Bristow Group Inc. (NYSE:VTOL) Q4 2023 Earnings Call Transcript

Bristow Group Inc. (NYSE:VTOL) Q4 2023 Earnings Call Transcript March 6, 2024

Bristow Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to the Bristow Group Reports Fourth Quarter and Full Year 2023 Earnings Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Red Tilahun, Senior Manager of Investor Relations and Financial Reporting.

Red Tilahun: Thank you, Daniel. Good morning, everyone, and welcome to Bristow Group’s fourth quarter and full year 2023 earnings conference 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 our earnings release and our Investor Presentation. I will now turn the call over to our President and CEO. Chris?

Christopher Bradshaw: Thank you, Red. On February 28, one of Bristow’s search and rescue helicopters, registration LN-OIJ with six crew members on board was involved in an accident during a SAR training exercise approximately 15 nautical miles west of Bergen, Norway. On behalf of all Bristow team members around the world, I extend our heartfelt condolences to the family and friends of our dear colleague whose life was lost in that tragic accident. This is a deeply sad and difficult time and we will carry this loss with us always. We are relieved to share that the other five crew members have now either been released from the hospital or remain in stable condition at the hospital. Our highest priority is to take care of our crew and their family members and provide them with any assistance needed.

Bristow is fully cooperating with authorities investigating the accident and we will provide future updates as appropriate. Looking back on 2023, I want to thank and commend the Bristow team for delivering many successful outcomes last year. We continue to progress our strategic goal to grow and diversify our leading Government Services business with the successful award of the EUR670 Irish Coast Guard contract, building upon the recent addition of key government contracts in the United Kingdom, Dutch Caribbean, the Netherlands, and the Falkland Islands. In our offshore energy services business, the second half of 2023 marked the positive inflection point beginning what we believe will be a multi-year growth cycle. With the largest global fleet of offshore helicopters and a significant presence in key regions, Bristow expects to be a primary beneficiary of this extended growth cycle in offshore energy.

I will now hand it over to our CFO for a review of 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. EBITDA adjusted to exclude special items, asset dispositions, and foreign exchange was $46 million for the fourth quarter of 2023 compared to $56.6 million in the third quarter, for a total of $102.6 million in the second half of 2023 compared to $67.9 million in the first half, consistent with our outlook that the second half of 2023 would mark the positive inflection point for Bristow’s financial results. Operating revenues were lower by $0.7 million, primarily due to lower utilization in Government Services and our Fixed Wing business, partially offset by increases in Offshore Energy Services due to a new contract in Norway and increased utilization in Africa.

Operating expenses were $8.8 million higher in the current quarter, primarily due to higher fuel, lease and equipment, repairs and maintenance, and personnel costs. General and administrative expenses were $2.1 million lower, primarily due to lower compensation costs. Earnings from unconsolidated affiliates were $2.6 million lower due to seasonality at Cougar. As noted in previous earnings calls the other income line item is primarily comprised of non-cash foreign currency gains and losses, which we’ve excluded from our adjusted EBITDA calculation. In our third quarter earnings announcement, we raised our 2023 adjusted EBITDA guidance from $150 million to $170 million to $165 million to $175 million and we are pleased to announce full year 2023 results of $171 million are just over the midpoint of our increased guidance and over the high end of our original guidance for 2023.

Based on the results from Q4 and full year 2023, we reaffirmed Bristow’s 2024 financial outlook with an EBITDA range of $190 million to $220 million The midpoint for adjusted EBITDA for 2024 is 20% higher than 2023, which would represent the second consecutive year of more than 20% EBITDA growth. This increase is primarily driven by the expected growth in our offshore energy line of service. In 2023, we started new projects in Brazil, Norway, and the Gulf of Mexico with the full year EBITDA impact of those reflected in 2024. In addition, we have been successful in achieving more favorable rates compared to our expiring contract, and we expect to benefit from higher flight hours from short-term exploration campaign. Further details are available on slides 11, and 12 of the presentation.

Finally, Bristow continues to benefit from a strong balance sheet and liquidity position. As of December 31, our available liquidity was $251 million. As we have noted in our earnings presentation in prior calls, we have a capital investment of approximately $300 million related to the successful award of contracts with the U.K. and Irish Coast Guard. Much of this capital investment is expected to happen in 2024 as we will be adding 11 new helicopters to our fleet. Our search and rescue contracts are long-term in nature typically ten years with attractive return. So once we’re through with the investment period, we have long-term cash yield as noted on Slide 14 of our presentation. We plan to fund this investment with cash on hand, operating cash flows, the recently announced upsize on our NatWest facility, other potential financing and/or aircraft leasing.

Due to the nature of these long-term cash generative contracts we have access to competitive financing and sufficient flexibility on how we structure it. In addition, last week we announced the purchase of 10 AW189 helicopters to be delivered between 2025 and 2028. As of now, we plan to fund these purchases with operating cash flows but could end up financing or leasing them if there are other uses of capital over time. As we’ve stated before, we 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?

Christopher Bradshaw: Thank you. As Jennifer noted, 2024 is expected to be an important year for Bristow’s business. In our Government Services line, we are scheduled to launch operations for the Irish Coast Guard from our first base in Ireland as well as commence the transition of operation to the new SAR2G contract in the United Kingdom, both in the fourth quarter of this year. Those are large contract transition projects with extended transition timelines running through mid-2025 in Ireland and through the end of 2026 for UKSAR2G. In our Offshore Energy Services business, we continue to have a positive out loading duration upcycle. We expect aircraft utilization and rates to continue to increase, which will drive significant improvements in cash flow generation in 2024 and beyond.

In order to capitalize on these opportunities and meet customer demand, we recently announced a strategic fleet upgrade with orders for 10 AW189 helicopters plus options for an additional 10 AW189. The AW189 is a leading super medium helicopter offering reliable and safe long-range, high-capacity performance while allowing for lower operating costs than traditional heavy helicopters. These new aircraft will offer added flexibility as well as superior operational and environmental performance, including lower CO2 emissions and comparable aircraft types. Bristow currently operates 21 AW189 helicopters globally in both offshore crew transport as well as search and rescue missions, with an additional five already scheduled for delivery. As we have discussed in recent earnings calls, the supply and demand balance for offshore configured heavy and super medium helicopters has become quite tight with limited available capacity.

There are roughly 200 offshore configured S92 helicopters in the market today, partly due to a number of these airframes being unserviceable as they await critical parts due to persistent supply chain challenges. The global S92 fleet is at or near full effective utilization levels. Amongst the current super medium model helicopters there are roughly 40 each of the AW189 and H175 models in the offshore market today. Both of these models are at or near full effective utilization levels as well. With current manufacturing lead times for the AW189 at approximately 24 months, the ability to bring in new capacity is constrained. Bristow’s new framework agreement for AW189 represents a flexible solution to meet customer demand for fleet transition and fleet expansion needs while driving robust EBITDA growth at attractive return for Bristow stakeholders.

With that, let’s open the line for questions. Daniel?

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Q&A Session

Operator: [Operator Instructions] The first question is from Josh Sullivan from The Benchmark Company. Your line is now open.

Josh Sullivan: Hi, good morning.

Christopher Bradshaw: Good morning, Josh.

Josh Sullivan: As far as the Irish SAR contract, what does that transition look like?

Christopher Bradshaw: We are honored and excited to be starting up the Irish Coast Guard contract. The first base is scheduled to come online beginning this October. There is a transition period that carries through mid-2025 so through next summer to start up all four of the operating bases there for the Irish Coast Guard operated by Bristow.

Josh Sullivan: And so we should expect around Q2 of ’25 to see the full financial impact. Is that right?

Christopher Bradshaw: Not quite full impact in Q2. The final startup would really be in mid-2025, so late Q2, early Q3. But certainly, in the second half of next year, second half of 2025 would be indicative of the full run rate benefit of the Irish Coast Guard contract.

Josh Sullivan: Okay. And then just with tight MRL markets globally, can you comment just on the availability of parts and service? How does it look for the S92 opportunities?

Christopher Bradshaw: The helicopter industry as a whole continues to be challenged by supply chain issues that is a relevant statement for many of the models. A lot of the critical components for example windshields may be common parts across different helicopter models but as you referenced Josh, to date, it’s really the supply chain situation, which has been a persistent one for the S92 over the last couple of years, which is the most acute challenge. And we are still seeing very extended delays in the delivery of parts and repairs for the S92. And we expect, based upon the latest information that’s available to us, that those delays will continue at least through the end of this calendar year. So that continues to be a challenge which is impacting the industry as a whole.

Jennifer Whalen: And then maybe just switching over to the AAM market, we are getting closer to some certification of some of these products. Can you update us just on your strategy at this point? And then maybe any comment [technical difficulty].

Christopher Bradshaw: Yes. Happy to do that, and thank you for the question. Advanced Air Mobility is developing new industry that Bristow started looking at, really about five years ago, understanding what we thought the technologies could be, what the potential mission applications could be, whether there’s a role for Bristow to play in that new supply chain. And then beginning really about three years ago in earnest, started furthering some partnerships with what we believe are some of the leading companies developing those new products. We did some diligence and research to determine the teams that we thought had the right background, skill sets, capabilities, the right technology, the right resources to bring those aircraft through to certification and eventually put them into production.

And over the course of that time, we have signed now a number of partnerships again with what we think will be some of the leaders in that new space. And as the global leader in innovative and sustainable vertical flight solutions, we do think there’ll be an important role for Bristow to play there. We think that will start initially with servicing some new applications, complementary additive ones for some of our existing customers, whether that be cargo logistics or eventually more regional passenger movements. So again, we think this is going to be an important part of the future of the aviation industry. And we think there’s a role for Bristow to play there as a leader in vertical lift. The THC partnership, which we recently announced is a newer one that is with the helicopter and jet company, or THC in Saudi Arabia, which we see as the clear leader in the vertical lift industry in that country, in the kingdom.

And I think they see in Bristow a company who has the expertise and a leading position now in Advanced Air Mobility that can be additive for what they’re doing. So we are excited about that partnership and again, the opportunity to work with THC, which we view as the clear leader in the Kingdom of Saudi Arabia.

Josh Sullivan: And then just the comments around you have the NatWest facility, but just the other financing options that you might have available as far as these government contracts?

Jennifer Whalen: Sure. Josh, it’s Jennifer. Good to talk to you. As I noted in my comments, we do have a lot of flexibility with the financing, particularly around the government services contracts. The banks tend to look through our credit to the credit quality of the governments that we are servicing. So that gives us pretty favorable financing. So we are in the middle of discussing some additional financing with some other banks. And once we close those, we’ll announce those to the public.

Josh Sullivan: And then I guess just lastly, touching on that, the Norway incident, obviously a difficult moment, but what are the financial impacts we should think about?

Christopher Bradshaw: Thank you, Josh, for the sentiment and the question on that important event. The most material impact, and the biggest one obviously, is really the life that was lost and the impact on the family, friends, and loved ones of that individual. Also the other crew members who were on board the aircraft. We are relieved that those individuals are now all recovering and improving either out of the hospital four out of the five and the one who remains in the hospital again, stable and improving condition. So we are pleased with that status. Our priority is to continue to support our crew, provide their families with the resources that they need support really with our whole team in Norway, as we recover from this tragic accident. From a business standpoint, transitioning to that lens, there really is not a material financial impact to the company related to the accident.