Q4 2023 Bristow Group Inc Earnings Call

Participants

Redeate Tilahun; Senior Manager of IR & Financial Reporting; Beistow Group Inc

Chris Bradshaw; President, CEO & Director; Bristow Group Inc

Jennifer Whalen; Senior VP & CFO; Bristow Group Inc

John Sullivan; Analyst; Benchmark Company

Steve Silver; Analyst; Argus Research Company

Presentation

Operator

Good day, everyone, and welcome to the Bristow Group Reports Fourth Quarter and Full Year 2023 earnings conference. Today's call is being recorded. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by number five on your telephone keypad. If you would like to withdraw your question, press star and the number five. Once again at this time, I would like to turn the call over to Red Tail on senior management of Vince relations and financial reporting.

Redeate Tilahun

Thank you, Dan, and 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?

Chris Bradshaw

Thank you, read. On February 28, one of Bristow's search and rescue helicopters registration. Ellen dash OYJ. with six crew members onboard was involved in an accident hearing HR training exercise approximately 15 nautical miles west in Norway. On behalf of all Bristow team members around the world. I extend our heartfelt condolences to the family and friends of our dear colleagues. His life was lost in that tragic action. 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 to take care of our crew and their family members 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 continued to progress our strategic goal to grow and diversify our leading government services business. With the successful award of the EUR670 million Irish COSTAR contracts building upon the recent addition of key government contracts in the United Kingdom, Dutch Caribbean, the Netherlands, and the far behind in our offshore energy services business.
The second half of 2023 mark, the positive inflection point beginning what we believe will be a multiyear 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 Whalen

Thank you, Chris. Today I will begin with an analysis of the sequential quarter comparison of Bristow's financial results. Ebitda adjusted to the special item after disposition 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, 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, leased 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 or 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 reaffirm Bristow's 2024 financial outlook with an EBITDA range of $190 milllion to $220 million at the midpoint for adjusted EBITDA for 2024 at 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 lines of service in 2023. We started new products 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 contracts, and we expect to benefit from higher flight hours from short-term exploration campaign. Further details are available on slides 11 and 12 of 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 and prior calls, we have a capital investment of approximately $300 million related to the successful award of contracts with the UK and Irish coastguard. 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 10 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 flow of the recently announced upsize on our NatWest facility, other potential financing and our 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 NAW. one eight nine helicopters to be delivered between 2025 and 2028 as of now, we plan to fund these purchases with operating cash flow, but could end up financing or leasing them if there are other uses of capital over time as we've stated before, we believe this business model will continue to generate strong cash flow.
At this time, I'll turn the call back to Chris for further remarks.
Chris?

Chris 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 commenced the transition of operations to the New Star two G contract in the United Kingdom, both in the fourth quarter of this year. Those are large contract transition projects with extended transition time lines running through mid 2025 in Ireland and through the end of 2026. UK [SR2G]. in our offshore energy services business, we continue to have a positive outlook for a robust and long duration up-cycle. 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 AW one eight nine helicopters plus options for an additional 10 AW one eight nines AW one eight nine as 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 AW. one eight nine helicopters globally in both offshore crew transport as well as search and rescue missions with an additional five already scheduled for delivery beginning this year for the Irish contract. 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 S-92 helicopters in the market today, partly due to a number of these airframes being on serviceable as they await critical parts due to persistent supply chain challenges. The global S-92 fleet is at or near full effective utilization levels amongst the current super medium model helicopters. There are roughly 40 each of the AW. one eight nine and H. one seven five models in the offshore market today. Both of these models we're at or near full effective utilization levels as well with current manufacturing lead times four to eight of the one eight nine at approximately 24 months. The ability to bring in new capacity constraints, Bristow's new framework agreement for AW. one eight nines represents a flexible solution to meet customer demand for fleet transition and fleet expansion needs while driving robust EBITDA growth at attractive returns.
For Bristow stakeholders.
With that, let's open the line for questions.

Question and Answer Session

Operator

And yes, at this time, I would like to remind everyone in order to ask a question, press star, then the number five on your telephone keypad. If you would like to withdraw your question, press star and number five. Once again, we'll pause for a moment.
Have a Q&A roster.
Yes, first question is from John Sullivan from The Benchmark Company, your line.

John Sullivan

Yes, good morning, Josh. As far as the Irish Star contract deal, what is that transition look like?

Chris Bradshaw

We are honored and excited to be starting up the Irish Coast Guard contract. The first phase is scheduled to come online beginning this October. There is a transition period that carries through mid 2025. So through next summer, it's just start-up all four of the operating bases there for the Irish coastguard operated by Bristow.

John Sullivan

So we should expect year-end Q2 25 to see the full financial impact of that, right?

Chris Bradshaw

Not quite full impact in Q2. The final start-up 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.

John Sullivan

Okay. And then just with tight MRO markets globally. Can you comment just on the availability of parts and service hub, how does it look for the S-92 opportunities?

Chris Bradshaw

As 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, example windshields maybe common parts across different helicopter models. But as you reference, Josh, that to date, it's really the supply chain's situation, which has been a persistent one for the S-92 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 S-92. And we expect based upon latest information that's available to us, but those delays will continue at least through the end of this calendar year. So that continues to be a challenge, which is which has impacted the industry as a whole.

John Sullivan

And then maybe just switching over to the APM market, we are getting closer to some certification of some of these products. Can you update us on your strategy at this point? And then maybe any comments on the THC. partnership?

Chris Bradshaw

Yes, happy to do that, and thank you for the question. Advanced 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 for the right resources to bring those aircraft through to certification and eventually put them in to production. And over the course of that time, we have signed now on 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 will 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 TSC partnership, which we recently announced is a newer one that is with the helicopter and Jet company or THD. in Saudi Arabia, which we see as the clear leader in the vertical lift industry and in that country in the kingdom. And I think they see in Bristow a company that has the expertise and a leading position now in advanced mobility that can be additive for what they're doing. So we're excited about that partnership. But again, the opportunity to work with CHC., which we view as the clear leader in the Kingdom of Saudi Arabia.

John Sullivan

And then just the comments around you have the NatWest facility. But yes, just the other financing options you might have available as far as these are government contracts?

Jennifer Whalen

Sure, Josh, it's Jennifer. It's I tell you, I am, as I had noted in my comments, you know, we do have a lot of flexibility with our with the financing, particularly around the government services contract that the banks tend to look through our credit to the credit quality of the governments that we're servicing So that gives us pretty favorable financing. So we're in the in the middle of discussing some additional financing with some other banks. And once we close those, we'll announce those to the public.

John Sullivan

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

Chris Bradshaw

Thank you, Josh, for the sentiment and the question on that important event, we have 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 onboard the aircraft, we are relieved that those individuals are now all recovering and improving and either out of the hospital for four out of the five and the one who remains in the hospital, again, stable and improving conditions. So we're pleased with that status. Our priority is to continue to support our crew, provide their their families and with the resources that they need support really our whole team in Norway as we recover from this tragic accident. But from a business standpoint relative to transitioning to that lens, there really is not a material financial impact to the company related to the actions.

John Sullivan

Okay. Thank you for the time.

Chris Bradshaw

Thanks. Jeff.

Operator

Steve Silver, Argus Research.

Steve Silver

Thank you, operator, and good morning, everybody. Thanks for taking the questions and my condolences to the families and the entire group for last week's accident as well. You guys provided some of the benefits of the AW one in nine helicopters as factors for becoming pretty much the aircraft of choice for the fleet expansion moving forward. But are there any other material features beyond the supply chain? Is that and that you see it as making a good alternative for the offshore energy contracts typically service by the S-92.

Chris Bradshaw

Good morning, Steve, and thank you again for the well wishes and condolences on the 189 of the aircraft offers a number of efficiency benefits relative to some other interesting technologies in the market today that can really perform have a high percentage of the missions that were traditionally performed by heavy helicopters but it can do so more efficiently and a lower operating costs. So lower fuel burn, which helps from a lower CO2 emission standpoint, but also a lower absolute cost in terms of the operations of the aircraft. So it provides an efficient solution to service a lot of the very high percentage of the traditional heavy missions at a more compelling price points that's helpful.

Steve Silver

Thanks. And one more, if I may, on your presentation has periodically over time included a slide talking about the Company's net asset value, suggesting that the shares are trading at a discount on that metric. Just broadly speaking, could you just speak to your current thinking as to the primary factors that might we are accounting for that disconnect?

Jennifer Whalen

Thank you. Thank you for the question. And as has been our long-standing practice, we did publish our annual NAV disclosure again this year. And a little bit of background on how it's derived so once a year, we receive a third party appraisal for our own there and own helicopters and aircraft that we have in the fleet. And that's what's reflected in the $1.3 billion of aircraft value in those that are from that third party approval. We then take the net book value of the other assets of the Company, less the liabilities to come up with that, it was the aggregate net asset value, which is in that $1.3 billion number, which translates to a number of roughly $47 per share NAV today. And this is obviously a substantial discount to our current price, which we believe will be a compelling entry point for the stock.

Steve Silver

Okay. Thank you for the color Appreciate it.

Operator

As a reminder, if you would like to ask a question, please press star then number five on your telephone keypad. If you'd like to withdraw your question, press star and then fire again, we will just wait compile the Q&A.
Okay. There are no further questions in the queue. I will now turn the call back over to Christopher for pressure for closing.

Chris Bradshaw

Thank you, Daniel, and thanks, everyone, for joining the call this quarter. We'll talk to you again next time, be safe.

Operator

They will buy now enhance and maintain You may now disconnect.