Q4 2022 Bristow Group Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the Bristow Group reports fourth quarter and full fiscal year 2022 results Conference call Today's conference is being recorded.
At this time I'd like to turn the conference over to Crystal Gordon Senior Vice President and General Counsel. Please go ahead.
Thank you Cody and good morning, everyone welcome to Bristow groups fourth quarter and full fiscal year 2022 earnings.
I'm joined on the phone today, with our President and Chief Executive Officer, Chris Bradshaw, Our senior Vice President Chief Financial Officer, Jennifer Whalen.
Let me remind me.
On the call management May make forward looking statements are subject to risks and uncertainties.
Scribed 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.
A reconciliation of such measures to GAAP is included in the earnings release, and our Investor presentation, I'll now turn the call over to our President and CEO Chris.
Thank you Crystal and welcome to the call everyone.
As always I will begin our prepared remarks with a note on safety, which is Bristow is most important core value and our highest operational priority.
The company achieved very good safety performance in FY 'twenty two.
With a 25% year over year reduction in lost workdays and.
And an 18% reduction in the total recordable injury rates.
I want to thank and commend all of our breast our team members around the world.
For their continued dedication to our mission and Bristow is target zero safety culture.
Thank you.
The company also made additional integration progress.
Following the merger of era and Bristow in June 2020.
As of March 31.
Synergy projects, representing over $53 million annualized savings have been completed.
Exceeding the identified synergy targets.
Before turning it over to Jennifer I want to remind everyone that the March quarter, which is bristow as fiscal Q4 is traditionally our lowest activity quarter due to seasonality.
Increment weather and fewer daylight hours depress flight activity levels.
With that I will hand, it over to our CFO for a review of the financial results Jennifer.
Thank you Chris.
I'll begin with a sequential quarter comparison.
Great.
EBITDA adjusted to exclude special items.
$35 9 million for the fourth quarter of fiscal year 2020.
Compared to $37 million in the third quarter or an increase of approximately $5 million driven by foreign currency.
Operating revenues decreased $9 4 million, primarily due to lower utilization in oil and gas services in the Americas and Africa region.
As.
Her usual seasonal pattern.
Operating expenses were $4 2 million lower primarily due to lower repairs and maintenance.
General and administrative expenses increased $7 million, primarily due to increased compensation expense.
Yeah.
In addition, we experienced gains on foreign currency of $6 million in the fourth quarter compared to losses of <unk> 8 million in the previous quarter or $6 8 million positive impact on EBIT.
As a reminder of the close of the merger was on June 11 2020 as.
As such the previous your financials do not include results from legacy Air Group, Inc. Prior to the merger date.
With that reminder, the current your EBITDA adjusted for special items and asset dispositions of 151 million compared to $177 million in the prior year at all or a decrease of 26 million.
Operating revenues for <unk>.
Fiscal year 'twenty one.
Lower revenues from oil and gas services were offset by government.
Good.
Operating expenses were $21 7 million higher primarily due to higher fuel and repairs and maintenance expenses, partially offset by lower lease costs.
Two helicopters that happened return and lower compensation.
General and administrative expenses were $5 8 million higher due to higher professional fees increased insurance costs and the absence of certain grants related to exiting.
Finally, Bristow continues to benefit from a strong balance sheet and liquidity position as noted in the 8-K, we filed last week or so.
First of all on amending and restating, our ABL, but the primary change being the extension of the maturity to May 2027.
As of March 31 available liquidity was $319 million and our net debt to LTM adjusted EBITDA ratio was approximately two times.
While this quarter was effectively breakeven on adjusted free cash flow due to $15 million adverse impact from working capital changes in the last 12 months, we've generated $107 million and adjusted free cash flow and we still believe that this model will continue to have strong free cash flow.
At this time I will turn the call back to Chris for further.
Correct.
Thank you Jennifer.
I will now provide an update on managements outlook for Bristow has three principal lines of service.
We're still has a leading government services business with key contracts in both the UK and the U S.
Over the last year, we have successfully secured the award of two new government contracts.
The Dutch Star Award is a 10 year contract that will commence in November 2022.
It involves providing three SAR equipped EDW 189 helicopters and the Netherlands.
But thats Carribean SAR award is a 10 year contract involving two Saar equipped AWS three nine helicopters and the Caribbean region.
That contract is scheduled to start in June 2023 with potential to provide interim support beginning later this year.
About a month ago, we were pleased to announce plans to acquire a British international helicopters expanding.
Spanning bristow as government services business, which is the provision of search and rescue and personnel transportation services in the Balkan Islands.
In addition to expanding our geographic presence.
That deal will establish an important new relationship with the British armed forces.
This all cash transaction is expected to close in the third quarter of this year.
In addition, we are currently involved in other active tender processes for governments our contracts.
And we believe Bristow is well positioned to continue the growth of our global leading government services business.
These long term attractive margin contracts provide a stable and robust cash flow foundation for the company.
Yeah.
Turning to Bristow is fixed wing services.
Q4, FY 'twenty two was a difficult one for our business in Australia due.
Due to the pandemic related issues depressing our revenues.
As well as pet aircraft lease return costs, causing a drag on profitability.
We have previously discussed the ongoing fleet transition taking place in our Australia business.
We expect that fleet transition to be substantially complete a year from now.
Combined with an improved demand environment as the COVID-19 pandemic effects receipt.
We believe the financial performance of this business will be much stronger in 2023 compared to 2022.
Finally, we have a positive outlook on the future demand for offshore oil and gas services.
And we continue to believe the industry is on the precipice of a multiyear growth cycle.
Given our sectors late cycle exposure and the lag effect involving new projects.
We now believe this offshore oil and gas recovery will benefit our business in earnest in 2023 and beyond.
With the next couple of quarters of this year, representing a transition period.
The industry fundamentals and trends continue to strengthen.
The supply and demand balance for new generation offshore helicopters is in the process of tightening materially.
With a tighter equipment market constrained global Labor force and inflationary cost pressures.
Rates in our sector must increase significantly to mobilize and support increased activity levels.
In addition to safety, which is always the highest priority.
This new stage for the industry will see availability and reliability as key differentiators.
Our Bristow team members are amongst the most experienced and highly skilled aviation professionals in the world.
Bristow has the largest and most diverse helicopter fleet in the industry.
We intend to utilize our global leadership position to deliver a flexible and reliable solutions that are becoming increasingly more important to our customers.
With that let's open the line for questions Cody.
Thank you if you'd like to ask a question. Please similar pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again that is star one to ask a question.
We'll pause for just a moment to allow everyone an opportunity to signal for questions.
Currently there are no questions in the queue. However, once again as a reminder that is star one if you'd like to ask a question.
Alright, we will take our first question from Oscar Olivas with offspring global investment.
Good morning, Chris and Jennifer can you hear me.
Yes, good morning.
I just wanted to touch a little bit on the.
The regions.
And maybe.
Which which of your regions you're thinking on the on the oil side.
Okay potentially see the.
The most transition.
I know we've been waiting for.
A an uptick on that side of the business and it sounds like next year 2020 actually rajeev.
Good morning.
Covered but.
The next couple of quarters, which rich region would you expect to be the.
Maybe it has the highest transition higher.
Yes happy to address that so starting first in the Americas, which I think we've noted is the first place that we started to see some green shoots of additional activity. We are supporting a small number of incremental projects exploration projects today in the Americas region, the more active places with.
The U S Gulf of Mexico that Guyana, Suriname basin, as well to a lesser extent in Brazil.
Hi.
For next year, we believe that.
A broader base activity increase will commence in earnest in 2023.
We think the other regions of the world will join.
That increase.
That would include first I would say more projects moving forward in the Americas region. Some of the same areas that I just mentioned.
But also in the North Sea, where we are starting to see it.
Additional tendering activity as well as some short term AD hoc work increases again modest today, but we see that building over time that would apply to <unk>.
Our way and also the U K, where we are seeing a need for additional support activity in the UK portion of the North Sea.
Beyond that Nigeria, which has been one of the markets. That's was the hardest hit over the last couple of years.
As you may recall the.
Market size, there is less than half of what it was pre this last downturn. So the overall addressable market less than half of what it was.
And in addition to the overall market contraction.
We at Bristow did lose a couple of customer contracts to some lower cost regional competitors.
We're now at a place where.
Those same customers are coming back to us looking for Bristow to provide and deliver a solution as the other competitor was not able to deliver on the service side.
With the rebalancing of that customer share as well as hopefully an increase from current levels of activity in Nigeria, our business, there, which is which has been the leading business in Nigeria for decades now should benefit.
So those are a few of the highlights of the different regional regions in which we operate today.
Thank you and then can you provide any commentary on maybe the supply of helicopters I'm not sure if.
I know you would need price I think later on in the recovery to incentivize higher.
And the most sector, but today I mean, how would you categorize the supply of helicopters for for you and your competitors.
Okay.
Yes, so I'll start first with <unk>.
We've made some comments recently for example that the AWS three nine which is really the workhorse in the medium category of helicopter, but that market had already started to tighten.
We've certainly seen a continuation of that trend if youre looking for a new generation AWS three nine for a new project.
They are getting harder to come by.
We have also noted previously that the light heavy or Super medium category, which primarily consists of the AWS 189, and 875 model helicopters since those are newer.
That's a newer class of equipment smaller installed base. The supply demand balance has had has been good has been constructed in that space that remains the case and again any new.
Demand there in that category would need to involve new deliveries from the Oems.
I think where we've seen the most change over the last few months would be in the heavy category for the S. 92 helicopters. You may recall that previously we would have noted that the excess supply in that category of equipment would likely take multiple years.
<unk> rebalanced.
We've seen an acceleration in that actually and as we think about the outlook for needs for that for S 90 twos.
It again has tightened considerably not I want to be clear not necessarily for work thats already begun but but.
Tendering activity for projects that would commence for example next year.
We've seen a much much tighter market now, particularly from newer generation S. 90, twos are some of the older equipment actually is probably going to be taken out of the marketable supply.
A few machines, we parted out to help support that supply chain.
But for newer generation S 90, twos in particular.
Much tighter supply demand balance today the.
<unk> was a few months ago.
Great.
Question regarding the use of free cash flow you've made an acquisition.
Post to close just to confirm the third quarter.
In terms of fiscal or calendar year.
We're expecting third quarter of this calendar year. So just a few months time.
Okay, and then you still have you continue to have excess cash on your balance sheet. I mean can you maybe give us an order of priority of what you would do with that capital.
Yes.
So since the merger we used available cash to pay down debt, we bought back shares we've repurchased about $50 million of shares in the open market I think the return of capital will continue to be one of the main.
Considerations and priorities for capital allocation I would also note here, where we are today that we will have some capital expenditure needs.
We mentioned in our comments earlier that we've been successful in winning a couple of new government search and rescue contract there will be capital associated with those in addition to that we are we are in the final stages now of the UK SAR two G.
Award process.
We hope that that person will be successful in securing that two G contract and there will be a more material amount of capex associated with that so certainly the need to fund capital expenditures the need to invest in our business on attractive returning projects will also be a high priority for our available cash.
Yeah.
Understood. Thank you I appreciate the time.
Thank you.
Thank you we'll take our next question from Deloitte Bologna with Essakane.
Hi, guys. Thanks for taking the time I was just wondering.
Given the.
The current discount to NAV, why not get more aggressive with the share buyback now.
We see a ton of the numbers and this shows how much higher.
So we have bought back about $50 million of shares out of the $75 million share repurchase program that was approved by the board.
Capital returns to shareholders will continue to be one of the primary considerations and alternatives for capital allocation.
As I noted here in the near term, we do have some some capex needs and we hope to be in a position to to secure the award of U K SAR two G not taking anything for granted there, but we are optimistic that we're well positioned to win that contract and there will be a meaningful amount of capital associated with that so.
Use of cash to fund the growth of our business and continue to invest in our business will also be one of the primary considerations for capital allocation.
Got it thanks.
Yes.
Thank you we'll take our next question from Michael Kaufman with Redwood capital.
Hi, Thank you for the time today, but a couple of questions. The first is on in terms of the.
The acquisition that you made that will close in the third quarter can you give us any directional context on how big of a deal that was I know, it's an all cash deal, but can you give us some.
Some guidance of how big the number was or any economic terms.
And Michael Thanks for the question I will address it as best I can directionally with the limitation that this was a negotiated deal with the seller and there are confidentiality provisions that we have agreed to so we're not in.
In a position to disclose specific financial information at this time.
Being said it is a cash transaction, we do expect that to close in Q3 as previously noted and so.
Youll see the number.
Come through our cash flow statement.
Do I think it'll become evident that in.
In terms of the transaction size relative to the size of it versus balance sheet and our current liquidity position.
It's not a material.
Percentage of the cash strategically it's a deal that that we like quite a bit.
It both expands the geographic reach of our government search and rescue business.
Two the Falkland Islands. It also importantly.
<unk> is a new relationship with the British armed forces.
With whom we have not previously done business and so if you think about the footprint.
The British military has the number of contracts that are.
Available within that market. We think this new relationship is going to be an important one for the company.
Great.
After the deal closes will you be able to disclose.
How much EBITDA they do have a revenue they do.
After the deal closes we'll be able to disclose the size of the transaction and certain historical metrics related to their financial performance.
As Youre aware currently we're not providing forward looking financial guidance for for Bristow.
Or any parts of our business, but in terms of the size of the deal and their historical financials, we will be in a position to disclose.
Great and then the second question I had is.
I was wondering if you could discuss a bit further about that.
Path to profitability and.
What the drivers are to push that back up to recent historical levels. I think you talked about seasonality in pricing the transition Australia to the pressure in Nigeria could you give us a little bit more color, particularly with regard to this quarter, maybe which were the bigger drivers and how you can.
Improve those to get the profitability, particularly the underline margins back to the levels that equally I'll take that this is capable of doing.
Yeah.
So taking.
Different components of that first I would start with a reminder of the March quarter is historically, our weakest quarter, that's where we see the most <unk>.
Pat from seasonality due to inclement weather and fewer daylight hours depressing flood activity. The biggest impacts there would be in the U S Gulf of Mexico, The North Sea.
And also in Nigeria for different reasons, but due to two.
Sandstorm issues in Nigeria.
So there is a seasonal component to the March quarter.
In terms of other headwinds that the business is currently facing we have not as much in the March quarter as the December quarter, but we are going through a period from a timing of repair standpoint, where we are having a.
Heavier than normal full cycle.
Timing impacts from repairs.
Primarily related to the AWS three nine portion of our fleet not exclusively but that's the biggest driver is in our AWS three nines or would you not correct not all the current one AWS three nine fleet is on a full just to tell PVH program. So we do have some variability in timing of repairs related to that portion of our fleet, which is sizable.
You've noted the <unk> business in Australia, which we also talked about in our commentary here.
Historically that was a positive EBITDA positive cash flow contributor to the company.
It's going through a difficult time right now for a couple of reasons one topline has been depressed by the COVID-19 pandemic.
We're optimistic that those effects are receding and hopefully will be behind us soon for that business.
And then at the same time from a cost standpoint, we are working through our fleet transition.
And that business rotating out of.
Some older smaller E 170 regional jets into newer larger E 190 regional Jets. There are some lease return costs, one time lease return costs associated with that fleet transition.
That are significant placing a significant drag on profitability for that portion of the business today.
I think I've made some comments already on the oil and gas side and some other regions just quickly would prefer.
For the purposes of this discussion.
For example, the Nigeria commentary.
Addressable market over the last few years is contracted by more than half. We also lost a couple of customer contracts to smaller regional competitor.
An opportunity now where that competitor was not delivering so we.
We expect to recapture some customer share their unexpected benefit when that <unk>.
Market activity increases again from a broad base.
Market increased activity.
We really think calendar 2023, and beyond is where we'll start to see that in earnest for our business. A few projects new projects that were supporting this calendar year again, I noted where those are in the Americas today we.
I think the rest of the world starts to join that party in earnest next year.
Great. Thank you.
Do you think we will see improving profitability throughout this year.
Business or do you think this is it.
It's more of a 2023.
Story.
Considering we don't provide financial guidance I cant provide a specific.
Numbers are our commentary as it relates to the specific financial results.
<unk>.
We did note in our prepared remarks that we think that the next couple of quarters of this calendar year will likely be more of a transition period for the business.
And that broader based increase in activity, particularly on the oil and gas side would be a 2023 and beyond as we see it.
Multi year growth cycle for the business.
At the same time.
As I noted we have been successful in growing our government services business with some new contract awards. There that was really won't be contributors of a material amount. This calendar year. It would be really more of a 2023.
Starting to see full period benefit of those new government contract starting up.
Great.
Last one for me is can you remind us what the PVH intangible amortization is.
Sure.
So when we when you buy into a PVH agreement. If you have a helicopter that's been flying already in new and you haven't had it on PVH and you need to put it on TBA do you have to buy it in the Q.
Q the maintenance up to that point and so that's typically are.
Larger amount that you put in and from an accounting perspective, you put that on the balance sheet as NASA and you amortize that over the life of the TBA contracts the ones that we have right now are that as well as when we get when when we emerged from chapter 11, and then when we did the merger and we had to do a recalculation of those or purchase price accounting and.
So that's just a run off over the life of the contract of that amortization from that calculation.
Noncash.
Got it so its maintenance spending that you expect upfront so thats getting amortized over the remaining life of the lease.
Sure.
Great. Thank you very helpful. I appreciate the <unk> agreement.
Thank you.
Great. Thank you.
Our next.
Our next question from Gary other Perez with Mackay.
Hi, I was wondering if you could talk about that.
U K windfall tax.
If there is any impact on your customers.
I assume youre talking about that I mean, there is an increase in the U K tax rate starting in 2023.
Unless you're talking about something different than that I mean as far as our financials.
Yes, we will adjust we adjust our deferred taxes related to changes in income tax rate in the UK, we have a large NOL that protects us from any cash taxes related to that.
If you're talking about something different.
Yeah.
Yeah, I was speaking about the U K windfall tax on oil and gas that was recently announced.
Hum recent process.
For oil and gas obviously.
Yes.
Obviously the more.
Cash that our customers are able to retain I think it's more.
Resource that they would have availability to invest back in our business.
That being said I think what you've seen from the largest customers who served as a period of record profits where they've been.
Really looking to return a lot of that capital to shareholders already.
More fundamentally I think what the world is facing is that demand is going to outstrip supply.
For some period of time and what that requires is that investment.
To both.
Maintain current levels of production as well as find new sources of supply and so we continue to believe that there will be an increase in dollar spent on offshore oil and gas.
And that should benefit our business sector.
And I would also note a large portion of our U K business is our UK search and rescue contract, which isn't related to the.
The oil and gas and its contract with us.
Are you able to disclose the mix of.
Revenues you get from <unk>.
Oil and gas versus the search and rescue in the U K.
We don't disclose it at the UK level, we do have a government services, which is.
Most of that government services line is our U K SAR business with a small portion of it being other government contract and then there's a split between Europe for oil and gas.
We don't disclose the UK separately, but we have in Norway, and the UK and.
Europe .
Right.
Okay. Thank you very much.
Okay.
Thank you.
Thank you we'll take our next question from John <unk> with Pinnacle.
Good morning, Thanks for taking my questions.
Just a quick question on the Dutch Saar and Dutch Caribbean.
Contracts you.
You mentioned youre going to be putting capital.
Into those businesses I'm curious as to how much you anticipate putting into those contracts and what exactly you're spending it on.
Sure and good morning, John .
I'll give you one specific number and then some some additional commentary.
So first of all in the Dutch SAR contract, which would be the three SAR configured AWP 189 and in the Netherlands.
We're going to need to stand up a couple of basis there.
We also have one new delivery 189 coming from Leonardo.
I think that's the $17 million that that you'll see highlighted in our capital expenditure disclosures that.
Gone firm from an option to a firm commitment.
The other two aircrafts that will be on that contract, we will be repurposing existing AWS, one eight times.
Net debt modification costs associated with converting those to meet the contract specifications. So there'll be an amount of capital associated with that as well.
In the Dutch Caribbean.
<unk> Award, we will be servicing that with too.
SAR configured AWS <unk>.
Those will come from the existing fleet. However.
Very specific bespoke configuration requirements, which again are requiring a significant amount of modifications to go into those aircrafts that require a capital.
And then we are.
As you will already be aware Jon in the final stages now of the UK SAR two G tender process.
While we're not taking anything for granted there at all.
We are optimistic about Brazil, securing the TG.
Version of.
The UK SAR contract.
And.
While we're not in a position to discuss specifics given that it is an active competitive process at the moment.
It will be a different scope for TG contract than the existing version of the contract and there will be a more material amount of capex associated with UK SAR coogee than than the other couple of government contracts that I just reviewed.
Okay. That's helpful on the Dutch contracts it sounds like the total cap.
Capital Capex requirement might be what 25 or $30 million.
I think it will have a two handle on it.
Okay.
And on the.
U K SAR.
The incumbent there so that infrastructure sounds like its already been in place why do you need to put more capital into that has the scope changed or what's going to drive that capex number.
Yes, happy to address that Directionally again can't get into the specifics because it's an active competitive tender real time.
So I think what the government what the customer there who we serve the MCA what I think they've said for some time, leading up to the UK SAR. Two G. Renewal process is that there will be a different scope for two G than there has been under current SAR H contract.
We obviously need to be responsive to that if we want to.
Secure the contract award and continue to serve that customer of ours.
So there will be a different scope for <unk> than the current contract again can't get into specifics at this time, because it's a competitive process that we're going through real time at the moment.
Okay fair enough.
And is there a different topic is there any update on the.
Offshore wind business I know you were evaluating a build it or buy it and I'm just wondering if there's been any update there in terms of direction you might be taking.
Short answer is no material update we still we still view it as a sector, where there is some promise and there should be some growth.
But nothing material to update at this time.
Okay.
Thanks, and good luck.
Thank you John .
Thank you we'll hear next from adjacent stand with Clayton.
Hi, good morning, guys.
Can you hear me.
Yes, good morning.
Good morning.
Can you talk about the transition in the offshore cycle has it slip.
At all in what you would've expected from a year ago kind of the merger time, when you started to see green shoots.
Or not really is this is this sort of consistent with what you would've thought a year ago that youre kind of have to wait to 2023 to see it start in earnest.
I think it has it has shifted somewhat from where we would've thought several months ago, where we thought that calendar 'twenty. Two you would see more of the benefit of the increase.
Again, we are seeing some increased activity as noted this calendar year, but we really think it's calendar 'twenty three and beyond where.
We will start to see that in earnest.
There are.
Maybe a few things driving that timing one the customer base I think it's been well covered well reported now has been <unk>.
We are disciplined on our capital.
Capital side.
Through.
Through this cycle.
And looking to really return.
A larger portion of that capital to their shareholders that being said.
There is a need to invest in additional <unk>.
Production, there there will be a need to bring on more supply to meet the demand and obviously the.
The geopolitical factors have changed.
Those supply demand dynamics, even further so I think our our conviction about the direction.
And the significance of the increase that will be required in offshore spending has only strengthened although the timing has.
Adjusted somewhat as you noted.
And then I guess just from a.
From an outsider not an industry guys perspective.
With the slippage I guess what are the primary drivers of the slippage in what would you be watching to see.
If it is sort of going to happen again I thought some of these things had a little bit longer lead times, and we were kind of the.
The tail of them a little bit so.
Trying to understand the confidence interval around.
Participating in the turn in.
It seems like there has been slippage and I thought some of these things have kind of.
Yes, they are ordering pipe theyre doing other things that allow you to get a little more confidence on the fact that there.
The cycle is.
In earnest and honest way, maybe that's maybe I misunderstood that a little bit.
Certainly budgets and what what the what our customer base is planning to spend so.
If you want to track activity levels looking at that upstream E&P.
E&P spending towards offshore is one of them.
The better metrics to look at the number of sell side.
<unk> and other third party resources that publish reports both on the historical and estimated future offshore E&P spending.
That'll be an indication of activity levels and you referenced with your offshore in general is late cycle within offshore.
<unk>.
Our portion of that market aviation services, where the personnel transportation logistics is very late cycle and there is a lag effect on when we see the benefit of new projects that are planned and approved before they start actually needing to move more people.
Okay. So the risk is just they they get planned and sort of approved and budgeted for but.
But somehow they get they get cancelled sort of unlike the Sars stuff we win.
That stuff is very very high chance of.
Coming to fruition because of the contract with the government for search and rescue and other things.
Whereas the risk as these things get green lighted and then some geopolitical thing changes and Theres, just less interest in making kind of.
Dialed back their.
Their needs.
Over the coming years that would be a risk.
Yes, I think if you look at what could go wrong that would change our conviction around the inflection that we expect to see in terms of increased offshore oil and gas activity.
What could change that would be a fundamental change in the geopolitical picture. So if hostilities go away.
Yes.
You don't have that kind of restriction on on supply in the flow of trade that could change.
If there was some kind of radical acceleration of alternative energy availability that could that could fund the economic needs and growth of the world faster than currently contemplated that that could change.
The.
The conviction or the outlook that we have I'd say those are probably the two biggest things that.
If changed would impact our conviction.
I think our view is that.
For better or worse, neither one is likely to happen within the time period that we're talking about here and we are amongst I think.
Yeah.
Not an uncommon not a unique camp of folks who believe that.
The demand is going to outstrip marketable supply for some period of time that will continue to.
Results in higher commodity prices that will support a case for investments and need to bring on the additional sources of supply to meet the world's needs.
Right. Okay. Thank you that's helpful and then I guess the follow up is on.
Talk a lot about capex.
Clearly the <unk>.
The acquisition is.
Form of purchased Capex purchasing the business in and you mentioned it being strategic.
When we think about.
No.
Being strategic.
Is it suffice to say that the capex that we're looking at from here going forward any acquisitions.
So I'm sort of hurdle rates that you're looking for or are are we still looking at some of the capex in this strategic acquisition being sort of.
Deferred maintenance type of kind of in filling of capabilities that we need or does it kind of everything capex wise and the investment going forward.
Hurdle rate for us.
Now these will need to meet our financial return objectives.
When we say strategic we're not implying that there is not.
Uh huh.
Adjusted viable economic benefit to Bristow, we were looking at projects, we're looking to put money to work in a way that's going to meet our financial return objectives.
<unk> acquisition would fall into that category. These new government contracts that we have been awarded would certainly fall into that category.
As wood future pursuit of contracts, whether in the government line of work or our oil and gas line of service.
Okay. So like when we talk about the next version of the UK contract as you contemplate all of that capital and the return of and return on that capital goes into your bids. So just as you said capex expenditures a lot on this call and people have been asking about it.
In theory, that's a good thing if youre modeling it correctly, because youre getting an economic return on all of that Capex.
We view it as a very good thing for shareholders. This is investing in our business.
In.
In ways that are both diversifying our cash flows but also strengthening our cash flows on terms that meet our financial return objectives.
Great. Thank you very much good luck on everything.
Thank you.
Thank you, we'll take our final question from Don Young child with Mackay.
I appreciate it.
Your comments earlier about the oil and gas business and how it.
How demand has been outstripping or should be outstripping supply for the time being I guess I was wondering if you could.
Characterize what it looks like for the vertical.
Flight business that you guys are involved in like where are we on supply and demand there and.
And how is your mix.
Has the mix shifted at all from <unk>.
From independents like yourselves versus.
The more integrated services provided by the bigger service companies.
Thank you.
Thank you for the question.
What we do is a fairly specialized portion of the broader oilfield services.
Industry.
Our competitors.
Are mostly regional in nature.
So is it really by a good margin the largest global provider of what we what we do for.
For vertical lift solutions.
So when we when we face competition, we have a couple of competitors who compete in multiple regions, but a lot of times it would be a local in country.
<unk>.
By way of reminder for everyone.
Aviation is a very highly regulated industry so in each jurisdiction.
In which we operate are which used to operate we have to be certified as a local air carrier we have to achieve in an air operating certificate, which has various regulatory requirements. Some of those will be specific to nationality. That's why you see in some cases.
We have partnership structures.
To satisfy those local regulations.
In other areas, we actually lease the.
The helicopters were not operating ourselves, but we do have a leasing business that we view as complementary where we're able to monetize.
And capitalize on demand for helicopters coming out of the jurisdictions, where you're either not able or are where it doesn't make.
Since for us to operate ourselves so that leasing business helps us do that as well, but for the most part in terms of the competitive landscape their habits, there have not been fundamental changes.
So again remains the.
The global leader in this arena.
By a fairly good margin, yes, I understand that but you also compete with.
With with those that offer vertical flight services.
No.
Along with all their other oilfield.
Oilfield services like the Schlumberger, so the world right. So I'm just trying to understand what the dynamic is and how competitive you are versus.
Those competitors and whether theres been any kind of a shift in mix for the industry given the discipline that we've been seeing.
So the short answer is no nothing's changed there none of the majors Schlumberger Halliburton, nor Baker Hughes, none of those companies have aviation services that they provide to our customer base. So we don't actually compete against them.
Oh, you don't okay.
That's helpful. Thank you.
Thank you.
Thank you and that does conclude today's question and answer session I would like to turn the conference back over to management for any additional or closing remarks.
Thank you Cody and thank you everyone for participating in our call. This quarter I look forward to updating you again later in the summer.
Be safe.
Thank you and that does conclude today's conference. We do thank you all for your participation you may now disconnect.
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