Q1 2023 Bristow Group Inc Earnings Call
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Good day and welcome to the Bristow Group reports first quarter fiscal year 2023 results conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Crystal Carton Senior Vice President General Counsel. Please go ahead.
Thank you Tracy and good morning, everyone welcome to Bristow groups first quarter fiscal year 2023 earnings call.
I'm joined on the phone today, with our President and Chief Executive Officer, Chris Bradshaw.
Your Vice President Chief Finance Officer, Jennifer win.
Before we get started I would like to take this opportunity to remind everyone that during the course of this 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 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 welcome.
Welcome to the call, everyone and greetings from the U K, where.
Where the Bristow executive leadership team and board of directors have enjoyed the opportunity to spend time on the ground. This week with our team in Aberdeen.
As always I will begin our prepared remarks with a note on safety, which.
Bristow is most important core value and our highest operational priority.
The company achieved very good safety performance in the quarter ended June 30.
With zero Air accidents.
And the 50% year over year reduction in lost workdays.
I want to commend all of our Bristow team members around the world for their continued dedication to place safety first every day.
I also want to thank the Bristow team members, who have worked diligently over the last several months to successfully deliver on several of the company's strategic priorities.
And I would like to highlight a few of those successful outcomes here.
At the two year anniversary of the close of the merger of era and Bristow.
Our team has successfully completed synergy projects, representing $60 million of annualized savings well.
Well, surpassing all partners within the specified two year period.
Work will continue on some additional projects related to it system integration.
And further U S certificate integration.
But this is the last time that we expect to update merger related savings now that we have reached the two year Mark.
Next we were very pleased to secure the highly important U K SAR two G contract award with the Maritime and Coast Guard Agency.
This new $1 6 billion pounds 10 year contract will see Bristow continue to provide critical search and rescue aviation services across the whole of the U K.
Until at least 2037.
This builds upon Bristow as recent success in winning new government contracts to provide critical SAR services throughout the Netherlands.
And the Dutch Caribbean region.
In addition.
Earlier this week, we completed the $10 4 million pound all cash acquisition of <unk>.
International helicopters limited.
Which expands our government services offering to the Falkland Islands and establishes an important new relationship with the British armed forces.
Meanwhile, we have continued to make investments to strengthen our business such as the new long term highly favorable maintenance support agreements for our global AWS three nine helicopter fleet.
While at the same time, returning capital to shareholders.
With $10 million of share repurchases executed over the last two months at an average repurchase price of $23 48 per share.
Finally, looking more to the future. We were pleased to release Bristow is first sustainability report.
And to find additional partnerships with leading developers of new electric vertical takeoff and landing aircraft.
Lighting Bristow his role as a leader in sustainability within the vertical lift industry.
The last few months have been a highly productive time for the company and I again want to thank everyone on the Bristow team for their efforts to achieve the successful outcomes for the company and our stakeholders.
With that I will hand, it over to our CFO for a review of the financial results Jennifer.
Thank you Chris today, I will start by saying we are pleased to announce that our board of directors approved a change to our year end from March 31 to December 31st. We believe this change will provide many benefits, including comparable between periods and relative to our peers in it.
We intend to initiate financial guidance for calendar year 2023, when we announce our next quarter's earnings.
Moving on I'll begin with a discussion of the sequential quarter comparison at Bristow is financial results EBIT.
EBITDA adjusted to exclude special items and asset dispositions was $51 1 million for the first quarter of fiscal year explain 23 compared to $35 9 million in the fourth quarter of fiscal year 2022.
Or an increase of approximately 15 million driven by higher revenues and foreign exchange gains.
Operating revenues increased $18 6 million, primarily due to increased activity in our fixed wing services higher utilization in oil and gas in Africa, and Europe region.
And increased activity from government services.
Operating expenses were $6 8 million higher primarily due to higher fuel and repairs and maintenance expense driven by the increased activity.
General and administrative expenses were lower by $1 5 million, primarily due to lower professional service fees and compensation expenses.
In the current quarter, we recognized a loss of $5 2 million an impairment of intangibles related to the new power by the hour arrangements signed during the quarter.
In addition, other income increased by $3 8 million, primarily driven by foreign currency gains.
Finally, Bristow continues to benefit from a strong balance sheet and liquidity position as of June 30th our available liquidity was 318 million and our net debt to last 12 months adjusted EBITDA ratio was less than two times.
Generated 26 million adjusted free cash flow for the quarter and this is Chris noticed noted, we repurchased $10 million of shares in June and July .
As we have stated on many occasions, we still believe that this business model will continue to generate strong cash flow.
At this time I'll turn the call back to Chris for further remarks, Chris.
Thank you Jennifer earlier.
Earlier in the call I highlighted recent wins in Bristow is global leader in government services business I will now provide an update on the outlook for the offshore energy services market with reference to three third party industry expert reports.
On page 11 of our earnings presentation slides, we highlight recent comments and research reports from J, David Anderson of Barclays Research.
David who has covered the energy services sector for a long time.
It had been bearish on the space for a number of years and rightly so it should be noted.
Last year, David changed to a bullish outlook, which predicted a multiyear growth cycle.
That was his outlook prior to Russia's invasion of Ukraine.
And conviction has only grown following that geopolitical prices and related oil and gas market dislocation.
As noted on the page Barclays expects, a significant increase in upstream oil and gas spending over the next few years.
And David sees this as the best investment environment for energy services in almost 20 years.
On Slide 12, we highlight recent comments and research notes from James West at Evercore ISI.
James who is one of the best known and highly regarded analysts and the industry is also bullish on the market outlook and sees the offshore sector building momentum over the next 18 months.
Despite the risk of an economic recession, jfc's upstream spending fundamentals as remaining strong and he knows that E&P upstream spending growth is being driven by ambitions to grow spare production capacity and not by short term supply demand dynamics alone.
On the slide we included a couple of charts, which show the recent growth trajectory and the number of drilling rigs working offshore.
Which speaks to increasing demand for offshore helicopter services.
We should also note that this positive market sentiment is shared by industry leaders, including Schlumberger, Halliburton Trans Ocean and others.
Finally on slide 13, we are pleased to share New third party analysts information on market dynamics specific to the offshore helicopter industry.
Up until now the type of industry supply demand and utilization statistics that are readily available for drilling rigs and other energy services markets.
We're not available from third party analysts for the offshore helicopter market.
Steve Roberts and founder of Errancy analytics.
Released a new report last month on the heavy and Super medium oil and gas helicopter market.
It is an excellent report and we encourage anyone who is interested in this market to go to the Aoc analytics website to purchase and read the full report.
In the report Steve notes that offshore helicopter utilization has recovered sharply with super medium types at or near full utilization and S. 92 model utilization firming up with expectations for continued tightening in that market as well.
The utilization numbers presented in the chart are consistent with the qualitative comments that we shared on Bristow as earnings call last quarter.
We continue to believe that the offshore oil and gas market is in the early stages of a multiyear growth cycle.
And bristols business stands to benefit significantly from this growth in our upstream spending.
With that let's open the line for questions Tracy.
Thank you.
Like to ask a question. 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 to allow your signal to reach our equipment.
Again press Star one to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal.
We will now take our first question from Josh Sullivan.
The benchmark company. Please go ahead.
Hey, good morning, Chris Jennifer Ed.
Good morning, Congratulations firstly, congratulations on the results here.
I wanted to start off with the U K SAR two G Award clearly a big win but how should we think of the potential incremental contribution versus the old.
Cool and then what are you.
Additional SAR opportunities now that you have this mark he went under your belt.
Yes. Thank you for the question and the well wishes we were very pleased to secure the SAR two G contract Award.
As noted in the prepared remarks. This new 10 year contract has total expected revenues of $1 6 billion pounds.
That is an aggregate number which is lower than the aggregate UK SAR H revenues all of which is consistent with messaging from the MCA very early on that they were interested in efficiencies on the new generation contract.
We still believe that we were in a favorable position as the incumbent given our established base footprint throughout the U K are established employee base.
And the aircraft that we have in place most of which will be used again on the new generation contract and obviously have more age and some depreciation on them now so we had a good position as the incumbent to deliver those efficiencies, while still generating attractive returns on capital that meet those financial return hurdles.
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In terms of additional opportunities.
We are currently engaged actively in a tender for the Irish Coast Guard contract, which is another 10 year search and rescue contract to support.
The country of Ireland.
And we believe that there are additional government and military customers that will either be looking to privatize existing public services <unk> Award new private contracts for already privatized services at some of those opportunities get closer to the contracting cycle, we may start.
To discuss them by name as well, but overall, we believe that the global government services market is a growth one.
Got it.
And then on the Pratt and Whitney Oh.
Oh, Gee Honeywell maintenance agreements.
Does this fundamentally change the margin profile.
Frame, the incremental or what the incremental would've been.
These were in place historically.
Yeah, we were pleased after a long period of negotiations following the merger of era and Bristow to sign at the end of June These new maintenance support agreements for our global AWS three nine fleet.
I should take a minute to explain the context in history, which is that the.
The legacy era AWS three nine fleet was maintained based upon a limited PVH program for the airframes with Leonardo.
And we did not have PVH coverage for the engines with Pratt and Whitney those were maintained on a time and cost of materials basis. The legacy Bristow AWS three nine fleet was maintained under a <unk>.
Multiple disparate PVH agreements.
For both the airframes with Leonardo and the engines with Pratt and Whitney <unk>.
Accomplishing these new agreements is to bring everything together under one comprehensive maintenance program.
For Bristow as global AWS, <unk> hundred 90 fleet, which will see all the aircrafts and engines maintained on a consistent PVH coverage essentially a four just to tell PVH program.
The net result, which we were able to accomplish using our increased buying power and some leverage related to bringing the two fleets.
Together.
Is that we will lower our overall maintenance cost over the full life cycle of the aircrafts.
So that will reduce expenses and we believe that the cash on cash returns are quite attractive for us.
20% on an unlevered cash on cash return basis.
In addition to those specific investment benefits, we also see benefits from.
Having more predictable cash flows as our repairs and maintenance expenses will be more directly correlated with actual flight hours.
And Furthermore, we believe that having these aircraft under consistent full tip to tell PVH programs.
Makes them more fungible and therefore more valuable.
Should we reach a point of sale for the aircraft. So we're very pleased with the overall benefits achieved.
By signing these new agreements.
Got it.
And then kind of Relatedly, we've heard from some aerospace participants this quarter about constraints in castings and forgings and titanium are you seen any impact the OEM delivery times are spares availability.
Yes, we have I would say that for most of the helicopter models that we operate.
The tightened supply chain constraints that you mentioned have been fairly consistent with what we understand is going on.
Other sectors.
I do want to note and recognize that.
Most of the Oems with whom we deal have have done an admirable job continuing to deliver to bristow and our peers. Despite what have been these broader.
Supply chain constraints in the world. So I do want to recognize that and note that we have mostly been able to deal with those and a fairly manageable way.
The one exception would really be the S 92 model helicopter with Sikorsky, where we have had more structural and more significant issues by Sikorsky not delivering the parts, we need and certainly not delivering them on time and so we've had to really provide our own self help.
I make bristow is well position there and that we are.
By a good margin the world's largest operator best 92 model helicopters.
But we are we have been impacted by Sikorsky as failure to support the product.
Got it.
And then just one last one as far as the partnerships, you're forming with advanced Air mobility players now which of these do you think is closest to being an operating asset for Bristow.
Yes fair question.
To avoid speculating on that given where we are in the development cycle now I think we've spent.
A good amount of time nobody sends a good amount of time and I think we've made good progress over the last 18 months.
Doing the diligence developing as relationships.
Determining who have the right teams with the right technology and the right capital base.
We want to partner with.
We're gonna have aircrafts that.
Not only will we will meet operating specifications, but will be good fits for Bristow is.
Mission profile that being said I think there's still quite a bit of regulatory certification risk.
And in some cases, some continued technology derisking that needs to occur before we we start commenting on specific timelines for individual aircraft.
Got it thank you for the time.
Thanks, Josh.
As a reminder to ask a telephone question. Please.
Pressing star one.
We will now take our next question from John J Sir.
Please go ahead.
Hi, good morning, everyone.
Good morning, John Good morning, Hey, Good morning, a couple of quick questions lots of good information in the report.
Oh in the SAR.
As far as contract.
The amount.
In total $1 6 billion.
Does that all go to burst out or do you share that with your two other partners how exactly is that structured.
We will share some of those revenues, particularly with our fixed wing partner to excel.
A significant majority of the revenues do go to Bristow, we are the prime contractor working with our valued partners to deliver that service under the new generation contract.
What percentage would you say it goes to <unk> style.
We haven't disclosed the percentage at this time, we will be releasing financial guidance, beginning with with next quarter.
So overall the expectations for Bristow will be incorporated into future financial guidance that we plan to provide.
Okay, So you'll provide more clarity with the guidance.
Yeah, we will have overall additional financial guidance that will be included in that and we do anticipate issuing that when we report next quarter's earnings.
Either late October early November Okay fair enough on the a b a b I H contract.
Do you plan any significant changes to that operation.
Or will it continue as business as usual I don't know.
How it.
Fits into the overall Bristow platform, but are there any major changes in terms of shifting helicopters around or reducing head count or anything like that or is it business as usual going forward.
A good question for context currently the IH operates.
Two contracts the largest by far is a contract in the Falkland Islands with the Ministry of Defense.
Here in the U K.
They're they provide both search and rescue services using to SAR configured AWS eight nine new generation helicopters.
They also provide crew transportation services using three F 61 helicopters.
And then here in the U K they have a smaller contract using one.
Medium type and at $3 65 helicopter.
It would be our expectation that over time.
In consultation with the customer that there will be some fleet changes, namely related to the 61 model helicopters in the Falkland Islands, which I think there is interest from the customer certainly we're interested and replacing those with newer generation aircraft.
And the contract here the smaller one in the UK with debt at 365 again likely to be replaced by a newer generic creation aircrafts I think there's again an opportunity and also interest to do that.
From an operational standpoint, we will be integrating the IH into our operations.
They will adopt the bristow name and brand throughout their operations and we will look over time to combine the operating certificates and workforces. So there will be some operational changes in that regard.
Okay, and the contracts, there or you're really contracts or how long do they last.
The one in the Falklands is a long term contract that has a few years remaining with the extensions.
And then there is a.
A shorter amount of time remaining on the one the smaller contracts here in the U K.
Okay great.
On the maintenance of a buy in the 55 million.
It's gonna be paid between now and year end, how was that treated from an accounting standpoint is that capitalized or.
It wouldn't be expense with it.
I can take that yes, John Hello, Good morning, Yes.
Yes, it will be capitalized on our balance sheet as at that as an asset and amortized over the life of the new agreement.
It's typical of PVH counting that any aviation company.
Okay, Good and I guess finally, your capex is going to be ramping up.
Over the next couple of years as you fold in these different contracts can you give us a feel for.
What's the Capex budget is for the balance of this year for the back half through December and what you're looking at for 2023 in terms of Capex.
We did include in the materials the schedule expected schedule for the UK SAR two G capex given that as well as.
As a single contract the largest share that we have we.
We've also noted that the the firm capital commitments realm.
Relatively small amount.
We do have as disclosed in our filings relate to a new delivery AWP 189 helicopter that we're putting to use on the Dutch SAR contract, we expect that helicopter to be delivered.
This month later this month and will make the final payment then in terms of more specifics.
<unk> on Capex that would be included in the financial guidance that we plan to rollout with our next quarter's earnings.
Okay. So alright, that's good we can wait till then.
Thanks, very much and good luck.
Thank you John .
Another reminder, to ask a telephone question. Please signal by pressing star one on your telephone keypad.
We'll pause for just a moment to allow everyone an opportunity to signal for questions.
The participants policies, we have another follow up question from Josh Sullivan from the Benchmark Company. Please go ahead.
Okay.
Okay.
The strength in the after or the African market. This quarter previously there had been a region, where lower cost competitors had made some inroads do you expect a reversal in that trend going forward.
We do Josh in fact, the increase that you saw this quarter is exactly that so.
For context for everyone. The support market for for Africa is one that has contracted significantly over the last couple of years during the downturn the.
The overall addressable market is about half, maybe a little less than half of what it was prior to the last downturn. So we've had some significant overall market contraction in addition to that.
Bristow did lose a couple of contracts with oil and gas customers too.
Smaller local competitor.
That charges at significantly lower rates.
What we've seen more recently is.
Our failure to deliver.
For the customers there and so those customers have come back to us.
And we're looking for helicopter support.
And the additional activity pickup that you saw in the June quarter reflects.
Recommencing support activities for those.
Those pre existing customers. So we think that this.
This is reflective of what is likely to be a broader market emphasis going forward on availability and reliability of services.
And not just on price.
Got it thank you.
Thank you.
There appears to be no further questions at this time I would like to turn the conference back to Chris Bradshaw for any additional or closing remarks.
Thank you Tracy and thanks again, everyone for participating on the call. We look forward to speaking again next quarter and I don't want to say a final. Thank you to the Bristow team around the world again first and foremost we're providing the great level of safety and customer service that was delivered again this quarter as well as successfully.
Wishing the outcomes I mentioned earlier in the call. Thank you very much stay safe and well bye for now.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.
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