Q3 2023 Bristow Group Inc Earnings Call
Our investor presentation on our website.
Speaker 1: You may access our investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such measures to GAAP is included in the earnings release and our investor presentation.
Speaker 1: I will now turn the call over to our president and CEO , Chris.
Speaker 1: Thank you, Red, and welcome to the call, everyone.
Speaker 1: As always, I will begin our prepared remarks with a note on safety, which is Bristol's most important core value and our highest operational priority.
Speaker 1: The company once again achieved very good safety performance in the December quarter and calendar 2022.
Speaker 1: Over the recent quarters, the total number of lost workdays has decreased by more than 50%.
Speaker 1: I want to thank and commend all of our Bristow team members around the world for their continued dedication to our mission and Bristow's target zero safety culture.
Speaker 2: Thank you.
Speaker 3: Turning now to recent operational highlights.
Speaker 3: Here in the fourth quarter, BRISTO successfully launched operations on new government contracts to provide search and rescue helicopter services for the Netherlands and separately for the Dutch Caribbean Coast Guard.
Speaker 3: The Netherlands work is a 10-year contract delivering critical SAR operations.
Speaker 3: utilizing AW 189 helicopters at the Den Helder and Mid-Indeden Air Force on behalf of the Netherlands Coast Guard.
Speaker 3: The Dutch Caribbean work is a 10-year contract delivering critical saw operations, utilizing AW139 helicopters and the Dutch Antilles, ranging from Curacao in the south to St. Martin in the north, on behalf of the Dutch Caribbean Coast Guard.
Speaker 3: We are honored to add these two important mandates to our growing government services.
Speaker 3: In January , we're so entered into two new equipment financings.
Speaker 3: for an aggregate amount of approximately 140 million pounds.
Speaker 3: The proceeds from the financing were used to refinance the previous equipment facilities coming due and to support the company's obligation under our SAR contract in the UK.
Speaker 3: The credit facilities have 13-year terms with repayment due and quarterly installments, and they bear interest at a rate equal to Sonia plus 275 basis.
Speaker 3: We were pleased to complete these transactions as part of our continued approach to protect Fristo's strong balance sheet and liquidity position.
Speaker 3: And we believe the terms of the financing demonstrate Bristow's industry-leading access to capital.
Speaker 3: I will now hand it over to our CFO for review of the quarter's financial results and updated 2023 guidance. Jennifer? Thank you, Chris. As previously announced, we changed our fiscal year-end from March 31 to December 31. Therefore, the discussions today will focus on the fourth quarter of 2022.
Speaker 3: As a reminder, beginning last quarter, we changed our adjusted EBITDA presentation to exclude foreign currency gains and losses that are reported in other income to present the results of operations of the business more clearly. Change foreign exchange gains and losses that are reported in other income.
Speaker 3: are primarily non-cash and relate to balance sheet items.
Speaker 3: Today I will begin with an analysis of the sequential quarter comparison of the financial results.
Speaker 3: EBITDA adjusted to exclude special items, asset dispositions, and foreign exchange with $36.3 million for the fourth quarter of 2022 compared to $33.9 million in the third quarter, or an increase of approximately $2 million.
Speaker 3: Operating revenues increased $5 million, primarily due to higher government services revenues due to the commencement of new contracts and higher activity levels in offshore energy.
Speaker 3: operating expenses were 3.3 million higher primarily due to subcontractor costs, higher personnel, and lease expenses.
Speaker 3: General and administrative expenses were higher by $0.3 million, primarily due to higher compensation and IT related costs.
Speaker 3: As noted previously, other income is primarily comprised of non-cash foreign currency gains and loss moves, which we have excluded from our adjusted EBITDA calculation. As we announced last quarter, we have initiated guidance for calendar year 2023.
Speaker 3: 14 to 16.
Speaker 3: As discussed, foreign currency has a significant effect on our financial results.
Speaker 3: With the strengthening of the British pound sterling relative to the US dollar over the last few months, we've increased our financial outlook. We anticipate revenues to be in the range of $1.2 to $1.3 billion with adjusted EBITDA effects, including asset dispositions and foreign exchange.
Speaker 3: of 150 to 170 million dollars when using an average British pound US dollar exchange rate of 1.22.
Speaker 3: We also increased our 2023 CapEx outlook due to an acceleration of previously announced UKSAR2G spend to ensure successful contract execution and transition.
Speaker 3: Note that this is a change in timing of cash flows. The total capex spend related to SAR2G is not expected to stick.
Speaker 3: Finally, Bristol continues to benefit from a strong balance sheet and liquidity position.
Speaker 3: As of December 31st, our available liquidity was $240 million after cash outflows of $32 million for the purchase of aircraft and $24 million related to the PBH buy-in.
Speaker 3: As we have stated before, we still believe that this business model will continue to generate strong cash flows.
Speaker 3: At this time, I'll turn the call back to Chris for further remarks. Chris?
Speaker 4: Thank you, Jennifer.
Speaker 1: I will now provide some additional highlights on the outlook for Bristol's business. Our leading government services business has continued to grow and now includes SAR services in the UK, the Falkland Islands, the Netherlands, and the Dutch Caribbean region.
Speaker 1: 2023 will see the benefit of a full year contribution from each of these contracts.
Speaker 1: These attractive long-term contracts provide a stable and robust cash flow foundation for the company.
Speaker 1: In addition, we are currently involved in other active tender processes for government contracts and we believe BRSSO is well positioned to continue the growth of our government services wash and the
Speaker 1: The offshore energy services market is in the early innings of a multi-year growth cycle.
Speaker 1: We have once again included slides in our earnings presentation that summarize data from third-party analysts supporting the outlook for significant increase in upstream oil and gas.
Speaker 1: once again, include slides in our earnings presentation that summarize data from third-party analysts supporting the outlook for a significant increase in upstream oil and gas spending over the next few years.
Speaker 1: and a tightening market for offshore helicopters. As noted on slide 12, Barclays Research expects offshore spinings to increase by 24% in 2023, following a 12% increase in 2022.
Speaker 1: They expect this multiyear growth cycle to continue in 2024 and 2025.
Speaker 1: On the next slide, we show current data on the offshore helicopter market from Steve Robertson, who does a tremendous job covering the industry at his firm, Arent C Analytics.
Speaker 1: The increasing activity in offshore energy is driving a very constructive supply and demand balance for offshore helicopters.
Speaker 1: At this time last year, we expected that the market for AW139 medium helicopters
Speaker 1: as well as the market for super medium helicopters, both the AW 189 and H175 models would be very tight.
Speaker 1: And we expected that placing idle S-92 heavy helicopters back to work on due contracts would be the best way to be able to increase demand.
Speaker 1: Due to supply chain challenges that have delayed parts and repairs for the S-92 helicopters, the S-92 will therefore eliminate the number that are serviceable today.
Speaker 1: The overall market has tightened even more quickly than expected.
Speaker 1: As you can see in Steve's utilization chart, there is very little available capacity in the market now.
Speaker 1: This tightness in the equipment market combined with the constrained global labor force...
Speaker 1: is resulting in significant net increases in leading edge rates.
Speaker 1: We expect that the improvement in Briscoe's financial results in 2023 will increase the
Speaker 1: We'll be back and waited for the second half of the year.
Speaker 1: As you will recall, the first quarter of the calendar year is traditionally our weakest border due to seasonality.
Speaker 1: shorter daylight hours and implement weather adversely impacts operations.
Speaker 1: In addition to that typical seasonal pattern, the first part of the year will see more idle aircraft if we concluded a large contract in Ghana at year end. We are in the process of transitioning and reconsidering those and other aircraft for new contracts that have been won on attractive terms.
Speaker 1: in places like the US Gulf of Mexico, Brazil, and the North Sea.
Speaker 1: Those contracts are scheduled to begin later this year, which supports our view that the EPIS-DOT run rate at year-end will be significantly higher than the first half of this year.
Speaker 1: In summary, we are very encouraged by the improved fundamentals and outlook for Bristow's business in 2023.
Speaker 1: While the strong US dollar is somewhat masking the full magnitude of this improvement, we are confident that increasing offshore energy activity will increase the number of people
Speaker 1: a growing government services business.
Speaker 1: and a recovering six-wing business.
Speaker 1: recovering fixed-wing business will drive robust cash flow generation going forward.
Speaker 1: With that, let's open the line for questions.
Speaker 2: Thank you.
Speaker 5: And at this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may withdraw your question at any time by pressing star 2.
Speaker 5: Once again, to ask a question, please press the star and one for your touch-tone phone.
Speaker 5: We'll pause a moment to allow questions to queue. We'll take our first question from Chris Lee with Evercore ISI. Please go ahead. Your line is open. Be been on the other side, here.
Speaker 1: Good morning Chris and Jennifer. This is Chris Lee from Evercrye Style filming for James West.
Speaker 1: Good morning, Chris and Jennifer. This is Chris Lee from Evercore ISI, filling in for James West. I have a couple of quick questions here.
Speaker 4: Good morning, Brett. You guys doing okay? Okay, great. Perfect.
Speaker 4: So my first question is, given all the discussion around the multi-year growth cycle in offshore energy services, what is the timing and the ramp up of revenues for BRISO?
Speaker 1: Good morning again, Chris, and thanks for the question. We have already entered into new contracts that have been won and secured by Bristow. A number of them are scheduled to start throughout the course of this year, some of them being back in weighted. For example, in Brazil, we have a lot of contracts that have been won and secured by Bristow.
Speaker 1: We've been successful in recent tender rounds with Petrobras in securing a number of new contracts for AW139 helicopters. They are scheduled to start in the second half of this year. We're currently in the process of preparing those aircraft for their desired configuration and then transitioning them down to Brazil.
Speaker 1: Also, as we announced towards the end of last year, we were successful in winning a new large contract to provide search and rescue services to Equinor for the southern part of Norway. That contract begins in September of this year. We're also currently in the process of ramping up for additional contract support.
Speaker 4: Gotcha. Yeah. Thanks. Thanks for the response. My follow up question is you mentioned the tightening in the equipment market combined with the constrained global labor force is kind of like resulting in significant net increases in beating edge rate. But what about the accompanying costs that are also increasing?
Speaker 4: specifically in the labor and supply chain perspective, and what does this mean for Priestville's bottom line?
Speaker 1: Yes, so we are seeing some inflationary pressures in our cost structure. You referenced labor. That's something that obviously we always have to be mindful of. It's important for us to maintain a competitive compensation and benefits structure. We do have fairly good visibility on that because a number of our workforces around the globe...
Speaker 1: are unionized until we have in some cases multi-year union agreements. We do have some visibility on what those amounts are. Supply chain is another area which fortunately with our long-term power by the hour or PBH support agreement, we do have some visibility of security of what that cost structure will be.
Speaker 1: It's definitely the case that the rate increases we're seeing are net increases, so well above the inflationary cost that we're experiencing. And that's again driven by the type of flag band balance in the market. Gotcha. Okay, so. Okay, so, we've covered a lot of things so
Speaker 4: One more question if that's okay. From my understanding you're currently doing a small bit of offshore wind work in Europe . Do you see the growth potential here in the U.S. or anywhere around the world. And what would need to happen to offshore wind industry paid?
Speaker 4: for it to be viable and lucrative space for Bristol and the overall offshore helicopter industry.
Speaker 1: You're correct that we are supporting on a small scale offshore wind activity in the UK today. Overall we believe that the offshore wind industry will be an important and growing component of the energy transition that's taking place globally. With already a fairly mature market in northwest Europe .
Speaker 1: and parts of Asia. It's really a nascent market here in the US. However, there have been a handful of large projects that have been approved to proceed in future years here in the United States. There are others that are in the pipeline for evaluation up to a final investment decision.
Speaker 1: So again, we think that market overall will grow. I think the question is how much of a role there will be for offshore helicopters to support the industry and what the opportunity will be for BRISTO there. Again, if we look to northwest Europe , which is already a more mature market.
Speaker 1: There are currently a number of smaller helicopter companies who specialize in that segment. And so we can look to them and evaluate what they're doing and also consider that as an opportunity to enter the market. Here in the U.S. just to underscore where we are in the evolution of the industry, as of now there are no offshore helicopters supporting.
Speaker 1: offshore wind in the US because the projects aren't there yet, but we do believe they'll be coming. So overall it will be a growing market. I think there's an open question as to how much that will lead to offshore helicopter demand and then specifically for BRISTO we obviously are going to evaluate it and need to determine in conversations with customers, potential customers.
Speaker 1: whether the rate and financial returns are enough to meet our expectations for return thresholds. Great, thanks so much.
Speaker 1: the rate and financial returns are enough to meet our expectations for return thresholds. Great, thanks so much. Thank you, Chris.
Speaker 5: We will take our next question from Josh Sullivan with the Benchmark Company. Please go ahead.
Speaker 5: We will take our next question from Josh Sullivan with the Benchmark Company. Please go ahead. Good morning.
Speaker 5: We will take our next question from Josh Sullivan with the Benchmark Company. Please go ahead. Good morning. My gosh.
Speaker 4: Can you just expand on a need to accelerate CAPEX as it relates to the new UK government SAR contract and then what you mean by contract execution risk?
Speaker 1: We're happy to address that. First thing we'll say is that the aggregate amount of CapEx needed for that contract has not changed. It's the same. We have pulled forward the timing of the capital expenditure. Looking at the timeline to start up the contract.
Speaker 1: We saw an opportunity to bring the aircraft in earlier, which will give us better assurance that we'll be able to complete the modifications and final configuration in time to ensure the successful startup on time for that important UKSAR 2G contract. So really what it is, is again, no change in the aggregate amount of capital.
Speaker 1: a pull forward on timing, and an enhancement of the assurance that we'll be able to start on time successfully.
Speaker 1: forward on timing and an enhancement of the assurance that we'll be able to start on time successfully.
Speaker 1: And then as far as the recent structural change announcement in the addition of two COOs, I think in order to increase scale and drive growth in government services, how's that going to drive new opportunities? I think the Irish Star tender is coming up, but outside of that, what other opportunities should we be thinking about as it relates to that structural change? Sure. Thank you for the question.
Speaker 1: One thing I want to clarify up front is that this is really a realignment of the existing team. So not a change in overall SIN or G&A, but realigning the existing team around the core end markets of government services and offshore.
Speaker 1: I think what it will allow us to do is to get closer to our customers in each one of those key markets And hopefully be able to adapt and address their needs in a better way and in a timely fashion Specific to government services one of the things that really Throws the internal management realignment there
Speaker 1: is that our government services has increased significantly in scale and in complexity now, operating in a number of different jurisdictions. So we think the focus is warranted. I think it will better allow us to pursue the additional opportunities that you mentioned by having that type of focus.
Speaker 1: The Irish Coast Guard is an opportunity that we're actively participating in today. While we don't know the exact date, the expectation is that the winner of that important, sizable new contract will be announced sometime over the next few months by this summer. We believe we're well positioned there, but obviously not taking anything for granted.
Speaker 1: Beyond that, we are participating currently in a couple of smaller government services tender processes in Europe . And then looking further down the line, we believe there may be additional nationwide search and rescue opportunities in places like Norway and Australia.
Speaker 1: But again, those timelines are not yet set. But we think that the opportunity portfolio and the government services realm will continue to grow.
Speaker 1: And then the chart you have in there for the helicopter utilization for the S-92, you know, it looks like you saw about 10 that are not on lease yet. What's the strategy for those off-lease aircraft? Are you waiting for better pricing? Are they part of the current growth plan?
Speaker 1: So we do have some orders, some of which are flexible to bring new aircraft into the company. In terms of what's firm right now, we have orders out for six new AW139 SAR configured helicopters that will become.
Speaker 1: part of the UK SARS-Eg fleet. We also have the ability to bring in more AW 189 helicopters if we need them to support either SARS opportunities or offshore energy services opportunities. So that's specific to the Bristol fleet.
Speaker 1: In terms of the market data that was presented on slide 13 of the presentation, that comes from Steve Robertson at Air & Sea Analytics. This is looking at the entire global fleet of offshore configured helicopters. Some of the data, specifically that for AW169 and then the Supermedium aircraft 189, the H175.
Speaker 1: will look very similar to where it was at the middle of calendar 2022. The bigger change on this graph, which again is the whole industry, is really on that S92 line where you've seen a significant increase in the effective utilization. That's reflective of the type of market.
Speaker 1: we discussed earlier and really again an input into what is certainly a meaningful increase in leading edge rates in the industry.
Speaker 1: And maybe one on the fixed wing operation. Where are you in the fleet upgrade? Any market dynamics on the demand side you can reveal for us.
Speaker 1: Yes, in Australia we're still working through that. We're looking at bringing in some additional lease P190s for the Air North business. Those market opportunities really dissolve with the lessor.
Speaker 1: So we're going to keep some 170s for a little bit longer than we expected. We actually purchased two of those D170s last year to facilitate the timeline we're going to need to complete the transition. Overall I think we are still looking at the transition.
Speaker 6: to bring in the larger aircraft.
Speaker 1: on attractive terms moving forward, but it's gonna take a little more time to complete the transition from the E170 to the E190 to the airport.
Speaker 1: practice terms moving forward, but it's going to take a little more time to complete the transition from the E170 to the E190s in the Air North.
Speaker 7: Thank you, Josh.
Speaker 5: We'll take our next question from Steve Silver with Argus Research. Please go ahead.
Speaker 8: Good morning and thanks for taking my questions. I noticed in your presentation you guys included a net asset value slide and it suggests that the shares are currently trading at a significant discount. Just broadly speaking, I was just curious how you guys view the current value of the stock.
Speaker 8: and to what you might attribute the current disconnect to NAV. Good morning Steve, thanks for the question.
Speaker 1: For our long-standing practice, we did publish our annual NAB disclosure this year. Again, a little bit of background on how this is derived. So once a year, we receive a third-party appraisal for all of the owned helicopters and aircraft that we have in the fleet. That's what's reflected in the NAB disclosure.
Speaker 1: 1.325 billion of aircraft value is that third party appraised value. We then take the net book value of the other assets in the company, less the liabilities to get to the aggregate net asset value, which is just again that 1.3 billion dollar number, which translates on a per share number to roughly 48 dollars per share in AB.
Speaker 1: today and based upon the third party appraisals for the fleet. That obviously is a significant difference. The current share price trading at a substantial discount for that. I would note that as we sold aircraft over time, including over
Speaker 1: the last couple of years, as you'll see in our current financial disclosures, you know, they tend to be much closer to the amounts we're carrying them on. The balance sheet was relatively small. Chains and losses on a net basis recognized over the last two periods, as you'll see in our 10K. In terms of the question, or the aspect of the question, how we think about the fleet value, really referencing back to that discussion that we had on-
Speaker 1: that helps support values in the market.
Speaker 8: Great, that's helpful. You guys mentioned the accelerated near-term CapEx expenses. Can you discuss just whether the recent debt financing you guys just did plays any role in Bristol's capacity to move those expenses forward?
Speaker 1: Happy to address that. So we have the ability to fund all of our UKSAR 2G capital needs with the existing resources that we had, both the cash already on the balance sheet as well as cash that we expect to generate over the coming months and years.
Speaker 1: However, in order to optimize the capital structure, we did take an opportunity to slightly upsize the equipment financing facilities. So there's roughly an incremental, after refinancing and paying transaction fees, roughly an incremental 30 million pounds. But the thrust tank was very different than the existing as compared to Corps d'Itresse
Speaker 1: that we brought into the company in January when we completed that financing. Again, that's more just looking at an optimal capital structure. We're confident, we know we have the ability to finance the needs to support the UK Star 2G and look forward to starting up what is really an attractive long-term contract that will...
Speaker 1: to see us continue to provide this important service to the people of the United Kingdom well into the middle of the next decade.
Speaker 8: Great, thanks for the caller and good luck.
Speaker 5: Thank you Steve. And that concludes our call. I will now turn the call over to Chris for closing remarks.
Speaker 1: Thank you, Nikki, and thanks everyone for joining the call. As you can see, we have a very optimistic outlook for Bristow's business. The fundamentals have improved significantly. We're seeing that across our government services business, which has been growing. We're also seeing that in a much more productive market for the offshore energy business, which has really better fundamentals than we've seen.
Speaker 1: certainly in the last eight years. So a lot of reasons for optimism for improved results for the company as we move through the course of 2023 and beyond. Appreciate your participation and look forward to speaking again next quarter. Thank you. And these thoughts include today's program.
Speaker 5: Thank you for your participation. You may disconnect at any time.
Speaker 9: The of F.