Q1 2022 Bristow Group Inc Earnings Call
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Good day and welcome to the Bristow Group reports first quarter fiscal year, 2020.2 results Conference call. Today's conference is being recorded at this time of I'd like to turn the conference over to Crystal Gordon Senior Vice President and General Counsel. Please go ahead.
Thank you Casey and good morning, everyone. Welcome to Bristow group first quarter fiscal year, 2020.2 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.
We will also reference certain non-GAAP financial measures, such as EBITDA and free cash flow.
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 right.
Thank you Crystal and welcome to the call everyone.
As always I will begin our prepared remarks with the note on safety.
Which is bristow is most important core value and our highest operational priority.
We achieved our target of zero air accidents in the quarter ended June 30th.
And 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.
The company continues to make significant integration progress following the merger of era and Bristow of last year.
As of June 30th synergy projects, representing $42 million of annualized savings have been completed.
Which means that we have already captured over 80% of the total synergy projects at the 1 year anniversary of the merger.
Placing the company well on the way to achieving our target of at least $50 million of annual run rate savings.
In June and July Bristow repurchased approximately 1.5 million shares for gross consideration of $40 million.
Over the last 12 months, we have repurchased over 1.9 million VTOL shares for gross consideration of $50 million.
Representing an average purchase price of $25.92 per share.
Bristow is continued generation of robust free cash flows facilitated this return of capital for shareholders.
I will now turn it over to our CFO for a more detailed review of financial results Jennifer Thank you Chris.
As you may have noticed and our filing yesterday, we have modified the revenues by line of service table to more accurately reflect how management views the company's lines of service.
These changed changes include the addition of the government services line and.
And other services will now reflect revenue is derived from leasing aircraft to nongovernmental third party operators oil and gas contracts that did not materially fit into 1 of the 3 major oil and gas operating region and other services as Barak.
With that I'll begin with the sequential quarter comparison of Bristow is financially as well.
EBITDA adjusted to exclude special items, and asset and asset dispositions and that's $40 million for the first quarter of fiscal year, 'twenty 'twenty, 2 compared to 38 million and the fourth quarter of fiscal year, 'twenty, 'twenty, 1 or an increase of $10 million.
This increase was primarily driven by higher revenue and lower compensation expenses.
Revenues increased 7 million, primarily due to higher utilization and oil and gas and government services.
Operating expenses were 4 million lower due to lower personnel and maintenance costs.
Oh and administrative expenses were thrilled with the 3 million lower due to lower compensation expenses.
Merger and related merger related and restructuring costs decreased $15 million and $7 million respectively.
Furthermore, we recognized a loss on impairment of 22 million related to petroleum and air services, and unconsolidated affiliate and Europe and certain helicopters held for sale.
Also we recognized a loss of 2 million related to divesting of our subsidiary in Colombia.
As a reminder, the merger closed in June of 'twenty, and 'twenty and due to the fact that Bristow was the accounting acquirer and the transaction the previous year comparable quarter includes just 19 days of results from legacy Era Group, Inc.
All of the comparability of the periods presented I will focus on the pro forma results as of legacy Bristow and era, where emerge for the entire prior year part of it.
With that reminder, the current year quarter versus pro forma prior year quarter EBITDA adjusted for special items and asset dispositions of $40 million for the current quarter compared to 48 million and the prior year results. The decrease in EBITDA of $8 million from the prior quarter is primarily due to lower operating revenue.
Yes.
Revenues decreased 8 million, primarily due to lower utilization and oil and gas.
Operating expenses, excluding special items was 3 million higher due to higher fuel and maintenance costs.
Finally, we generated adjusted free cash flow, excluding net proceeds from asset sales of $39 million for the current quarter, which is consistent with the average for the 2 prior quarters.
Since the merger last June we have generated 180 million and adjusted free cash flow within the net proceeds from asset sales and continue to believe that this business model will have a history of strong free cash flow.
At this time I'll turn the call back to credit for further remarks, Chris.
Thank you Jennifer.
As noted on our last earnings call and on my recent letter to stockholders.
A positive outlook on the future demand for our services.
We continue to believe that the significant broad based increase and offshore oil and gas activity will begin next year.
We also believe that the second half of calendar 2021 will be better than the first half of this year.
Beyond oil and gas services, we believe strategic growth opportunities exist and government and military services offshore.
Offshore wind farm support and advanced here and mobility.
The particular Bristow is well positioned to win additional government SAR contracts and pending and upcoming tender processes and Europe and the Americas.
In conclusion, we expect the company will continue to generate a substantial amount of the positive free cash flow.
As demonstrated on our recent financial results.
We believe that our strong balance sheet and robust free cash flow profile present multiple opportunities to create value for bristow shareholders.
With that let's open the line for questions Casey.
Thank you if he would like to ask a question. Please signal by pressing star 1 on your telephone keypad now if you're using a speaker phone. Please make sure thing to me of function is turned off to allow your signal to retry equipment and again Thats Star 1 if you would like to ask a question and.
And we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Our first question will come from Amtrust me on the call with Evercore ISI.
Hey, good morning, guys.
Good morning.
Regarding your government services revenues this quarter and it seemed particularly strong.
Can you break down some of the drivers behind that and is that what we could expect going forward or was that somewhat of an anomaly just given the the prior period comparisons.
1 important thing to notice that we have done a reorganization of how we report our revenues by line of services. So there are now additional.
Contracts that are reported and government services.
Within that we include not just the UK SAR contract, but also the contract that we have with the U S Bureau of safety and environmental enforcement or Betsy as well as a number of other government contracts that we have and in various countries around the world. So we're now on.
Highlighting the government services line for all of government related.
The customer contracts that we have.
Within that and even normalizing for the the.
Adjustments that were showing the increased activity is mostly and increase in flight hours with the small benefit from foreign exchange as well.
Okay, great. Thank you.
The second question is just regarding your fleet.
Where do you feel like you are the in terms of earnings for the continued asset sales just trying to think about it.
The size of the fleet continues to shrink how the how I should think about revenue trajectory for 2 of total oil and gas revenues.
And so asset sales will continue to be of part of our business model I don't expect that there'll be nearly as active as they've been over the last 12 months or so when we came together with the merger of combining 2 large fleets. There was an opportunity really to rationalize certain fleet models and to sell some some nonperforming assets to the right cash.
The proceeds and for that capital for better uses so.
And so it'll be a likely of smaller number of asset sales going forward than what its been out of the pace of spend over the last 12 months, but we will continue to be a part of our business model. We've always viewed ourselves as managing a pool of capital of assets from which we're trying to generate the best return we have a few different avenues to do that 1 is operating the helicopters are our fixed wing aircraft.
Craft for ourselves for our own and customers and the of Casuals and we can generate from that a second as leasing aircraft out to other third party operators and being able to realize the cash flows from that and third is monetize and the aircraft through a sale of into the secondary helicopter market and it's pretty straightforward, but generally speaking we'll look at those 3 off the.
And of these and pursue the highest net present value 1 and sometimes that means that we're selling helicopters and so for that we're constantly looking at the residual residual value for all of the aircrafts on our fleet and being proactive and trying to manage on the sale of certain helicopter models of overtime. So it will continue but not.
Nearly at the pace of the last 12 months of our expectation.
Okay, great. Thanks for that and it's just my last question for now.
Do you have any high level of just qualitative color on and on the M&A market, whether on a regional basis or.
Just the ability and willingness for for other operators out there to engage and those kind of conversations.
Certainly so at a high level, we are remain optimistic about the potential for attractive consolidation opportunities and our industry, particularly.
Particularly in certain regions around the world there are certain regions such as the U K sector of the North sea or Brazil, where there continues to be an overcapacity of equipment and and number of operators and we think that the industry.
The benefit from and and in many ways actually needs consolidation to reach of more sustainable.
State and in those areas and.
And again, we're optimistic about that and we think bristow is as well positioned as anyone to bristow.
The patent on consolidation.
Great. Thanks, guys I'll turn it back.
Thank you.
Our next question comes from John <unk> with Pinnacle.
Oh good morning, everyone.
Good morning, John.
Just curious Chris on the share repurchase we are.
Very happy that you spent a $40 million buying back stock and I was just wondering is there anything left on the authorization of 50.
Or.
Maybe you can help us with what's outstanding there.
Certainly the last September of the board approved the total of $75 million share repurchase grant.
As of now we've used 50 of that so we do have $25 million of remaining and the board approved plan.
As of as of the end of July.
And we also have additional financial capacity beyond that and of course that would need to be a new plan, which would be publicly disclose if and when.
Okay great.
The assets held for sale of 7.4 million of is that exclusively helicopters at this point.
Yes, good morning, John Yes, that's just helicopters held for sale, Okay, and the investment in unconsolidated subsidiaries of 19 point for.
Million down from $90 million or so a year ago.
What's.
Which subsidiaries are there was of theirs is the cougar or what's included in that bucket.
That is true there that is also leaders of our investment in Brazil.
Wow.
And and all.
And the and consolidated subsidiary, we have and Egypt as well.
We shipped okay.
And.
If you decide to sell any of those.
Would those transition to assets held for sale or would the gist.
What would happen if you decided to sell any of those.
And they would just it would just be sales they would not moved to assets held for sale and that's a different category I think kind.
Uh huh.
Okay.
Can you share with us whether any of those of for sale.
Well on leader, we have exited debt investments of that that is now of zero on the balance sheet of Cougar was we took a large impairment charge related to 2 cougar and previous periods. It's now a relatively small amount of the debt balance that you are looking at.
We did take a $60 million of impairment on a.
As in Egypt that Jennifer referred to you and the current period.
That's that's the the other part other than Cougar, that's still reflected as the balance there and.
Terms of sales really no. We don't have any plans to do that the business in Egypt and notwithstanding the current impairment enjoys a good market position. That's a 25 per cent minority investment, we have which has generated good dividends for the company over the years and.
And then and Cougar and while we took the impairment due to the good traction and the.
Oil and gas market offshore of the East coast of Canada, we still very much like the market position that the company enjoys and Bristow continues to stand to benefit from cash flows that we realized from leasing aircraft and and other assets into the Cooper business in Canada.
Okay and.
And what about the fixed wing business and what's.
And what sort of Australia is that of core asset going forward.
And so our investment and air North is 1 that's going through a transition period right now the fleet is actually transitioning from.
And he went to 70 model of regional Jets and <unk> over the next couple of years here. We think that's an important transition for the business to make and we think it will result in much better EBITDA generation and of <unk>.
And now for growth of the year.
Our north business and the <unk>.
The team there has a good plan to execute upon that once that transition is completed I think will be an a and a good position, where we can make and evaluations of that time, whether it's best to benefit from those better cash flows or look at other alternatives for the business.
And when will that transition to be complete.
Oh, we're anticipating by early 2023.
Alright, and I guess finally, we're hearing good things about the offshore drilling and Guyana Suriname true.
Trinidad could you bring us up to date as to what's going on down there.
Yes happy to do that continues to be 1 of the bright spots for the global offshore oil and gas industry the risk.
<unk> that had been discovered by Exxon and particular of Guyana, absolutely World class on electric.
The continued to make the Olympic discoveries there now other oil and gas companies, becoming involved there and Guyana, Suriname, which is just across the border has very similar characteristics and similar success and and early drilling programs there from Apache its hotel of Petrobras and others.
And really is looking a lot like Guyana, just a few years behind it in terms of the development of.
Where they are and the lifecycle of there.
Trinidad is an area, where bristow has enjoyed a leading market position for the last 60 years continues to be a fairly stable and and active base and for us So that Caribbean triangle region of.
The Trinidad Guyana, Suriname, where we have very much the leading position is 1 that generates.
And a nice cash flow return for the company.
Okay.
Good day here, Thank you very much.
Yeah.
We'll take the next question from Adam Ritzer private Investor.
Hi, good morning, Thanks for taking my call.
And I know you guys have done a great job on managing the balance sheet refinancing generating cash and glad to see the buybacks are going and hopefully that'll get pinched the Austin.
1 of the questions I had was in regards to how come does not.
Any more improvement and margins are.
For example, a year ago, you guys did 296 million of Reds and did 48 million of EBITDA.
The words were only down 8 million year over year.
And you're doing 40 million of EBITDA, So, it's almost 100% decremental on margins.
Is there any reason for that like why youre, not a little more profitable with all of them on 40 million of cost saves.
Good morning, Adam and thanks for the question so as we look at the margin of.
Comparing those 2 periods on the pro forma basis.
And that's the scope of pro forma disclosure is in the slide deck and that we.
Sent out.
I would certainly encourage everyone to look at that pro forma comparison for the best comparison because of the Jennifer noted.
And the as reported numbers, which are in the queue for the <unk>.
Quarter end of June 30 of 2020, only included 19 days of of legacy Eric So.
And so on a pro forma basis, the EBITDA margin did contract that the roughly 240 basis points are really all of that is related to operating expense as a percentage of revenues and fuel is a big contributor.
To that of.
Fuel prices.
Gone up.
Part of it.
But not all of it really that you also have the fact that.
Obviously, the the global pandemic began in early 2020, it started to impact the global oil market shortly after that but and our business really there was a delay and and where we see customer activity drop and more customers make the decision and when they have the ability to drop aircrafts. So we have.
The monthly standing charges that had been rolling off over that period and this current period is of more representative of the full year impact of those roll off and you would've seen in prior year periods. So that's a big contributor to it as well as you'll recall out of and into giving contra.
<unk> the mud.
The standing charges are on the majority of the revenues that we collect relative to the variable flight hour component.
Okay.
In terms of fuel for the contracts don't have pass throughs on fuel increases I guess.
The most of them do and then we have some non revenue hours that we incur for either a training for very flights from time to time, but yes, most of our customer contracts do have pass throughs.
Okay.
And I guess on the <unk>.
The picture like you just mentioned you know all of the drilling company and you know the offshore services companies are all pointing to you know things really getting going on EBIT 22, and hopefully being much better and a new cycle. I know you guys don't give guidance per se.
But can you perhaps walk us through what it would take to get to this day.
Aliens, and 5 and $240 million of EBITDA, when you first announced the Bristow deal.
How much more activity do you need the some of the things you're saying indicate.
When and what we need to do to get there can you help us understand the upside.
Yes, without getting into financial guidance was as you referenced Adam.
We don't give financial guidance Directionally.
We believe that the second half of this calendar year 2021 will be better than the first half.
But we don't believe that material.
Broad base recovery and offshore oil and gas activity will occur until next year and calendar 2022.
We're optimistic.
About that we think it'll be a multi year recovery and activity and Bristol will benefit greatly from that as we have currently idle aircraft that go back to work and improve the cash flow generation capacity of the company.
We also over that period of time on the expense side, we'll be looking to continue to optimize expenses as much and wherever possible and that includes the expenses that we have on aircraft leases. So we are of a number of aircraft that have lease maturities coming up over the next 12 months and with the exception of a few aircraft.
Craft that we need to keep to support customer activity.
And otherwise move aircraft around and to facilitate the return of aircraft to lessors, which will result, and an improvement and cash flows for for Bristow.
Right. So when he was 1.
Let me rephrase it.
If you do see what you're saying and what the other you know.
And companies and the industry related areas are same.
How much of revenue upside is there and he is there and.
Per say, 20% 30 per cent historically I know you haven't owned Bristow you know for more than a year.
But how much of your revenue upsides could a new cycle and the Brent do you guys like I think that's what people are trying to figure out how of.
Good things do and how much better kind of be from here.
Yes, I appreciate the background behind the question and consistent with our longstanding policy, we don't provide financial guidance and any kind of quote about percentages would constitute guidance, which we don't give but there is significant upside and really better utilization of the fleet is what's going to drive most of that upside.
Okay I appreciate it thanks very much.
Thank you.
And we will take a follow up question from address medical with Evercore ISI.
Hey, guys on back just just a couple of I guess housekeeping questions here and just how to think about.
A couple of line items on the P&L.
And it seemed like DNA, just jumped up a fair amount, which you provided color around and and the.
Press released the how should we think about DNA going forward is and so what we saw the most recent quarter reflective of how it would be.
From here on out understand the you don't get from initial guidance.
Sure. So we did have an adjustment and and material adjustment to.
Depreciation for previously and depreciated assets during the period. This included for $2 million of nonrecurring and X band.
Okay, perfect and and.
And just 1 more if I may.
Taxes.
And it doesn't really impact of valuations too much but I'm just trying to understand how to think about it from the cash perspective and that you have.
And net operating losses, but it seems like.
And the past 6 quarters, or so of assisting and E.
Either positive or negative and just trying to understand how the best think about the tax position going forward.
I mean from a cash tax perspective, we we noted in our S..4 and that really hasn't changed much today that.
Somewhere between and <unk>.
And and $15 million of cash taxes, and our of cash.
Our taxes that that's on the income statement fluctuate from time to time, depending on jurisdictions and and what their profitability and the certain jurisdictions are but we do have a level of taxes that we will pay on any annual basis, it could be around $15 million.
Okay, great. Thank you so much.
And.
And at this time I'm currently showing no further questions.
Thank you Casey and thank you everyone for participating we look forward to speaking again next quarter, I hope, everyone stays safe and well.
Ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect your phone lines.
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