VTOL - Bristow Group Inc. (VTOL) Q1 2023 Earnings Call Transcript
2023-05-05 16:17:20 ET
Bristow Group Inc. (VTOL)
Q1 2023 Earnings Conference Call
May 04, 2023 10:00 AM ET
Company Participants
Red Tilahun - Investor Relations
Chris Bradshaw - Chief Executive Officer
Jennifer Whalen - Senior Vice President & Chief Financial Officer
Conference Call Participants
Chris Lee - Evercore ISI
Josh Sullivan - The Benchmark Company
Steve Silver - Argus Research
Presentation
Operator
Good day, everyone, and welcome to today's Bristow Group Reports First Quarter 2023 Results. 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. [Operator Instructions]
It is now my pleasure to turn the conference over to Senior Manager of Investor Relations and Financial Reporting, Red Tilahun.
Red Tilahun
Thank you, Claudy. Good morning, everyone, and welcome to Bristow Group's First Quarter 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 Whalen.
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. 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?
Chris Bradshaw
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 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 metric. 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. Thank you.
As previously noted in our financial guidance and commentary, the first quarter was expected to represent the company's 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 Bristow's full year 2023 financial guidance. The fundamentals for Bristow's business are improving significantly and the EBITDA run rate at year-end is expected to be significantly higher than 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?
Jennifer Whalen
Thank you, Chris. Today, I will begin with an analysis of the sequential quarter comparison of Bristow's financial results. As Chris noted, the first quarter of the calendar year is seasonally our lowest activity quarter. 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.
With that said, EBITDA adjusted to exclude special items, asset dispositions and foreign exchange was $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 to $11.4 million, primarily due to seasonality, the end of a contract in Guyana, and lower lease payments received from Cougar partially offset by higher revenues in government services and fixed wing services.
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 non-recurring professional service fees, severance costs and tax expenses in the current quarter and the absence of one-time benefits of $1.3 million in the preceding quarter. Adjusted for these unusual items, our general and administrative expenses would have been $0.4 million higher.
As noted on previous earnings calls, the other income line 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 in our earnings presentation the details are on slides 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. This recent financing and our senior secured notes results in 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 UKSAR2G 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?
Chris Bradshaw
Thank you, Jennifer. We believe the offshore energy services market is in the early innings of a multiyear growth cycle. As noted, slide 13 of this quarter's earnings presentation contains a summary of significant mandates that are driving improved momentum throughout 2023.
Following the conclusion of a contract in Guyana on December 31 of last year, we are in the process of transitioning those aircraft, as well as other aircraft 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 seven AW139 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 example, increased market activity and the return of a significant customer contract 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 point to continued improvement in this part of our business. In Bristow's leading government services business, 2023 will see the benefit of a full year contribution from our new contract additions in the Netherlands, the Dutch Caribbean region and the Falkland Islands.
In combination with our contract supporting the U.S. Bureau of Safety and Environmental Enforcement, as well as our cornerstone U.K. SAR contracts with the Maritime and Coastguard Agency of His Majesty 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, a constrained global labor force and a strong U.S. dollar relative to the British pound, we remain highly encouraged by the improved fundamentals and outlook for Bristow's 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's 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 their mobility. We believe the present point in time represents a highly compelling opportunity to invest in Bristow.
With that, let's open the line for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] We will take our first question from Chris Lee with Evercore ISI.
Chris Bradshaw
Hi. Do we have a question from the line?
Operator
Chris, your line is open.
Chris Lee
Hey, good morning, Chris and Jennifer. Can you hear me okay?
Chris Bradshaw
Yes. Good morning.
Chris Lee
Good morning. So two quick questions here. First one is many of your contracts that are starting in the second half of 2023 were actually negotiated last summer and at higher rates right? Are the rates for coming tenders expected to be higher than those from prior year or relatively the same?
Chris Bradshaw
Thank you for the question. You're correct that many of these contracts all of them that are disclosed on Slide 13 of the earnings presentation were one in tender processes that were completed last year and they were at higher rates than what had been the previous generation of those contracts.
As the equipment market continues to tighten and we continue to experience constructive fundamentals, we will 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'll continue to look for where we can continue to increase those rates that we're winning new business at.
Chris Lee
Got you. 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 the market not ready for new orders yet?
Chris Bradshaw
I don't think we're 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 -- sorry, high margin, high returning long-term contracts.
But to your question specific to offshore energy configured helicopters, there's 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 fleet-wide order book develop in the 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.
Chris Lee
Got you. Thank you so much. I'll turn it back in the queue.
Chris Bradshaw
Thank you.
Operator
And we'll move next to Josh Sullivan with The Benchmark Company. Your line is open.
Josh Sullivan
Hey, good morning.
Chris Bradshaw
Good morning, Josh.
Josh Sullivan
You're highlighting here that in Q1 it was better than your expectations. The environment seems pretty solid. So can you just walk us through what that indicates for the rest of the year, just given your affirming guidance here?
Chris Bradshaw
Sure. As you know, we did disclose a range of financial guidance including a range for EBITDA of $150 million to $170 million. As noted, Q1 actually tracked higher than our management expectations. So I think that means we feel very positive about the rest of the year. It gives us 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.
Josh Sullivan
And then, in the release you highlighted lower maintenance expenses. How much of the new power-by-the-hour agreement contributed to the savings in the quarter?
Chris Bradshaw
It was certainly a benefit to the company and will be over the long term. I don't have a specific number based upon the flight hours that were flown. That's something that we can follow up with you on Josh.
But certainly, the repairs and maintenance cost over the long term for that AW139 fleet are going to be lower than they otherwise would have been and also much more predictable and stable than when we were on 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.
Josh Sullivan
And then, just with regard to the helicopters you have on order, what are OEMs communicating as far as lead times? And then, what does a lead time for a clean sheet order placed today look like?
Chris Bradshaw
18 to 24 months would be a good rule of thumb for most of the helicopter models that are of interest today.
Josh Sullivan
And then, just on the government services side, you had some new contracts contributing a full quarter run rate here. So should we take that -- the current levels as the run rate moving forward?
Chris Bradshaw
Yes. 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 that, in a typical government services contract, 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. So less seasonality, although, there is some.
I think, 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.
Josh Sullivan
Okay. Thank you for the time.
Chris Bradshaw
Thank you, Josh.
Operator
And we'll take our next question from Steve Silver with Argus Research. Your line is open.
Steve Silver
Good morning and thanks for taking my question. I've got a few as well. First question is on fleet utilization. I noticed 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?
Chris Bradshaw
Certainly. Good morning, Steve and 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 or aircraft when it becomes available.
That opportunity set includes what we could make operating the aircraft ourselves for our own end customer. We'll also look at what we can make by leasing it out to other operators and we'll look at what we could make if we were to sell it into the secondary market at that time.
And it's a pretty straightforward approach. But generally speaking, we're going to take the highest present value proposition of those three different alternatives. Sometimes, particularly given which aircraft we're talking about, it is the case that the absolute sale of the aircraft into the secondary market is the best way to generate a cash return on the aircraft.
And 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 unutilized legacy medium and light helicopter models. And indeed the helicopters that we sold in this recent quarter also included some legacy medium helicopters in that number.
So, we're not looking to get out of the more competitive aircraft types that we have today that comprise the majority of our fleet and cash flows such as the 139, 189, and S-92 those aren't the aircraft that we're selling.
Steve Silver
Okay. That's helpful. Thanks. The next 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 repurchase at these levels?
Chris Bradshaw
Yes. So, our overall capital allocation strategy has not changed. We'll continue to look at the same set of options. The relative prioritization in any period will evolve depending upon the circumstances at the time. Immediately after we closed 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. We have been pleased over that period of time to buy back 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 pleased with the successful refinancing that we were able to complete in this quarter.
And we're also looking to fund the attractive growth 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.
So, 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.
Steve Silver
Great. And one last housekeeping question. It looks like the tax guidance for the full year was reiterated even though there was just a very low amount paid in Q1. Just wondering if there's any color you can provide around the timing of the payments over the balance of the year?
Jennifer Dawn
Sure. Good to talk to you. Q1 is historically a low quarter for tax payments just because 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 get us near our guidance and our range of guidance.
Steve Silver
Okay, great. Thanks for taking the questions.
Chris Bradshaw
Thank you, Steve.
Operator
And it does appear that there are no further questions at this time. [Operator Instructions] And there are still no questions at this time.
Chris Bradshaw
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 Bristow's business. A 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 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 to a much stronger financial results for 2024 and beyond.
And again this the list of contracts that we disclosed 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. Be safe.
Operator
This does conclude today's program. Thank you for your participation.
For further details see:
Bristow Group Inc. (VTOL) Q1 2023 Earnings Call Transcript