Q1 2023 Bristow Group Inc Earnings Call

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Good day, everyone and welcome to today's Bristow Group reports first quarter 2023 result.

This time, all participants are in a listen only mode.

Later, you will have the opportunity to ask questions. During the question and answer session.

I will be standing by should you need any assistance.

It's now my pleasure to turn the conference over to senior manager Investor Relations and financial reporting Red telephone.

Yeah.

Thank you Corey.

Morning, everyone and welcome to Bristow groups first quarter 2023 earnings call.

I'm joined on the call today, with our President and Chief Executive Officer, Chris Bradshaw, and senior Vice President and Chief Financial Officer, Jennifer We do it.

Before we begin I'd 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 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.

I'll now turn the call over to our President and CEO Chris.

Thank you Ed 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 our target of zero air accidents in the first quarter of 2023, and we also experienced a reduction in the total recordable incident rate relative to last year's metrics.

I want to thank and commend all of our Bristow team members around the world for their continued dedication to place safety first every day.

Yes.

As previously noted in our financial guidance and commentary the first quarter was expected to represent the company softest financial results due to typical seasonality as well as the transition of aircraft between the end of a contract at year end 2022.

And the commencement of newly awarded contracts over the course of 2023.

Actual first quarter results were higher than management's estimates and we are pleased to affirm <unk> full year 2023 financial guidance.

The fundamentals for bristols business are improving significantly.

And the EBITDA run rate at year end is expected to be significantly higher in the first part of this year.

I will now hand, it over to our CFO for a review of the quarter's financial results Jennifer.

Thank you Chris.

I will begin with an analysis of the sequential quarter comparison of breakfast financial result.

As Chris noted the first quarter of the calendar year is seasonally our lowest activity partner there are fewer daylight hours and more adverse weather conditions that contribute to lower activity.

In addition, the first quarter of 2023 was burdened with the transition of aircraft between contracts that were ending and new contracts. Beginning later this year.

But that said EBITDA adjustments.

Actual items.

Dispositions and foreign exchange with $28 9 million for the first quarter of 2023 compared to $36 3 million in the fourth quarter of 2022 or a decrease of approximately $7 4 million.

Operating revenues decreased $11 4 million, primarily due to seasonality at the end of the contract in Guyana and lower lease payments received from Cougar, partially offset by higher revenues and government services and fixed rate.

Operating expenses were $8 million, lower primarily due to lower repairs and maintenance costs.

General and administrative expenses were $5 million higher primarily due to $3 2 million of nonrecurring professional service fee.

<unk> costs and tax expenses in the current quarter and the absence of onetime benefits of $1 $3 million in the preceding quarter.

Adjusted for these unusual items, our general and administrative expenses would have been <unk> 4 million higher.

As noted on previous earnings calls.

Other income line is primarily comprised of noncash foreign currency gains and losses.

Excluded from our adjusted EBITDA calculation.

We have affirmed our financial guidance for calendar year 2023, and our earnings presentation. The details are on slide 12 through 14.

As we've noted previously our EBITDA guidance is weighted towards the back half of the year and slide 13 presents a walk through of helicopters commencing new contracts throughout 2023.

Bristow continues to benefit from a strong balance sheet and liquidity position.

As we announced in January we were able to upsize and refinance our secured equipment financing with Natwest with a 13 year maturity at competitive terms.

Recent financing and our senior secured note results and attractive debt maturity profile at relatively low borrowing costs.

Furthermore, as of March 31, our available liquidity was $275 million after an outlay of $29 million during the quarter for growth capital expenditures, primarily for the UK SAR contract.

As we have stated before we still believe that this business model will continue to generate strong cash flows.

At this time I'll turn the call back to Chris for further remarks.

Chris.

Thank you Jennifer we believe the offshore energy services market is in the early innings of a multiyear growth cycle.

As noted on slide 13 of this quarters earnings presentation contains a summary of significant mandates that are driving improved momentum throughout 2023.

Following the conclusion of a contract in Ghana on December 31 of last year, we were in the process of transitioning those aircrafts as well as other aircrafts in our fleet to begin new contracts that have been secured on attractive terms and are scheduled to commence later this year.

This list includes contracts for six S 92, heavy helicopters and 700 <unk> hundred nine medium helicopters across the U S Gulf of Mexico, Brazil, and the North Sea.

Please note. This slide is not comprehensive of all the utilization changes and improvements expected in our offshore energy services business for.

For example increased market activity and the return of a significant customer contracts continue to drive better results in our Nigeria business.

Furthermore, as summarized on slide 10 of the earnings presentation.

Expectations for increased offshore energy spending in 2024 and 2025.

Two continued improvement in this part of our business.

And bristols, leading government services business 2023, we will see the benefit of a full year contribution from our new contract additions in the Netherlands.

The Dutch Caribbean region in the Falkland Islands.

In combination with our contract supporting the U S Bureau of safety and environmental enforcement as well as our cornerstone UK SAR contracts with the Maritime and Coast Guard agency of his Majesty's government.

These attractive long term mandates provide a stable and robust cash flow foundation for the company.

In addition, we are currently involved in other active tender processes for additional government contracts.

And we believe Bristow is well positioned to continue the recent growth of our government services business.

In summary, while there are some headwinds to note including supply chain challenges.

<unk> Global Labor Force and a strong U S dollar relative to the British pound we.

We remain highly encouraged by the improved fundamentals and outlook for crystals business.

As noted the EBITDA run rate at year end 2023 is expected to be significantly higher than the first half of this year.

Setting up positively for stronger financial results in 2024.

In conclusion with Bristow is leading government services business characterized by long term contracts with stable cash flows.

Our leading global offshore energy helicopter business with attractive exposure to upstream spending that is expected to increase significantly from recent levels.

And the future upside potential of advanced mobility.

We believe the present point in time represents a highly compelling opportunity to invest in Bristow.

That lets open the line for questions operator.

Okay.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.

You may withdraw your question at any time by pressing star two.

And once more for your questions that is star one.

We will take our first question from Chris Li with Evercore ISI.

Do we have a question from the line.

Chris Your line is open.

Hey, good morning, Chris and Jennifer can you hear me okay.

Yes, good morning.

Good morning.

So two quick questions here.

First of all on as many of your contracts that are starting in the second half of 2023 were actually negotiated last summer.

At higher rates right.

Bill rates for upcoming tenders expected to be higher than those from prior year or relatively the same.

Thank you for the question you are correct that many of these contracts all of them that are disclosed on slide 13 of the earnings presentation.

We're one into new processes that were completed last year.

They were at higher rates than what had been the previous generation of those contracts.

As the equipment market continues to heighten and we continued to experience constructive fundamentals well.

We'll continue to test higher rates.

Looking to secure the best returns possible for our stakeholders. So as the dynamic continues to evolve on a situation by.

Situation basis, we will continue to look for where we can continue to increase those rates that we are winning new business apps.

Gotcha. Okay. My second question is given the long lead times for new helicopters is it time to start placing orders for offshore energy configured aircraft or is.

This is the market not ready for new orders yet.

I don't think were there today, where the market is going to see a significant number of new offshore configured helicopters.

I would note that the recent helicopter orders that we have placed have been for the government services contracts that we've won and we're excited about the opportunity to deploy capital into those high market or sorry high margin high returning long term contracts, but to your question specific to offshore energy configured helicopters.

A very thin order book today, not much of one to speak about there may be specific contract driven opportunities based upon certain specifications as determined by customer tenders, but I don't think we're in a position today, where you're going to see any kind of broad Fleetwide order book develop in the <unk>.

Near term for offshore configured energy helicopters, certainly if we are to get to a point, where we would evaluate that it would have to meet our financial return parameters and the right contract terms.

Thank you so much I'll turn it back in the queue.

Thank you.

Okay.

And we'll move next to Josh Sullivan with the benchmark Company. Your line is open.

Hey, good morning.

Good morning, Josh.

You're highlighting here that in Q1 better than the new expectations. The environment seems pretty solid. So can you just walk us through what that indicates for the rest of the year, just given youre affirming guidance here.

Sure.

As you know, we did disclose a range of financial guidance, including our range for.

EBITDA of $150 million to $170 million.

As noted Q1 actually tracked higher than than our management expectations. So I think that means we feel very positive about the rest of the year just as a higher degree of conviction higher confidence in the range that we've disclosed and meeting.

Especially the EBITDA range that we've talked about.

Got it.

And then in the release you highlighted lower maintenance expenses, how much the new power by the hour agreement contribute to the savings in the quarter.

It was certainly a benefit to the company and we will be over the long term I don't have a specific number based upon the flight hours that were flown.

Something that we can follow up with you on Josh but certainly the.

Repairs and maintenance costs over the long term for that AWS three <unk>, we are going to be lower than they otherwise would've been.

And also much more predictable and stable than than when we run more of a time and cost of repair basis as opposed to the more predictable power by the hour arrangement that we have going forward.

Got it.

And then just with regard to the helicopters you have on order what are the Oems communicating as far as lead times.

And what's the lead time for our clean sheet order placed today look like.

18 to 24 months would be a good rule of thumb for most of the helicopter models that are of interest today.

And then just on the government services side, you had some new contracts contributing.

Our fourth quarter run rate here, so should we take that at the current levels as the run rate moving forward.

Yeah. We were pleased that Q1 represents really the first full period impact of all of our new work, including not just the Falklands, but also the Netherlands SAR contract as well as the Dutch Caribbean SAR contract.

There is some level of seasonality in the government services business for example in the summer months people tend to be out doing more things on the water or in the mountains that end up requiring additional emergency response services from us, but much less seasonality than we experienced in our offshore energy services business one of the reasons for that is there.

In a typical government services contracts, 85% of the revenues are comprised of the fixed monthly standing charges that we received to be there on standby and ready to fly. So we have relatively less exposure to the number of flight hours.

Less seasonality, although there is some.

I think as you as you noted Q1 should be representative of what Q1 looks like for the current portfolio that we have of those contracts.

Not every quarter will look exactly the same but it is a much more stable business given the nature of that contract.

Great. Thank you for the time.

Thank you Josh.

And we'll take our next question from Steve Silver with Argus Research. Your line is open.

Good morning, and thanks for taking my questions I've got a few as well.

First question is on fleet utilization.

Notice that Bristow disposed of three aircraft during the quarter.

Just trying to see if you could provide any color on the dynamics of managing the size of the fleet versus maintaining capacity for new contract deployments that might be coming down the road.

Certainly good morning, Stephen Thanks for the question as part of our long standing strategy. We are active in managing the fleet, we look at the opportunities to generate cash returns from any given helicopter our aircraft when it becomes available that.

And that opportunity set includes where we could make operating the aircraft ourselves for our own end customer. We will also look at what we could make by leasing it out to other operators and we will look at what we could make if we were to sell it into the secondary market at that time.

It's a pretty straightforward approach, but generally speaking we're going to take the highest present value proposition of those three different alternatives.

Times.

Particularly given.

Of which aircraft we are talking about it is the case that announced sale of the aircraft into the secondary market is the best way to generate a cash return on the aircraft.

Since we closed the merger I think we sold approximately 80 helicopters since mid 2020, I don't think we'll be as active going forward because a number of those were very much on <unk>.

Utilize legacy medium and light helicopter models and indeed.

<unk>.

The helicopters that we sold in this recent quarter also included some legacy medium helicopters in that number so.

So we're not we're not looking to get out of them.

Be more competitive.

Aircraft types that we have today.

And that comprise the majority of our fleet and cash flows.

Such as the 139 <unk> hundred 19 S 90, twos and those arent the aircraft that we're selling.

Okay. That's helpful. Thanks, Tom.

I'm just curious as to whether your capital allocation strategy has changed at all given the continued strong liquidity of the company, but also the pressure on the stock price just curious if the company is planning to do any share repurchases at these levels.

And so our overall capital allocation strategy has not changed we will continue to look at the same set of options the relative prioritization in any period will evolve depending upon the circumstances at the time.

Ideally after we close the merger in mid 2020.

We did look to protect our balance sheet, our strong balance sheet and indeed, we reduced gross debt by more than $100 million.

We also look for opportunities to return capital to shareholders.

Been pleased over that period of time to buyback approximately $60 million worth of shares at an average price of about $25 a share that represents about.

10% of the current market cap of the company, so quite a significant allocation of capital there as well.

In this particular quarter just completed again, we're looking to protect the company's strong balance sheet are pleased with the successful refinancing that we were able to complete in this quarter and we're also looking to fund the attractive.

<unk> capital expenditure.

Opportunities that we have.

To really build out the cash flow foundation of the company for the long term with these attractive high margin high returning on average 10 year contracts.

We think that's a great use of capital for the company over the long term that doesn't.

Preclude us or prevent us from continuing to evaluate share repurchases as well as other opportunities.

Great.

One last housekeeping question it looks like the tax guidance for the full year was you reiterated.

Even though there was just a very low amount paid in Q1.

Just wondering if theres any color you can provide around the timing of the payments over the balance of the year.

Sure.

Good day.

Yes.

Q1 is historically, a low quarter for tax payments just as most jurisdictions don't have an estimated payment in the first quarter. So depending on our different jurisdictions, we will have estimated payments throughout the rest of the year.

That will that will get us near our guidance range.

Our range of guidance.

Okay, great. Thanks for taking the questions.

Thank you Steve.

Okay.

And it does appear that there are no further questions at this time, but once more that is star one.

We'll pause just a moment.

Okay.

And there's still no questions at this time.

Okay.

Thank you thanks to all those who have participated we look forward to speaking again next quarter again, we remain very positive about the outlook for <unk> business.

Lot of momentum building over the course of 2023 as noted the contracts that we've listed in the earnings presentation are ones that have already been awarded and.

And are scheduled to start this year sets us up for a much stronger run rate over the course of the year all of which is building too much stronger financial results for 2024 and beyond and again. This the list of contracts that we disclosed.

It does not represent all of the upside. These are the ones that have already been awarded and are scheduled to start here over the next couple of quarters. So we feel very positive about the outlook for our business moving forward.

And look forward to updating you again next quarter.

Okay.

This does conclude today's program. Thank you for your participation you may disconnect at anytime and have a wonderful afternoon.

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