Q2 2023 Bristow Group Inc Earnings Call

Starting to.

Please note. This call may be recorded I will be standing by if you should need any assistance is now my pleasure to turn the conference over to Mr. Bret Taylor, who senior manager of Investor Relations and financial reporting. Please go ahead Sir.

Thank you James.

Good morning.

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.

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 of our Investor presentation, I will now turn the call over to our President and CEO Chris.

Thank you, Brad and welcome to the call everyone.

As always I will begin our prepared remarks with a note on safety, which is Bristol is number one core value and our highest operational priority.

Company has achieved our target of zero air accidents through the first seven months of 2023.

We also experienced a reduction in the total recordable incident rate as well as fewer incidents, resulting in lost work time.

I want to thank all of our global team members for their continued dedication to place safety first every day.

Turning to other operational highlights and outlook.

The 35% sequential quarter improvement in adjusted EBITDA, excluding asset dispositions and foreign exchange losses.

Jos the building momentum for Bristols business in the latter half of 2023 and beyond.

We continue to believe the offshore energy services market is in the early innings of a multiyear growth cycle.

Offshore industry activity is increasing at a significant pace.

As evidenced by the wave of recent project.

Subsea Award.

And equipment contracting announcements.

For Bristow to increased market activity is resulting in higher fleet utilization and higher rates for our services.

We expect the company's financial performance to be significantly better in the second half of this year setting up positively for even stronger financial results in 2024.

And our government services business, we are pleased to be selected as the preferred bidder for the $670 million Euro search and rescue contract for the Irish Coast Guard.

And we expect to finalize the contract signature soon.

This important new mandate, which has a base duration of 10 years plus.

Plus options to extend an additional three years.

<unk> commence over an operational transition period, beginning October one 2024 through July one 2025.

To facilitate this new contract, we're still will invest approximately $140 million of capital most of which will occur during the remainder of 2023 and 2024.

The Irish Coast Guard contract will represent the second largest contract in our portfolio.

And it is expected to contribute a substantial amount of high quality stable cash flow.

On slide number 13 of our Investor presentation.

Can see a summary of the world class contract and Bristow search and rescue business.

We are executing on the opportunity to invest on attractive terms that will result in extended and substantial cash flow yield for bristow shareholders for the next decade and beyond.

We believe the stability of our government business is a strong complement to Bristow is offshore energy services business, which after several years of challenging conditions is now positively inflicting at the beginning of a new growth cycle.

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

Correct.

I will begin with an analysis of the sequential quarter comparison of breast as financial results.

EBITDA adjusted to exclude special items.

Physicians and foreign exchange, but 39 million for the second quarter of 2023 compared to $28 9 million in the first partner or an increase of approximately $10 million.

Operating revenues increased $18 6 million, primarily due to higher utilization in our offshore energy and government services businesses.

Operating expenses were $13 9 million higher primarily due to increased repairs and maintenance costs.

Other operating costs.

At one time noncash write off related to legacy insurance policies, partially offset by lower appeal.

The onetime noncash charge of $4 million to insurance from pre merger aviation insurance policies had a good experience returned provision.

It has taken several years to reconcile and collect on those entrance coffee and espresso with finalizing the returns of premium it was determined that we needed to adjust the receipt of all three of the amounts we expect flat.

Our current aviation insurance policies haven't different in structure and we do not expect this type of items recur.

Moving on general and administrative expenses were $2 1 million lower due to lower professional fees.

As noted in previous earnings calls.

Other income.

And other income line item and is primarily comprised of noncash foreign currency gains and losses, which we have excluded from our adjusted EBITDA calculation.

We have affirmed our financial guidance for calendar year, 2023, and June we announced financial guidance for 2024, with an EBITDA range of $190 million to $220 million.

The details are available on slide 15.

Finally, Bristow continues to benefit from a strong balance sheet and liquidity position as of June 30th our available liquidity was $285 million.

We generated adjusted free cash flow of $17 9 million for the quarter and as we've 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.

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

Setting up positively for even stronger financial results in 2024 and beyond.

With that let's open the line for questions James.

Thank you at this time, if you'd like to ask a question. Please press the star and one on you touched on phone.

Remove yourself from the queue at any time by pressing star to once again at a store and one to ask a question.

And we'll take our first question today from Josh Sullivan with the benchmark company.

Hey, good morning, congratulations on the quarter.

Good morning, Josh Thank you.

Looking at the step up in the second half year.

Is reconfiguring transitioning of the aircraft assets progressing some of these contracts any any hurdles to note and rebase seen or maybe ahead of schedule anywhere.

Thankfully no hurdles to note we remain on track to meet the schedule that we have to start up these contracts, which again are evidence of the building momentum that we see in our business over the latter half of this year.

Got it.

And then I think given the recent Irish Darwin, how much government services Tam is theyre really left for you to go after and capture maybe what opportunities are on the horizon that you guys are tracking right now.

So thank you for the question Josh we are really pleased by the growth in our government services portfolio. If we look back a couple of years. It was really the one cornerstone contract with the UK search and rescue program. Since then we've added the Netherlands, the Dutch Caribbean regions et cetera, and very excited to now add the iris.

So our contract which will be come the second largest contract that we have anywhere in the company. If we look forward.

To believe there'll be a growth in this trend for governments around the world considering to outsource this critical but highly specialized service, which is search and rescue.

There is a sizeable contract in Australia, providing government saw work that we expect to come to market sometime over the next couple of years, Although we don't have a firm timetable on that one yet that's likely to be the next active opportunity, but again looking forward. We think that this trend for the outsourcing of this.

But very specialized service is likely to continue with other governments considering doing the same.

Okay.

And then how do you plan to fund the incremental Capex need here.

Just just on the devilish SAR operations or maybe other what other details can you provide on the contract itself.

Sure. We believe we're in an advantageous position in that we have on multiple opportunities multiple alternatives to fund this growth investment.

Use a combination of cash on hand, operating cash flow and that we're still to generate lie.

Likely some new debt financing potentially some aircraft leasing options, but we are in advanced discussions with various capital providers.

Those alternatives looking to provide the most efficient solution from a cost of capital standpoint, as well as other terms and conditions. So encouraged by those conversations as we do finalize them over the next few quarters will be we'll be pleased to announce some out more of the details.

Got it.

And then with the UK SAR Capex investment there was more of a need to get the orders in early just given what was going on with the supply chain.

Negotiations, if you've entered them with the Irish aircraft need.

Proceeded with the manufacturers.

They're going well.

We were announced as the preferred bidder at the end of May.

Working closely with the Irish Department of transport to finalize and sign the contract at the time that we do that we will move forward with placing the orders with the Oems is to have the aircraft delivered on time, but very good discussions with what is a long term partner that we have with the with the.

Sure.

And then I guess relatedly, how spares generally look to availability looks any any movement, allowing you to put more assets into service.

Unfortunately, not a material change in the supply chain condition. If we look at the aviation industry and certainly the rotary wing helicopter segment for which we have larger portion of our business. There have been some challenges with supply chain over the last few years has been the case with a number of industries are the most significant of those is really been specific.

To the S 92 parts and repairs to support that continues to be a challenge for us So no material change there although from our discussions.

With Sikorsky the manufacturer of the S 92.

Believe and we're working with them to hopefully get to a place where 12 months from now we're at a more normalized state where the repairs and services can be completed as needed.

Great. Thank you for the time.

Thanks, Josh.

Next we'll hear from Chris Li with Evercore ISI.

Good morning, Tim.

Good morning, Chris.

Just curious on the announcement on additional basis.

Sorry, Chris I think.

We lost you there for.

For a second which announcements.

Oh, yes.

A basis in Brazil.

Pretty much doubled the number of aircrafts that your previous operating but what kind of opportunities you're seeing in Brazil.

Yes. Thank you for the question, we believe that the Brazilian market is likely to grow as fast if not faster for offshore helicopter support needs than any other sizeable offshore oil and gas market anywhere in the world. We were successful in winning six new contracts and tenders that occurred last year those contra.

<unk>.

Starting up this quarter the one that we're in now.

Looking forward, we continue to believe there'll be a lot of attractive growth opportunities in Brazil. If you look at the next few years. There are approximately 20, new floating production storage and offloading vessels scheduled to come into the Brazilian market all of those platforms will need helicopter support and thats not even speaking to the drilling rig.

<unk>, which we also expect to be active during this period of time so.

We're excited about the growth prospects in Brazil, and what that could mean for additional opportunities for some business there.

Gotcha.

How should we take as positive offshore energy outlook for 2024 and apply regionally to better understand the various countries Europe you currently operate in.

So as we look across the various regions in which we operate around the world. The most growth opportunities that we see today are really in places like Brazil, which we just discussed as well as the west Coast of Africa, including Nigeria, where we have a large business that's been doing much better in <unk>.

<unk> orders.

U S. Gulf of Mexico is also another area, where at least added some aircrafts on contract here. This year and expect that we will continue to be.

More opportunities going forward in terms of increased demand here in the U S. Gulf of Mexico, So across our portfolio today. Those are three of the regions that I would highlight.

Got you makes sense just one other quick follow up question here.

Or any of the Irish SCR revenues, including your 2020 for guidance.

No we do not expect the Irish Coast guard contract to have a material impact on our P&L in 2024, it's really 2025 and beyond the next decade, plus we will see a material benefit from the Irish Coast Guard contract. So there was nothing included in our 2020.

For guidance for for Ireland.

Gotcha, great fully appreciate the color.

Thanks, Chris.

Our next question will come from Steve Silver with Argus research.

Good morning, and congratulations on the Ireland Coast Guard in the 'twenty to 'twenty four outlook.

Just looking at 2020 for government services. It looks like it's expected to account for about 20%, 25% to 30% of revenue, which is pretty consistent with the 2023 outlook.

While you have mentioned an attractive outlook for offshore energy I was just wondering if you could talk a little bit about your current thinking on any long term targets for revenue composition across the various segments given the.

The differences in <unk>.

Fixed costs and other economic benefits.

Hey, good morning, Steve and thank you for that note.

If we look at our government services business.

A growing business for us we've added some contracts recently, we are seeing the full year benefit this year from Netherlands, and Dutch Caribbean.

Irish Coast Guard contributions really kick in in 2025 and beyond so we are seeing growth in that business, which is encouraging.

Our offshore energy side, which has really had a number of challenging years up until now that sector is really just now positively in fact, inflicting we do think that we're in the early stages of what should be a multiyear growth cycle in offshore energy services and because we see so much potential there we actually.

We see the growth rates for that segment being higher than any of our other service lines. At this time, so it's likely that offshore energy rate of growth will be the highest that we have across our service lines.

2024 guidance out there, including revenues by line of service when we do issue 2025 guidance, we will do something similar which will provide more granularity around the individual contribution of each of the service lines.

That's helpful Great.

And one housekeeping question. If I can you have guided for approximately $225 million in cash taxes for the year.

Looks like you've paid about $3 6 million in the first half I was just trying to get a sense as to second half payments. If they are expected to be more evenly weighted.

Cross the quarters.

Or if there's any.

<unk>.

Differentiation between the quarters.

And really just in general how we should be looking at the timing of tax payments to the business in general.

Thank you Steve.

To hear from you.

So we operate all over the World and Easter section has a different timing of when these are really and.

Most cases estimated tax payments for income that it's created throughout the year and typically they wait to the back half of the year.

I don't think you can assume that they would be evenly distributed over the back half of the year, but yes.

Typically closer you get to the end of the year the more here.

Pulled together what you're.

What income looks like for the year. So therefore, we have guided that 2000 $25 million in cash taxes and have affirmed that got it.

Okay, I appreciate that and congratulations again.

Thanks, Steve.

It appears we have no further questions at this time I will now turn the conference over to Mr. Chris Bradshaw for any additional closing remarks.

Thank you James and thanks, everyone for joining for the call. This quarter look forward to speaking again next quarter in the meantime, I hope everyone stays safe and well.

This does conclude today's program. Thank you for your participation you may now disconnect.

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