Bristow Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to today's Bristol Second Quarter 2023 Conference Call. At 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. Please note this call may be recorded. I will be standing by if you should need any assistance.

Operator

It's now my pleasure to turn the conference over to Mr. Red Tillehune, Senior Manager of Investor Relations and Financial Reporting. Please go ahead, sir.

Speaker 1

Thank you, James. Good morning, and welcome to Bristol Group's Q2 of 2023 Earnings Call. I am joined on the call today with our President and Chief Executive Officer, Chris Bradshaw and Senior Vice President and Chief Financial Officer, Jennifer Whelan. 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 3 of our investor presentation. You may access our investor presentation on our website.

Speaker 1

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?

Speaker 2

Thank you, Red, and welcome to the call, everyone. As always, I will begin our prepared remarks with a note on safety, which is Bristow's number one core value and our highest operational priority. The company has achieved our target of 0 air accidents through the 1st 7 months of 2023. We also experienced a reduction in the total recordable incident Great, as well as fewer incidents resulting in lost work time. I want to thank all of our global team members for their continued dedication Turning to other operational highlights and outlook.

Speaker 2

The 35 Sequential quarter improvement in adjusted EBITDA excluding asset dispositions and foreign exchange losses shows the building momentum for Bristow's business in the latter half of 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 FIDs, subsea awards And equipment contracting announcements. For Bristow, the 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. In our Government Services business, we are pleased to be selected as the preferred bidder for the 670,000,000 For the Irish Coast Guard and we expect to finalize the contract signature soon.

Speaker 2

This important new mandate which has a base duration of 10 years, plus options to extend an additional 3 years, is scheduled to commence over an operational transition period beginning October 1, 2024 through July 1, 2025. To facilitate this new contract, Bristow will invest approximately $140,000,000 of capital, most of which will occur during the remainder of 2023 2024. The Irish Coast Guard contract will represent the 2nd 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, you can see a summary of the world class contracts in Bristow's 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 which after several years of challenging conditions is now positively inflecting at the beginning of a new growth cycle.

Speaker 2

We'll now hand it over to our CFO for a review of the quarter's financial results. Jennifer?

Speaker 3

Thank you, Chris. Today, I will begin with an analysis of Sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items, asset dispositions and foreign exchange was $39,000,000 for the Q2 of 2023 compared to $28,900,000 in the Q1 or an increase of approximately $10,000,000 Operating revenues increased $18,600,000 primarily due to higher utilization in our offshore energy and government services businesses And higher lease payments from Cougar as well as the strengthening of the British pound to the U. S. Dollar.

Speaker 3

Operating expenses were $9,000,000 higher primarily due to increased repairs and maintenance costs, other operating costs and one time Non cash write off related to legacy insurance policies, partially offset by lower fuel costs. The one time non cash charge of $4,000,000 To insurance, it's from pre merger aviation insurance policies that have a good experience return provision. It has taken several years to reconcile and collect on those And as Bristol was finalizing the returns of premium, it was determined that we needed to adjust the receivable to reflect the amounts we expect to collect. Our current aviation insurance policies have a different structure, and we do not expect this type of item to recur. Moving on, general and administrative expenses were $2,100,000 lower due to lower professional fees.

Speaker 3

As noted in previous earnings calls, the other income line item We have affirmed our financial guidance for calendar year 2023. And in June, we announced financial guidance for 2024, with an EBITDA range of $190,000,000 to $220,000,000 The details are available on Slide 15. As we have noted previously, our EBITDA guidance for 2023 is weighted towards the back half of the year And Slide 10 presents a walk through of Helicopters commencing new contracts throughout 2023. Finally, Bristow continues to benefit from a strong balance As of June 30, our available liquidity was 285,000,000 We generated adjusted free cash flow of $17,900,000 for the quarter. And as we have stated before, we still believe that this business model will continue to generate strong cash flow.

Speaker 3

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

Speaker 2

Thank you, Jennifer. We remain highly encouraged by the improved growth outlook for both our Offshore Energy and Government Services businesses. 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 even stronger financial results in 2024 and beyond. With that, let's open the line for questions. James?

Operator

Thank you. And we'll take our first question today from Josh Sullivan with The Benchmark Company.

Speaker 4

Hey, good morning. Congratulations on the quarter.

Speaker 2

Good morning, Josh. Thank you. Just looking at that step up

Speaker 4

in the second half here, how is Reconfiguring, transitioning of the aircraft assets progressing to some of these contracts. Any hurdles to note in rebasing or maybe you're ahead of schedule anywhere?

Speaker 2

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

Speaker 4

And then given the recent Irish Star How much government services TAM is there really left for you to go after and capture? Or maybe what opportunities are on the horizon that you guys are tracking right now?

Speaker 2

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 U. K. Search and Rescue Program.

Speaker 2

Since then we've added the Netherlands, the Dutch Caribbean region, etcetera, I'm very excited to now add the Irish Coast Guard contract which will become the 2nd largest contract that we have anywhere in the company. If we look forward, we continue to believe there will 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 sizable contract in Australia providing government So our 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 critical But very specialized service is likely to continue with other governments considering doing the same.

Speaker 4

And then how do you plan to fund the incremental CapEx need here, just on the average SAAR operations or maybe other What other details could you provide on the contract itself?

Speaker 2

Sure. We believe we're in an advantageous position and that we have Multiple opportunities, multiple alternatives to fund this growth investment. We'll use a combination of cash on hand, operating cash flow that we're still Generate likely some new debt financing, potentially some aircraft leasing options, but we're in advanced Discussions with various capital providers around 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 A few quarters, we'll be pleased to announce more of the details.

Speaker 4

And then with the UK Sorry, CapEx investment. There was more of a need to get the orders in early just given what was going on with the supply chain. How negotiations, if you've entered them with the Irish Aircraft needs, how does that proceed with the manufacturers?

Speaker 2

They're going well. We were announced as the preferred bidder at the end of May. We're working closely with the Iris Department of Transport to finalize and sign the contract. At the time that we do that, we'll move forward with placing the orders with the OEMs to have the aircraft delivered on time, but Very good discussions with what is a long term partner that we have with the manufacturer.

Speaker 4

And then I guess relatedly, how spares generally look or availability look? Any movement allowing you to put more assets into service?

Speaker 2

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 the largest portion of our business, there have been some challenges with supply chain over the last few years as has been the case with a number of industries. The most significant of those has really been specific to the S-ninety two parts and repairs support. That continues to be a challenge for us, so no material change there, although from our discussions with Sikorsky, the manufacturer of the S92, We 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

Operator

Next, we'll hear from Chris Lee with Evercore ISI.

Speaker 2

Good morning, team. Good morning, Chris. Just curious on the announcement on additional Sorry, Chris. I think we lost you there for a second. Which announcement?

Speaker 4

Yes, the additional bases in Brazil, which pretty much doubled the number of aircraft that you're previously operating. What kind of opportunities do you see in Brazil?

Speaker 2

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 sizable offshore oil and gas market anywhere in the world. We were successful in winning 6 new contracts in tenders that occurred last year. Those contracts are starting up this quarter, the one that we're in now.

Speaker 2

And looking forward, we continue to believe there will 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 that's not even speaking to the drilling rigs, 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 Bristol's business there. Got you.

Speaker 2

And then how should we take this positive offshore energy outlook for 2024 and apply regionally to better understand the various countries 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 That's been doing much better in recent quarters. The U. S. Gulf of Mexico is also another area where we've added some aircraft on contract here this year and expect that we'll continue to be More opportunities going forward in terms of increased demand here in the U.

Speaker 2

S. Gulf of Mexico. So across our portfolio today, those are 3 of the regions that I would highlight. Got you. Makes sense.

Speaker 2

Just another quick follow-up question here.

Speaker 4

Are any of the Irish SAR revenues Including your 2024 guidance?

Speaker 2

No. We do not expect the Irish Coast Guard contract to have A material impact on our P and L in 2024, it's really 2025 and beyond the next decade plus where we'll see A material benefit from the Irish Coast Guard contract. So there was nothing included in our 2024 guidance for Ireland. Got you. Great.

Speaker 2

Fully appreciate the color. Thanks, Chris.

Operator

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

Speaker 5

Good morning and Congratulations on the Ireland Coast Guard and the 2024 outlook. Just looking at 2020 4, government services, it looks like it's expected to account for about 25% to 30% of revenue, which is pretty consistent with the 2023 outlook. While you've 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 differences in fixed costs and other economic benefits.

Speaker 2

Good morning, Steve, and thank you for that note. If we look at our Government Services business, it is a growing business for us. We've added some contracts recently. We're seeing the full year benefit this year from Netherlands and Dutch Caribbean. Irish Coast Guard contributions really kick in, in 2025 and beyond.

Speaker 2

So we are seeing growth in that business, which is encouraging. On our Offshore Energy side, which has really had a number of challenging years up until now, that sector is really Just now positively inflecting,

Speaker 1

we do think that we're in

Speaker 2

the early stages of what should be a multi year growth cycle in Offshore Energy Services. And because we see so much potential there, we actually see the growth rates for that segment being higher than any of our other service lines So it's likely that offshore energy rate of growth will be the highest that we have across our service lines. We We have 2024 guidance out there, including revenues by line of service. When we do issue 2025 guidance, we'll do Something similar, which will provide more granularity around the individual contribution of each of the service lines.

Speaker 5

That's helpful. Great. And one housekeeping question, if I can. You've guided for approximately $225,000,000 in cash taxes for the year. Yes, it looks like you've paid about $3,600,000 in the first half.

Speaker 5

I was just trying to get a sense as to second half payments, if they are expected to be more evenly weighted

Speaker 3

Thank you, Steve. Good to hear from you. So we operate all over the world and each jurisdiction Has a different timing of when these are really, in most cases, estimated tax payments for income that is created throughout the year. 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.

Speaker 3

But typically, closer you get to the end of the year, the more you're you pull together what your What income looks like for the year? So therefore, we've guided the $20,000,000 $25,000,000 in cash taxes and have affirmed that

Speaker 5

Okay. Appreciate that and congratulations again.

Speaker 2

Thanks, Steve.

Operator

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.

Speaker 2

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.

Operator

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

Remove Ads
Powered by Quartr
Earnings Conference Call
Bristow Group Q2 2023
00:00 / 00:00
Remove Ads