Bristow Group, Inc. (NYSE: VTOL) Second Quarter 2023 Results Conference Call November 3, 2022 10:00 AMm. ET
Participating companies
Redeate Tilahun – IR
Christopher Bradshaw – President, Chief Executive Officer and Chief Executive Officer
Jennifer Whalen – Senior Vice President and Chief Financial Officer
Conference Call Participants
Operator
Hello and welcome to Bristow Group’s second quarter 2023 earnings call. As a reminder, today’s call is being recorded.
At this point, I would like to pass the message on to Mr Red Tilahun. Continue.
Redeate Tilahun
Thank you Matty. Hello everyone and welcome to Bristow Group’s fiscal 2023 quarter earnings call. I am contacted by phone with our president and CEO; Chris Bradshaw, Senior Vice President and Chief Financial Officer; Jennifer Whalen, Executive Vice President of Sales and Chief Transformation Officer, Dave Stepanek; Alan Corbett, Senior Vice President, EMEA and SAR; and Senior Vice President of the Americas, Samantha Willenbacher.
Before we begin, I would like to take this opportunity to remind everyone that this call, control would possibly make forward-looking statements that are subject to dangers and uncertainties, which are described in more detail on slide 3 of our investor presentation. You can access our investor presentation on our website. We will also refer to certain non-GAAP monetary measures, such as EBITDA and loose cash flow. A reconciliation of those measures to GAAP is included in the earnings statement and in our investor filing.
Now I’ll pass it on to our president and CEO. Chris?
Christophe Bradshaw
Thank you, Red, and welcome to the call, each and every one. As always, I’ll start our ready comments with a note on protection, which is Bristow’s maximum vital core price and our highest operational priority. Corporate support provided very robust security functionality during the quarter. and highly professional pilots, technicians and support staff in the industry. We receive help through Bristow’s Target Zero Safety culture, physically powerful operating procedures and world-class education programs. I need to thank all of our Bristow team members around the world for their continued determination to put protection first each and every day.
Let’s move on to business opportunities. Fundamentals from the strengthening offshore oil and fuel market reinforce our view that we are at the beginning of a multi-year expansion cycle. Once again, we’ve included a few slides in our earnings presentation summarizing outside analyst insights, supporting clients for a significant buildup in upstream oil and fuel spending in the coming years and a tightening of the appliance market. on the high seas, adding helicopters. Despite the potential threat of an economic downturn, we consider resilient upstream spending plans given demanding global sourcing situations and concerns about energy security. This positive outlook for the offshore power business, combined with additional contract additions to our government facilities business and improved activity levels in our constant wings business in Australia, confirms our view that the underlying business basics of Bristow are improving significantly. An unfortunate strong US dollar mitigates the full impact of those innovations on our outlook for calendar year 2023.
I will now turn to our CFO for a discussion on those monetary impacts, a review of the quarter’s monetary effects, and monetary guidance for 2023. Jenifer?
Jennifer Ballen
Thanks Chris. Today I will start the discussion with some notes on foreign currencies. As Bristow is located in many jurisdictions around the world, we are affected by foreign currency fluctuations and, in particular, by the continued strengthening of the US dollar in recent quarters. In many cases, our currency fluctuations are mitigated through herbal hedges, such as contracts partially denominated in U. S. dollars. However, in the UK and specifically in our SAR business in the UK, we are exposed to the British pound.
Our monetary effects are affected through the fluctuation of sterling in two main ways. First, through profits from our UK operations. Exchange rate gains and losses that are identified in the line of another profit source of the profit source status. These exchange rate gains and losses are basically due to the revaluation of balance sheet items. While I have referred to the foreign exchange effect in the past, as of this quarter, we provide our adjusted EBITDA to exclude foreign exchange reported in other earnings to more obviously provide the company’s operating effects.
Moving on, I’ll start with an investigation of Bristow’s quarterly sequential earnings comparison. EBITDA adjusted to exclude special items, asset disposals and foreign exchange gains was $33. 9 million for the current quarter of fiscal 2023, compared to $37. 1 million in the first quarter, a low of approximately $3 million. Operating income increased to $5. 2 million, primarily due to increased activity in our fixed-wing matrix, timing of Cougar-related revenue, and increased oil and fuel use in Africa. Operating expenses increased to $6. 9 million, basically because of the upper body of worker prices, fixed and maintenance prices and other expenses.
General and administrative expenses increased by $1 million, basically due to higher professional facility fees. We also sold or otherwise disposed of 3 helicopters and other assets for a net profit of $3. 4 million. As noted in my opening remarks, other income is primarily comprised of non-cash foreign exchange gains, which we have excluded from our adjusted EBITDA calculation. As we announced last quarter, we have introduced guidance for calendar year 2023. In our presentation of the results, the main points are found in slides thirteen to 15
We expect revenue to range from $1. 15 billion to $1. 275 billion with adjusted EBITDA, excluding asset and foreign exchange disposals, of $148 million to $160 million using an average sterling-U. S. dollar exchange rate of 1. 16. As I mentioned earlier, foreign currencies have a significant effect on our income. For example, each £0. 01 movement in the GBP’s exchange rate against the US dollar will have an effect on expected adjusted EBITDA for calendar year 2023 of approximately $1. 5 million. In addition, if we were to apply the average exchange rate of the British pound, the US dollar over the past 12 months to the projected effects for calendar year 2023, the guidance diversity of adjusted EBITDA would be $158 million to $175 million.
The midpoint of this diversity of foreign currency equivalents is approximately 25% higher than LTM’s adjusted EBITDA, which is in line with our view that our business fundamentals will improve next year. Finally, Bristow continues to benefit from a strong balance sheet and liquidity. As of September 30, our available liquidity was $251 million after outflows of $31 million similar to PBH repurchases, $12. 6 million from the BIH acquisition and a $6. 3 million repurchase rate, all of which was funded through available money. We’ve said before, we keep saying that this style of business will continue to generate a strong flow of money.
At that time, I will call Chris back for additional feedback. Chris?
Christophe Bradshaw
Thank you, Jennifer. The last few years have been very complicated for our industry. However, as was the case with Era Group before the merger, we have shown that the monetary field and our resilient business style can overcome those challenging market situations as we move forward. to maintain a strong balance sheet and positive cash flow. We now see that industry headwinds are turning into tailwinds, and the basic outlook for Bristow’s business is improving significantly. Self-confident that the construction of offshore oil and fuel activity, the expansion of government facilities and the recovery in the fixed-wing aircraft business will result in physically powerful money flow generation in the future. Continuing to lead the market, Bristow’s monetary strength and expansion opportunities offer multiple avenues to create price for the company’s stakeholders.
With that, let’s open the line for questions. Matti?
Q&A session
Operator
[Operator Instructions]. We will take our first of [indistinguishable].
unidentified analyst
I just sought to delve into some of the drivers of the new direction here. Maybe we can start with government services. Obviously, you’ve won some attractive awards this year. Can you expand the precise drivers this year?
Christophe Bradshaw
Yes. Thank you for the question. The main driving force of expansion in our government would be the awarding of new contracts that we have been successful in winning. This includes what will be the full year of the Netherlands’ SAR contract, which will begin later this week. , as well as the Dutch Caribbean Coast Guard contract, which just started last month. In addition, a fee is accumulating on our UK contract. SAR, which is connected to an inflation index. But as we mentioned, the main driving force of expansion is the new contracts we have controlled to win in our governmental arrangement.
unidentified analyst
And then, what does the pipe look like? I know at some point you get stuck to the Irish price. Or just what are the other opportunities of the year?What does this pipe look like?
Christophe Bradshaw
This is a pipe. We are actively involved in tendering the Irish Coast Guard contract. We expect this award to be announced until next summer, summer 2023, and there are more opportunities. We recently acquired British International Helicopters, BIH, which has a contract with the UK Ministry of Defence in the Falkland Islands. This presents a new opportunity for expansion for us with other UK MOD contracts and other facets, from other parts of the world, whether in Cyprus, Brunei or potential places like Oman. Beyond that, we think there are other governments that will look at the good fortune that has happened in the UK, the Netherlands and some of those other jurisdictions and look at the option of privatising some of those must-have facilities for operators like Bristow.
unidentified analyst
And then, just with the BIH assets and some of the other opportunities, would you get involved in things like transportation?Or can you hedge those opportunities with your existing asset classes?Or would you like to invest in new features to take advantage of some of those opportunities?
Christophe Bradshaw
I think it will be a mix, for example, with the search and rescue prize we won in the Netherlands. We bring in a new helicopter from Leonardo. We also employ some existing assets. For Dutch Caribbean Coast Guard paintings, those are the existing helicopters we have in the fleet. Any new work for government customers will likely require a new factory-delivered aircraft for this job, whether it’s traditional models or next-generation aircraft. We now use an unmanned aerial vehicle in our SAR contract in the UK. I expect UAVs to be an asset elegance that will be used more widely through government customers in the future. And as this requirement arises, we will have to order those aircraft to integrate them into the fleet. Even in the longer term, I think some of the next-generation aircraft, electric or hybrid, perhaps in all likelihood hydrogen, will also be applicable to supply some of those solutions.
unidentified analyst
And then, moving on to the side of oil and fuels, which regions do you see as the main drivers this year and then for the next 3?
Christophe Bradshaw
Looking ahead to 2023, some of the spaces contributing to some positive facets of the oil and fuels business would be the Gulf of Mexico oil and fuels business in the United States. This is somewhat offset by what is a relief in COVID flights in our search and rescue activity, given the diminishing effects of the pandemic. But in general, we, the Gulf of Mexico in the United States, will be a growth market next year, as we do with Nigeria, which is recovering from lower levels of activity. In addition, we recently obtained new contracts in Brazil. These won’t start until much of the time in 2023. Similarly, we’ve been successful in winning a multi-year search and rescue contract to assist Equinor in Norway. This contract starts in September 2023. So again, more of a contributor from the current part of next year, which goes to a broader point, which is that we expect the final functionality rate in the current part of 2023 for our the oil and fuel business is stronger than at the beginning of the year.
unidentified analyst
And then, when you were doing the buildup, what were some of the more macro elements that you put into those policy perspectives, given some of the considerations about the economy in general?What are some of the threat corridors you’re considering?
Christophe Bradshaw
This attitude is mainly based on what we must be situations of demand for global sources and the expanding focus on energy security, which is supported through conversations with our consumers. Therefore, in our projections, we do not necessarily refer to an express value for oil, but to more special finishing plans that we anticipate from our consumers and to some projects that we see in the pipeline, from which we will be disconnected more frequently in the short term. Long-term source challenge, as excess global production capacity is expected to account for less than 2% of total global demand through the end of this year. Therefore, in our view, there is a transparent need to upload a new offer. Much of this will have to come from offshore resources and this will lead to an increase in demand for our services.
unidentified analyst
And then, in fixed-wing operations, recovery turns out to be going well. How do you map outwards with this segment?Are there any reserve trends that interest you, new mining allocations in key destinations?
Christophe Bradshaw
One of the main innovations would be the reopening of Australia’s borders, the reduction of the effects of the pandemic and the expansion of Array. We are seeing an increase in bookings and we call other people to know that this opportunity is offered to them again. So that’s the retail side. On the charter side, I think you rightly point to an expansion opportunity for us, because we see if it’s the mining or oil and fuel corporations that operate in Australia and want to keep meeting with the source that will want to bring in the commodities, we also see charter flight opportunities in northern Australia.
unidentified analyst
And then, just on the EBITDA forecast, can you dig deeper into the reasons for presenting constant profit and loss adjusted EBITDA and why now?
Christophe Bradshaw
Of course. Guidance is one of the main reasons we provide adjusted EBITDA, excluding foreign exchange gains and losses. As Jennifer mentioned, we are affected through FX in a variety of ways. Part of that would be in our sources and profits from spaces like contracts in the UK. The other facet is really basically the non-monetary revaluation of balance sheet items, which pass through our profit source in line with another profit source. Further, they were positive or negative depending on the quarter. However, given the strength of the US dollar, i. e. over the last two quarters, they generated significant gains, and we show the effect of this on our adjusted EBITDA provision. In the future, with our advice, we will not adopt a directional view of currencies. Therefore, we provide direction for unbiased adjusted EBITDA with respect to this effect on foreign exchange gains and losses on other earnings.
unidentified analyst
And then, obviously, it has significant operations in the UK and I perceive that they have an effect in dollars, but is there any reimbursement for the company?
Christophe Bradshaw
We have an aircraft order book that basically consists of aircraft from European manufacturers, and they are denominated in euros. We will buy them with US dollars. So there’s a merit to us in that regard with capital and that we use a stronger U. S. dollar to finance those euro-denominated purchases. In the end, this will lead to higher returns: monetary returns over the life of the asset, if we lower them to a decreasing price denominated in US dollars.
unidentified analyst
And finally, I just need to see the opportunities for complex air mobility. He has been a leader in ordering and has worked with developers. I’m just curious about his point of view in recent quarters. Any attractive progression or how you are currently in this market.
Christophe Bradshaw
We remain optimistic about the prospect of complex air mobility, which is evidently an industry that does not yet exist, but which we plan to expand and expand rapidly as some of those new aircraft are certified. We expect the first certifications to take position around 2024. We Bristow, as a global leader in vertical flight solutions, has a smart opportunity to take advantage of these new aircraft and integrate them into existing operations for consumers, as well as use them in new market positioning opportunities to expand the facilities we provide. Both to our existing clientele and to a new category of consumers. Therefore, in terms of recent expansions, we recently signed new partnerships. We assist several expanders of those new asset types as they look to expand, certify and bring those aircraft to market position. And we are, we remain positive about the outlook for this industry and what it means for Bristow.
Operator
We will take our next of [indistinguishable].
unidentified analyst
A few questions. First, how many shares are in the buyback program right now for a dollar amount?
Christophe Bradshaw
We have a total of $40 million in potential buyback percentages that have been legal and can be used over time.
unidentified analyst
$40 million remaining?
Christophe Bradshaw
Correct.
unidentified analyst
It is ok. Well, Chris, in terms of his comments on the oil and fuel outlook, I think he said he expected a higher run rate in late 2023 than in early 2023. Why is this?Is it in third-party study reports?Or are you in the contracts you win that will start going into effect in 2023?
Christophe Bradshaw
Thanks for the question, John. It’s basically based on when contracts end and when they start. So we have a contract that we are administering lately in Guyana and that deserves to end at the end of this year calfinishing. On the contrary, we have new contracts that have been awarded in Brazil and that, typically, start in the current part of 2023. We have a new search and rescue contract for Equinor in Norway, which will start in September 2023. We have other contracts in the UK and Nigeria that will show full benefit for the full 2023 calfinishar. But because of the speed of those contracts they start and end, again, heavily influenced by Brazil, Norway and a little bit the Gulf of Mexico in the United States. We will see a higher execution rate at the end of 23 than at the beginning.
unidentified analyst
Could you give us a look at a diversity of how many peak hours of oil and fuel could be before 2023?I ask why drillers report quite powerful results physically, I mean significant increases. And I’m curious if you can give any kind of diversity as to how much you think the hours could be higher by 23 compared to 22?
Christophe Bradshaw
Therefore, we do not provide a one-hour disclosure. However, I would like to point out that we are seeing a strengthening of the market around 2023. It is true that offshore drillers tend to sign contracts for their rigs before our facilities are purchased. And so see more visibility of your business faster than you. do for helicopter help. But we believe there is, in the spaces I mentioned, a significant increase in activity to help oil and fuel demand for expansion in 2023. And I must emphasize that we believe this year is really just the beginning of a multi-year expansion cycle for oil and fuel spending.
unidentified analyst
It is ok. It’s useful. So, the part of the moment of the 23rd will be more powerful than the first part in the oil and fuels sector. Is that fair?
Christophe Bradshaw
We believe there will be a half-year transparent pullback that will influence the accumulation of oil and gas.
Operator
And we have one more question.
unidentified analyst
So when it announced the ERA-Bristow merger just before COVID emerged, it was targeting $240 million in medium-term EBITDA. Given your feedback on the strong fundamentals of the industry, is this an EBITDA point you can still achieve during the cycle??
Christophe Bradshaw
Yes. Thank you for the question. I mean it is, obviously, those numbers are now 3 years old. These projections were made at the end of 2019. Therefore, the world has changed profoundly since then. What we are offering guidance is actually 2023, which we see as beginning a recovery, but without offering a bridge with a replaced figure of 3 years, the recovery will continue to grow in 2024 and beyond. If you look at that, I’d mean: there’s a slide in our investor presentation, which talks about the overall upstream spfinish. I think the number on the slide is number 10 in the game, and that shows an overall spfinish of the market that is recovering next year and will accumulate in 2024, 2025 in degrees befitting pre-pandemic. But for now, the recommendation we provide is applicable to Annex 23.
unidentified analyst
Boeing, Airbus, a giant component of the aerospace supply chain continues to communicate about similar problems in components to foundries and hard work and other problems. As your consumers look for longer-term contracts, is your fleet of aircraft and parts available?Are they involved in the supply chain and its service capacity?Is it a promotion point?
Christophe Bradshaw
I think this definitely fits into an increasingly vital component of our conversations with consumers as they realize that we are no longer in a position where helicopters abound. And that there have to be plans involved, if necessary. recommissioning some inactive S-92s, for example, will take time and be expensive, and that charge will obviously have to be borne by the visitor, as well as the fact that when we think about long-term growth, whether for government contracts or oil and gas, once all the existing apparatus is absorbed, It will eventually require new orders, for which we don’t see a backlog at the moment, but it will come. So I think there is, yes, at your point, an appreciation that we’re in a small global labor market. We are in a market for tuning appliances, and this will require more careful long-term plans as the excess is temporarily absorbed.
Operator
We have no questions at this time.
Christophe Bradshaw
Thank you, Matti, and thank you for joining everyone. Stay and well. We will communicate next quarter.