Q4 2021 Bristow Group Inc Earnings Call
Good day and welcome to the Bristow group fourth quarter and full fiscal year 'twenty 'twenty..1 results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to you Crystal Gordon Senior Vice President General Counsel. Please go ahead.
Thank you Olivia and good morning, everyone welcome to Bristow group fourth quarter and full fiscal year 'twenty 'twenty 1 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 3 of our investor presentation.
You may access our investor presentation on our website.
We'll 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.
Which is bristow is most important core value and our highest operational priority.
I want to applaud all our Bristow team members around the globe.
Their excellent safety performance in FY 'twenty 1.
Right, the numerous potential distractions and the world around us.
We achieved our target of zero air accidents in FY 'twenty 1.
And we've realized a 57% year over year reduction in lost workdays.
This improved workplace incident rate included zero recordable incidents in the U S. Gulf of Mexico, which is the reason 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 value customers every day.
On our last Investor call, we discussed the importance of protecting the company's strong balance sheet position and.
And we were very pleased to complete a significant refinancing transaction in February.
When we closed a $400 million offering of 6 and 7.8% 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.
An extended debt maturity profile.
Reduction in mandatory amortization requirements.
And the elimination of operational friction costs related to the former credit facility.
We're still continues to possess industry, leading financial flexibility and.
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 31st 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.
In addition to challenging conditions on 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 <unk>.
You were daylight hours and more inclement weather days.
Historically, the fiscal fourth quarter as accounted for approximately 20 per cent of the combined company's full year adjusted EBITDA.
Despite the challenging industry conditions.
Still continued to generate a substantial amount of free cash flow on a quarter.
Other 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 net finance.
Resolved.
EBITDA adjusted to exclude special items.
A $30 million for the fourth quarter fiscal year, 'twenty, 'twenty, 1 compared to $48 million in the third quarter or a decrease of $17 million.
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.
On the station.
Revenues decreased $18.8 million, primarily due to lower utilization in oil and gas operations, including a $9 million decreased due to a change in revenue recognition from Cougar, all of which directly in EBITDA.
Operating expenses were $8.7 million lower due to decreased personnel costs, resulting from headcount 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 would also note that we recognized a.
A loss on extinguishment of debt related to our refinancing that occurred in February.
The loss was primarily non cash related to accounting adjustments from the fair.
Fair value of that.
As a reminder, the close of the merger was on June 11th Twenty-twenty and due to the fact that Bristow was the accounting acquirer in the transaction in the previous year comparable quarter does not include the results from legacy Era Group Inc.
Io 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 its legacy Bristow and era, where emerge 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 with $30 million for the current quarter compared to $31 million in the prior year result.
The prior year quarter results were impacted by $16.5 million and net foreign currency losses versus $2 million in the current year quarter resolved.
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 headcount.
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 $400000 loss on the current year.
Finally, we generated adjusted free cash flow of $55 million for the current partner.
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 payment.
Since the merger last June we have generated $141 million and 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.
Yes.
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 affects receipt.
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 GAAP following years of underinvestment.
Essentially all industry 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, we will see Midland offshore activity as oil and gas companies maintain spending your strength in 2021.
But we believe this will be followed by a multi year growth period, beginning in 2022 and beyond.
Bristow will benefit from this multi year 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.
Thank you.
If you would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star 1 to ask a question we will pause for just a moment to allow everyone the opportunity to signal.
Our first question is coming from James West with Evercore. Please go ahead.
Hey, good morning, guys.
Good morning, James Chris Chris.
Chris.
The school of fourth quarter of the calendar first quarter.
More seasonal than a typical or about the same Q.
Curious it missed the rural or estimates about a little bit, but you know again, the 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 day. So we would always expect always expect some seasonal weakness in the March quarter.
The decline in oil and gas revenues, which is really accounting.
Our other service lines, we're actually positive on a sequential quarter basis.
Okay.
On an aggregate basis, but on oil and gas revenues were down about 10%.
That amount.
We would say that between a third and a half 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 a third 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, Rob steering more and more about cyclical recovery offshore activity.
Improvements how would you see I mean, you alluded to it looks like 'twenty 2 is going to be you know better up to the right and multi year, but what types of or how should we think about the magnitude of the improvements in our flight.
Your flight hours.
Or revenue however, you want to describe it.
As we think about next year.
Looking forward to 2022, where we do expect a more broad base 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 those from exploration projects that are moving forward in our Guyana, Suriname basin as well as the <unk>.
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 as 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 and next year I don't know, but we expect that the market will recover.
We're still will benefit significantly from that recovery when it does happen.
Maybe order of magnitude frame some of the decline we've seen in certain business areas around the world.
Okay. That's that's very helpful. Maybe I could squeeze 1 more in here Chris.
Chris.
If you look at.
Additional search and rescue outsourcing opportunities how was how has those Permian up as we think about the next couple of years. So I know there's a there was a lot that was about to be bid a new kind of pre pandemic and get back to normal or should we expect to see additional.
Awards and wins in that part of your business.
Yes, we expect that will continue to be on a nice growth opportunity for our business. We believe bristow remains very well positioned there as a global leader in search and rescue support the 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 but the Netherlands should be known by the end of the summer the U K SAR 2 G, 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 timeline, which is subject to some variability.
It's likely that we won't know the winter of UK SAR 2 G until the end of calendar 2022.
And 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 solar market.
Okay got it thanks, Chris.
Thank you.
Next we will go to Adam Ritzer, a private investor. Please go ahead.
Hey, guys. Thanks for taking my call.
I just wanted the questions I had is it seemed like Q4, there was a lot of noise in terms of charges expenses cost et cetera.
Is this because at the end of the year do you expect things to get a little cleaner going forward.
Hey, good morning, Adam.
Some of it's related to the merger and some of it is related to the refinancing traction transaction.
And others I think just to just to 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 what will be a much wider.
In the in the period that we've just reported on there were merger related cost that Jennifer spoke to of about $16.5 million as well as additional restructuring cost of about $8 million and then we had a large charge related.
Related to the extinguishment of debt related to the.
Refinancing transaction that we completed during the March quarter. So those were very very much 1 onetime non recurring items there.
Yeah.
I guess the other thing as you I know you talked about your savings so far the synergies, but if you look at your G&A expenses.
<unk> you know year over year, you don't really see much of an improvement there on is that hidden somewhere else because some 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.
If we look at it on a year over year basis to day, comparing Q4 of FY 'twenty, 1 to pro forma Q4 of FY 'twenty.
G&A expenses.
On a on a pro forma basis were down about 16% year over year. So you are seeing a significant amount of Av.
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 on.
We're making good progress towards our we expect that will only.
Increase.
Because it looked to me that you know 2020 versus 21 was about flat 153 million versus $1.53, but and maybe I'm looking at the wrong way I guess on at all.
What about the buyback I know you guys have a ton of excess cash generating a ton of free cash plus our asset sales have suddenly 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.
So I think we think we're on a great position.
Now given the capital and the cash will be allocated to those balance sheet needs in the March quarter.
Forward, certainly return on capital to shareholder shareholders, including through some opportunistic share repurchases will be an important consideration in alternative that we look at for capital allocation.
Along with continued protection on the balance sheet and and also with an eye towards the 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 on 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 on sale to C. H C.
So no specific comments around individual situations I would note, though that we've.
We've spoken about and you've heard from us over the last several years the benefits at the industry will realize from consolidation and because of the excess capacity that has existed in terms of too much equipment too many operators.
Holiday 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 on that but also more broadly in the industry. We think consolidation is good.
Okay, Yeah, there'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.
Okay and then 1 last question I know Capex looked like it was about $15 million last year, what do you expect it to be for 'twenty 2.
And what about cash taxes did you take cash taxes last year do you think you'll become a cash taxpayer on.
That would be about it.
Hi, Adam it's Jennifer.
And on the Capex front and in our S..4 and the merger document we did have a we expected capex to be between.
$20 million to $30 million I still think that.
That's a reasonable expectation and then from a cash tax perspective, same we had somewhere around $15 million to $20 million in their.
Primarily in other jurisdictions not in the U S that is all conditioned upon the you know.
If we saw more aircrafts et cetera that will change that but as it stands today.
It's still not $15 million range, it a reasonable expectation.
Okay, great. Thanks, very much for answering the questions I appreciate it.
Thank you.
Next we will go to Jason Stankowski with Clayton. Please go ahead.
Hi, guys.
Thanks for taking the call.
When you when you look at sort of where you are at right before the merger last year and the environment.
Kind of in this timeframe.
On.
Today do you see do you see this year between now and say this time next year as being.
As the environment worsened such that the.
The business is.
There's 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.
Just trying to understand whether we're sort of still searching for the bottom or are we kind of hit it on.
The last 9 months of calendar 2020.
Certainly the overall industry and the impacts on on.
On our business have.
<unk> 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 and 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 of particularly hard hit with activity levels down more than 40% on a 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 businesses is at much lower levels of activity there.
Dan what we witnessed a pre pandemic and youre seeing that certainly in our financial results. We do expect that there will be a recovery again, we're expecting debt 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 has really seen the full period impact of some activity declines debt that occurred in earlier periods along with the typical seasonality that we've spoken about that we are.
We see on on March 4th.
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.
So the companies you would be looking at that I think you've alluded to the fact that it would be nice to have to make a bolt on acquisition in that space to kind of give you.
You know a toehold there for future business and awards can you give us a sense of whether there is there is a multitude of players or there's really only a few for those of us but on sort of on the weeds in the industry.
Kind of on.
What the opportunity set looks like and could you build it you can't buy it.
Yes, I 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 helicopters supporting offshore wind projects today, but theyre 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 of development for the industry. So in the U.
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.
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 buyer build decision to make there whether we want to go with our loans go it alone on our mark in that market or look at a potential acquisition of some of the existing players.
Any 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 we would evaluate as part of that.
Analysis.
Okay.
That's helpful.
Okay.
Follow up with any any other things I have in the queue later, but I appreciate I appreciate your guys' time.
Thank you.
Our next question is coming from Brian Joseph with Empyrean. Please go ahead.
Hey, guys.
Just with the all the questions on the capital return on how much and debt.
Comment about fortification of the balance sheet, how much cash 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 that $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 last.
Smoking from given how satisfied you are so far with how the Mercury's going if another deal came up you would consummated 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 Ara merger and we are positioned to move forward on additional M&A. If it's there and it can be completed on the right terms.
Perfect. Thank you.
Right.
Our next question comes from John D share with Pinnacle. Please go ahead.
Oh good morning, Thanks for taking my questions.
On the wind side does.
Any portion of the fleet has to be reconfigured.
To be able to.
Surface construction of an offshore wind farm.
Is it the same.
Fleet that you already have.
Hey, good morning, John There are really 2 separate phases of the offshore wind farm support for helicopters. The first is in the construction and development phase on it and that stage, we're really moving the construction crews in that part of the business is very similar to our offshore oil and gas crew transportation business. So we would use existing aircraft.
Kraft 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 lifecycle, it's really a different type of aircraft specifically the latest variance of light twin helicopters.
<unk>, namely the AWS 1.6 on the H 1.5 that are best served to complete those mission as the requirement there is 2.
Voice, the technician's down to the top of the FIS Joseph They can complete.
The required maintenance work and so that.
That part of the wind farm support would likely require a new additions to our fleet going forward.
Okay, but I mean, you got to build it first then you can service.
Surface the building construction element of it with the current fleet.
That's correct okay. Good.
On the 22 or 2022 multi year.
Both cycle.
What should we.
Outside investors be looking at to see.
How that's materializing theres no backlog disclosed.
I know 80 per cent of your business I think is is contract base. 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 are that we 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 that themselves are expected to be roughly stable in 2021 with most third party estimates are really all the ones that we're familiar with are pointing to an increase beginning in 2022 okay.
Okay. Thanks, 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 per program in the fall of that amount through March 31, we had used $10 million. So there is a $65 million remaining under the currently approved program.
Okay.
There was 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.
Jennifer.
Theres still quite a bit of noise going on as we as we ran the synergies through it's likely something less than net quarter that we that we just completed but we.
We don't necessarily give guidance, but directionally.
It should stable out in the next few quarters as we get through you know.
80% of debt synergies.
But you know something less than what it is today.
Yes.
Significantly less I mean.
We're at a 28 million in Q2.
36 million in Q3, and now it's $40.7 million should we use.
Help us in terms of the magnitude of decline.
Well that has some special items in that when you look at G&A, all you have to sort of strip out of it.
All items to get to what the.
The run rate is as well.
All right.
It's not going to be I mean.
If you just strip out the special items.
The decrease after that will be not not.
Not on substantial that not like half or anything.
Sure.
I don't know what the percentage would be.
It will be less under debt today on a adjusted.
Adjusted for special items.
Okay.
Oh great.
Thanks very much on good luck.
Okay. Thanks, Sean.
Thank you 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 I appreciate everyone joining for the conference call today, and the questions and discussion.
I hope, everyone stays safe and well and 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.
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