for both high and the bunker.

That might just be for the multiples and the backdrop is reviewing everything there's rumors of CA.

GUL and chapter 22 <unk>.

Haps and give us any color or comments on the consolidation and and <unk>.

Well I can't comment on any specific situation, but I would say that we continue to believe that the industry.

Needs and would benefit from additional consolidation.

A lot of the rationale debt that underpin the logic of the Bristow are a merger would apply and other combinations and different parts of the world, where there is an excess amount of capacity to too much equipment too many operators and.

And we believe the market with benefit for consolidation.

And from our perspective, we continue to see interest there and it is.

And if there's a another transaction that has some of the similar benefits of consolidating our market.

Creating value from synergies by eliminating overlapping costs, we would be interested and that.

But any potential M&A opportunity, but need to fit within our financial parameters as well and our strategic priorities of maintaining a strong balance sheet.

And positive free cash flow profile. So we as we've been in the past and we're gonna be disciplined and and any approach to consolidations.

Okay, great. Thanks, Alan I'm, sorry to ask for many questions I'll jump back in line. Thank you.

Great. Thank you Adam.

And again that is star one to ask a question. If you find your question has been answered you may remove yourself from the queue by pressing star two and we will take our next question from Jason span with Clayton. Please go ahead.

Hi, guys. How are you this morning.

Hi, good morning.

Yeah.

Yeah can you can you elaborate a little bit more on Cougar I'm just.

I guess it wasn't just one customer leaving that forced you to have the write off just trying to get a sense of.

Are we bottoming with regard to kind of.

Pricing and and customers and kind of the cycle here or are we are we still are.

And trying to find and the bottom.

Yeah.

Well specific to Cougar witches, and East, Canada, and it's been consolidation there that market is challenged and yeah I.

I'm not sure we can predict when and where the market bottoms that but we did have a significant customer that day that and impairment net debt at the same time, we are doing the impairment and a couple of other customers that that consolidated which for the strength of that market.

Yeah, and I would I would add globally to two.

So that that I think we were pleased with the resiliency that we've seen and our our revenues over the last couple of quarters. Do you think you can see that we were actually up.

A modest amount sequentially, so I think.

Beyond just Canada on a global basis, we are seeing signs of the market stabilizing off of obviously what are the lower activity levels.

But stabilizing and we are.

Not expecting any broad based.

And I forget market recovery and calendar 'twenty, one and.

And that's okay, because bristow will still generate a substantial amount of free cash flow this year even.

And with oil prices, where they are.

As we get into 'twenty and 'twenty, two and beyond we are more constructive about what will be a need for a growing offshore oil and gas market and we're very much positioned to benefit significantly from that upside when when the market recovery does come.

Okay, that's helpful and.

And then the slide that you put on.

On slide 13, its kind of and.

Interesting.

And the net book value is there is there a.

Net margin, which you guys.

Think about it is appropriate to earn offer that and.

If I look at G H T X or should we be.

How should we be Comping, you and Oh.

Thinking about the expectation of a net margin for for Bristow.

And then as your goals going forward for returns on.

And that capital.

Sure. So we haven't disclosed and and does discuss externally a specific return thresholds that we're targeting for competitive reasons I would note and industry as a whole has really struggled to earn any losses.

And in return.

But I think clearly and the case for Bristow and what Youre seeing now is a real cash flow generating.

Company, and we think that we're going to have an opportunity to earn.

Attractive returns as we really pull through all of the synergies from the from the merger and get our cost crusher to as efficient as it can be and continue to be focused on generating positive free cash flow, which we're doing now and we've done and a substantial way over the last couple of quarters, even a very depressed environment.

Okay.

And I guess and lastly can you just can you talk a little bit to capital allocation are you able to buyback.

Your higher cost and debt and and.

When should I guess between buybacks and I was surprised you didn't buy back more stock in the quarter and then.

What are the limitations on your ability to buy back the.

The high cost debt relative.

Relative to our cash earning nothing.

This is the balance that you guys are thinking about there and in New York and the sense of urgency you have.

Sure.

So first of all I'll review, where we see our capital allocation.

Allocation alternatives, and then kind of talk about what we've done recently and and also what we're looking at so.

We think that in this environment, given the challenging conditions and the broader oil and gas market and a limited amount of visibility that that priority, one and should be protecting the balance sheet.

We also believe that we will have opportunities to return capital to shareholders.

On an opportunistic basis and.

And then beyond that we do believe that for M&A and having a strong balance sheet for some of the consolidation opportunities that we spoke about earlier and the call is an important strategic advantage and then finally.

Capex for new aircraft is not expected to be a significant source of capital allocation.

And in the near to foreseeable future. However, caveat there if if we do win a new government search and rescue contract or and offshore wind opportunity that we talked about earlier and the call. Then we might have a very focused need for for new aircraft. There. If the returns are right and so that's how we see our alter.

<unk> recently.

Much been both protecting the balance sheet with with debt Paydowns and we paid down.

A great deal of debt since the merger closed last June.

At the same time, we've also returned.

Some capital to shareholders through targeted share repurchases on an opportunistic basis.

Since we announced the $75 million share repurchase program. This past September we bought back about $10 million worth of stock.

So again, we think given our strong balance sheet are.

The high visibility of continued positive free cash flow generation that we can both protect the balance sheet and repurchase some shares however, given the limited visibility and the broader market I discussed earlier priority one a will be protecting the balance sheet.

And that note is as you've pointed out we do have a large cash balance today.

We are evaluating our options.

And for our debt structure.

We are aware that there have been.

And some tightening attractive market conditions and and in the financial markets over the last couple of months.

And if you know if we have an opportunity to go out and do something that would.

Benefit the company in terms of simplifying the balance sheet, and maybe extending some maturities and all of that can be accomplished on a on an attractive rate. Then I think that's something we're going to be interested in pursuing so we're actively monitoring our opportunities there and if we see something.

We're going to try to take advantage of that.

Okay, Alright, and then I guess, just lastly on the debt side.

Is it debt liquid enough for you to buy like in the when we open market or is it just not really really trade.

And the high cost.

Piece.

Yes, the seven and three quarter percent notes are very thinly traded we were able to buy back $12 million face value of those notes in November at a slight discount to par we bought them back at 97 and and a half.

And so we're really pleased to bring those back in.

But to your point they are very thinly traded.

And I think some other holders are or are you happy to just two.

And to carry them because I think many people view it as just money good.

Alright, thanks, so much I appreciate your time.

Thank you.

Okay, and we'll take our next question from John D share with Pinnacle.

Please go ahead.

Good morning, everyone.

Hi, John Good morning.

Good morning, I was just curious Chris.

What is your visibility.

For calendar 2021.

Versus 'twenty I know probably.

Most of the offshore oil and gas budgets of your customers have been set.

And I think you've alluded to this earlier, but.

How does 2021 to look.

Versus 2020 for the offshore oil and gas market.

If I if we look at the two most recently reported quarters are our fiscal Q2 and Q3 quarters ended September and December.

Respectively, I think what we've observed John is that the.

Activity seems to have stabilized revenues were consistent between the two periods actually up a little bit a modest amount.

Sequentially. So we are.

We are seeing some stabilization and the market for calendar 'twenty, one we're really not counting on any broad based and significant increase above.

And where things are today, which again is okay, because we're going to generate a substantial amount of cash flow this year regardless.

Where we start to be more constructive on.

Additional spending from our customer base is in 2022 and beyond and we know there needs to be another spending cycle here because today's level of under investment is not sustainable it's going to result, and and higher commodity prices and and that we'll see.

More dollars go to work and deepwater projects around around the world and that should benefit our business.

Okay great.

Great.

Can you remind us as of <unk>.

December 31.

What percentage of the business offshore oil and gas was contract.

Spot and do you anticipate any contracts rolling off.

And the next 12 to 18 months that might impact your business.

Yeah.

Jennifer.

And I'll, let Jennifer comment on on the approximate mix of how much is contracted I would say in terms of what's coming up from time to time, we have both new contract opportunities and contracts.

And that are rolling off, but there's nothing that we expect to have a material business and obviously.

We're focused.

Not just on retaining our existing work, but also on winning the.

The opportunities that are available out there.

Jennifer do you want to comment on the <unk>.

Contract versus that hub.

Sure I mean, I don't I don't have precise percentages, but theres a couple of markets, where our spot for where we have more spot activity than others and Gulf of Mexico being one of those.

Do.

It's a low percentage number and especially after the overall revenues around the world today, and the Gulf of Mexico, and a couple of other places paths and spot, but it's not a large part of the overall revenues.

Okay, so contract might be what 80 or 90 per cent of the business overall offshore.

Yeah, that's directionally correct right okay.

And.

And don't anticipate anything rolling off that would material impact.

The business going forward.

No not that we're aware of today and we have some shorter term projects for supporting we have others that are scheduled debt that may be ending and we have others that are scheduled to pick up so there will be some some pluses and minuses throughout the course of and a year, but we're not looking at any kind.

And a material impact to the business at this time.

Okay.

Great.

And good luck.

Thank you.

And it would appear that there are no further questions on the phone line at this time.

Great. Thank you Jordan and thank you everyone hope everyone continues to remain safe and well and we look forward to speaking again next quarter take care.

And this does conclude today's call. Thank you for your participation you may now disconnect.

Yeah.

Yeah.

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And.

And.

Yeah.

Uh huh.

And.

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Okay.

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