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Bristow Group Inc (VTOL) Q1 2022 Earnings Call Transcript

By Motley Fool Transcribers – Aug 11, 2021 at 12:58PM

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VTOL earnings call for the period ending June 30, 2021.

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Bristow Group Inc (NYSE: VTOL)
Q1 2022 Earnings Call
Aug 5, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Bristow Group Reports First Quarter Fiscal Year 2022 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Crystal Gordon, Senior Vice President and General Counsel. Please go ahead.

Crystal Gordon -- Senior Vice President, General Counsel, Head of Government Affairs & Corporate Secretary

Thank you, Casey, and good morning, everyone. Welcome to Bristow Group's First Quarter Fiscal Year 2022 Earnings Call. I'm joined on the phone today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President, Chief Financial Officer, Jennifer Whalen.[Operator Instructions]. I'll now turn the call over to our President and CEO. Chris?

Chris Bradshaw -- President, Chief Executive Officer & Director

Thank you, Crystal, 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. We achieved our target of zero air accidents in the quarter ended June 30, and I want to thank and commend everyone on the Bristow team for their hard work and dedication to deliver safe, efficient and reliable service to our valued customers every day. The company continues to make significant integration progress following the merger of Era and Bristow last year. As of June 30, synergy projects representing $42 million of annualized savings have been completed, which means that we have already captured over 80% of the total synergy projects at the one-year anniversary of the merger, placing the company well on the way to achieving our target of at least $50 million of annual run rate savings.

In June and July, Bristow repurchased approximately 1.5 million shares for gross consideration of $40 million. Over the last 12 months, we have repurchased over 1.9 million VTOL shares for gross consideration of $50 million, representing an average purchase price of $25.92 per share. Bristow's continued generation of robust free cash flows facilitated this return of capital to shareholders. I will now turn it over to our CFO for a more detailed review of financial results. Jennifer?

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

Thank you, Chris. As you may have noticed in our filings yesterday, we have modified the revenues by line of service table to more accurately reflect how management views the company's lines of service. These changes include the addition of a government services line and other services will now reflect revenues derived from leasing aircraft to nongovernmental third party operators, oil and gas contracts that do not materially fit into one of the three major oil and gas operating regions and other services as they arrive. With that, I will begin with a sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $40 million for the first quarter of fiscal year 2022 compared to $30 million in the fourth quarter of fiscal year 2021 or an increase of $10 million.

This increase was primarily driven by higher revenues and lower compensation expenses. Revenues increased $7 million, primarily due to higher utilization in oil and gas and government services. Operating expenses were $4 million lower due to lower personnel and maintenance costs. General and administrative expenses were $3 million lower due to lower compensation expenses. Merger and -- merger-related and restructuring costs decreased $15 million and $7 million, respectively. Furthermore, we recognized a loss on impairment of $22 million related to Petroleum Air Services and unconsolidated affiliate in Europe and certain helicopters held for sale. Also, we recognized a loss of $2 million related to divesting of our subsidiary in Columbia. As a reminder, the merger closed in June of 2020. And due to the fact that Bristow was the accounting acquirer in the transaction, the previous year comparable quarter includes just 19 days of results from legacy Era Group Inc.

To help with comparability of the periods presented, I will focus on the pro forma results as if legacy Bristow and Era were merged for the entire prior year quarter. With that reminder, the current year quarter versus pro forma prior year quarter EBITDA adjusted for special items and asset dispositions was $40 million for the current quarter compared to $48 million in the prior year results. The decrease in EBITDA of $8 million from the prior quarter is primarily due to lower operating revenues. Revenues decreased $8 million, primarily due to lower utilization in oil and gas. Operating expenses, excluding special items, was $3 million higher due to higher fuel and maintenance costs. General and administrative expenses were $4 million lower, primarily due to decreased professional service fees and lower compensation expenses.

Finally, we generated adjusted free cash flow, excluding net proceeds from asset sales, of $39 million for the current quarter, which is consistent with the average for the two prior quarters. Since the merger last June, we have generated $180 million in adjusted free cash flow, excluding net proceeds from asset sales, and continue to believe that this business model will have a strong free cash flow. At this time, I'll turn the call back to Chris for further remarks. Chris?

Chris Bradshaw -- President, Chief Executive Officer & Director

Thank you, Jennifer. As noted in our last earnings call and in my recent letter to stockholders, we have a positive outlook on the future demand for our services. We continue to believe that a significant, broad-based increase in offshore oil and gas activity will begin next year. We also believe that the second half of calendar 2021 will be better than the first half of this year. Beyond oil and gas services, we believe strategic growth opportunities exist in government and military services, offshore wind farm support and advanced air mobility.

In particular, Bristow is well positioned to win additional government SAR contracts in pending and upcoming tender processes in Europe and the Americas. In conclusion, we expect the company will continue to generate a substantial amount of positive free cash flow, as demonstrated in our recent financial results. We believe that our strong balance sheet and robust free cash flow profile present multiple opportunities to create value for Bristow shareholders. With that, let's open the line for questions. Casey?

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Andres Menocal with Evercore ISI.

Andres Menocal -- Evercore ISI -- Analyst

Good morning. Regarding your government services revenues this quarter, it seemed particularly strong. Can you break down some of the drivers behind that? And is that what we could expect going forward? Or was that somewhat of an anomaly, just given the prior period comparisons?

Chris Bradshaw -- President, Chief Executive Officer & Director

One important thing to note is that we have done a reorganization of how we report our revenues by line of services. So there are now additional contracts that are reported in government services. Within that, we include not just the U.K. SAR contract, but also the contract that we have with the U.S. Bureau of Safety and Environmental Enforcement, or BSEE, as well as a number of other government contracts that we have in various countries around the world. So we're now highlighting the government services line for all government-related customer contracts that we have. Within that, even normalizing for the adjustment that we're showing, the increased activity is mostly an increase in flight hours, with a small benefit from foreign exchange as well.

Andres Menocal -- Evercore ISI -- Analyst

Okay. Great. Second question is just regarding your fleet. Where do you feel like you are in terms of innings for just continued asset sales? Just trying to think about if the size of the fleet continues to shrink, how I could think about the revenue trajectory for total oil and gas revenues?

Chris Bradshaw -- President, Chief Executive Officer & Director

So asset sales will continue to be a part of our business model. I don't expect that they'll be nearly as active as they've been over the last 12 months or so. And when we came together with the merger, combining two large fleets, there was an opportunity really to rationalize certain fleet models and to sell some nonperforming assets, considering cash proceeds and deploy that capital for better uses. So it will be likely a smaller number of asset sales going forward than what it's been -- the pace it's been over the last 12 months, but it will continue to be a part of our business model. We've always viewed ourselves as managing a pool of capital or assets from which we're trying to generate the best return.

We have a few different avenues to do that. One is operating the helicopters or fixed-wing aircraft ourselves for our own end customers and the cash flows we can generate from that. A second is leasing aircraft out to other third-party operators and being able to realize cash flows from that. And third is monetizing the aircraft through sale into the secondary helicopter market. And it's pretty straightforward. But generally speaking, we'll look at those three opportunities and pursue the highest net present value one. And sometimes, that means that we're selling helicopters. And so for that, we're constantly looking at the residual value for all the aircraft in our fleet and being proactive in trying to manage the sale of certain helicopter models over time. So it will continue, but not nearly at the pace over the last 12 months is our expectation.

Andres Menocal -- Evercore ISI -- Analyst

Okay. Great. Just my last question for now. Do you have any high-level just qualitative color around following the M&A market, whether on a regional basis, or just the ability in doing this for other operators out there to engage in those kind of conversations?

Chris Bradshaw -- President, Chief Executive Officer & Director

Certainly. So at a high level, we are -- remain optimistic about the potential for attractive consolidation opportunities in our industry, particularly in certain regions around the world. There are certain regions such as the U.K. sector of the North Sea or Brazil, where there continues to be an overcapacity of equipment and a number of operators. And we think that the industry would benefit from and, in many ways, actually needs consolidation to reach a more sustainable state in those areas. And again, we're optimistic about that. And we think Brazil is as well positioned as anyone to participate in a consolidation.

Andres Menocal -- Evercore ISI -- Analyst

Great. Thank guys, I'll send it back.

Operator

The next question comes from John Deysher with Pinnacle.

John Deysher -- Pinnacle -- Analyst

Good morning everyone. I was just curious, Chris, on the share repurchase. We are very happy that you spent $40 million buying back stock. And I was just wondering, is there anything left on that authorization of 50 -- was it $50 million? Or maybe you can help with what's outstanding there?

Chris Bradshaw -- President, Chief Executive Officer & Director

Certainly. So last September, the Board approved the total $75 million share repurchase grant. As of now, we've used $50 million of that. So we do have $25 million remaining in the Board-approved plan as of the end of July. And we also have additional financial capacity beyond that. But of course, that would need to be a new plan, which would be publicly disclosed if and when we initiate that.

John Deysher -- Pinnacle -- Analyst

Okay. Great. The assets held for sale, $7.4 million, is that exclusively helicopters at this point?

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

Yes. John, yes, that's just helicopters held for sell.

John Deysher -- Pinnacle -- Analyst

Okay. And the investment in unconsolidated subsidiaries of $19.4 million, down from $90 million or so a year ago, what's -- which subsidiaries are those? Are those -- is that Cougar? Or what's included in that bucket?

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

That is Cougar. That is also Lider, our investment in Brazil as well, and the unconsolidated subsidiary we have in Egypt as well.

John Deysher -- Pinnacle -- Analyst

Egypt. Okay. If you decide to sell any of those, would those transitions to assets held for sale? Or would they just -- what would happen if you decided to sell any of those?

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

They would just -- they would just be sales. They would not move to assets held for sale. That's a different category by the account.

John Deysher -- Pinnacle -- Analyst

Okay. Can you share with us whether any of those are for sale?

Chris Bradshaw -- President, Chief Executive Officer & Director

Well, on Lider, we have exited that investment. So that is now a 0 on the balance sheet. Cougar was -- we took a large impairment charge related to Cougar in the previous periods. It's now a relatively small amount of that balance that you're looking at. We did take a $60 million impairment on PAS in Egypt that Jennifer referred to in the current period. That's the other part, other than Cougar, that's still reflected as a balance there. In terms of sales, really, no, we don't have any plans to do that. The business in Egypt, notwithstanding the current impairment, enjoys a good market position.

That's a 25% minority investment we have, which has generated good dividends for the company over the years. And then in Cougar, while we took the impairment due to the contraction in the oil and gas market offshore the East Coast of Canada, we still very much like the market position that the company enjoys. And Bristow continues to stand to benefit from cash flow that we realize from leasing aircraft and other assets into the Cougar business in Canada.

John Deysher -- Pinnacle -- Analyst

Okay. And what about the fixed-wing business in -- was it Australia? Is that a core asset going forward?

Chris Bradshaw -- President, Chief Executive Officer & Director

So our investment in Airnorth is one that's going through a transition period right now. The fleet is actually transitioning from an E170 model of regional jets to E190s over the next couple of years here. We think that's an important transition for the business to make. We think it will result in much better EBITDA generation and allow for growth of the Airnorth business. And the team there has a good plan to execute upon that. Once that transition is complete, I think we'll be in a good position where we can make an evaluation at that time, whether it's best to benefit from those better cash flows or look at other alternatives for the business.

John Deysher -- Pinnacle -- Analyst

And when will that transition be complete?

Chris Bradshaw -- President, Chief Executive Officer & Director

We're anticipating by early 2023.

John Deysher -- Pinnacle -- Analyst

All right. Good. And I guess, finally, we're hearing good things about offshore drilling, Guyana, Suriname, Trinidad. Can you bring us up-to-date as to what's going on down there?

Chris Bradshaw -- President, Chief Executive Officer & Director

Yes, happy to do that. It continues to be one of the bright spots for the global offshore oil and gas industry. The reserves that have been discovered by Exxon, in particular, in Guyana are absolutely world-class and prolific. They continue to make prolific discoveries. There are now other oil and gas companies becoming involved there in Guyana. Suriname, which is just across the border, has very similar characteristics and similar success in early drilling programs there from Apache, Total, PETRONAS and others.

And really is looking a lot like Guyana, just a few years behind it in terms of the development of where they are in the life cycle there. Trinidad is an area where Bristow has enjoyed a leading market position for the last 60 years, continues to be a fairly stable and active basin for us. So that Caribbean triangle region of Trinidad, Guyana, Suriname, where we have very much the leading position, is one that generates a nice cash flow return for the company.

John Deysher -- Pinnacle -- Analyst

Good to hear. Thank you very much.

Operator

We'll take our next question from Adam Ritzer, private investor.

Adam Ritzer -- N/A -- Private Investor

Good morning, thanks for taking my call. I know you guys have done a great job on managing the balance sheet, refinancing, generating cash. Glad to see the buybacks are going and, hopefully, that will get finished off soon. But I guess, one of the questions I had is in regards to how come there's not any more improvement in margins? For example, a year ago, you guys did $296 million of revs and did $48 million of EBITDA, and the revs were only down $8 million year-over-year, and you're doing $40 million of EBITDA. So it's almost 100% decremental margins. Is there any reason for that? Like why you're not a little more profitable with all but $40 million of cost saves?

Chris Bradshaw -- President, Chief Executive Officer & Director

Good morning Adam, thanks for the question. So as we look at the margin, comparing those two periods on a pro forma basis, and that's just -- that pro forma disclosure is in the slide deck that we sent out. So that I would certainly encourage everyone to look at that pro forma comparison for the best comparison because, as Jennifer noted, the as-reported numbers, which are in the Q for the quarter ended June 30, 2020, only included 19 days of legacy Era Group Inc. So on a pro forma basis, the EBITDA margin did contract, I think, roughly 240 basis points. Really, all of that is related to operating expense as a percentage of revenues, and fuel is a big contributor to that. Fuel prices have gone up.

That's part of it, but not all of it, really, but you also have the fact that, obviously, the global pandemic began in early 2020. It started to impact the global oil market shortly after that. But in our business, really, there was a delay in where we see customer activity drop and where customers make the decision and when they have the ability to drop aircraft. So we have monthly standing charges that have been rolling off over that period. And this current period is a more representative of the full year impact of those roll-offs than you would have seen in prior year periods. So that's a big contributor to it as well. As you'll recall, Adam, in a given contract, the monthly standing charges are the majority of the revenues that we collect relative to the variable flight hour component there.

Adam Ritzer -- N/A -- Private Investor

Okay. In terms of fuel, so the contracts don't have pass-throughs on fuel increases, I guess?

Chris Bradshaw -- President, Chief Executive Officer & Director

Most of them do. And then we have some non-revenue hours that we incur for either training or ferry flights from time to time. But yes, most of our customer contracts do have pass-throughs.

Adam Ritzer -- N/A -- Private Investor

Okay. And I guess, on a big picture, like you just mentioned, all the drilling companies, the offshore services companies are all pointing to things really getting going, and even '22, hopefully, being much better in a new cycle. I know you guys don't give guidance per se, but can you perhaps walk us through what it would take to get to the $1.5 billion and $240 million of EBITDA when you first announced the Bristow deal? Like how much more activity do you need that some of the things you're saying indicate when and what we need to do to get there? Can you help us understand the upside?

Chris Bradshaw -- President, Chief Executive Officer & Director

Yes. Look, without getting into financial guidance, as you referenced, Adam, we don't give financial guidance. Directionally, we believe that the second half of this calendar year 2021 will be better than the first half. But we don't believe that a material broad-based recovery in offshore oil and gas activity will occur until next year in calendar 2022. We are optimistic about that. We think it will be a multiyear recovery in activity, and Bristow will benefit greatly from that as we have currently idle aircraft that go back to work and improve the cash flow generation capacity of the company. We also, over that period of time, on the expense side, we'll be looking to continue to optimize expenses as much and wherever possible.

And that includes the expenses that we have on aircraft leases. So we have a number of aircraft that have lease maturities coming up over the next 12 months. And with the exception of a few aircraft that we need to keep to support customer activity, we will otherwise move aircraft around to facilitate the return of aircraft to lessors, which will result in an improvement in cash flows for Bristow.

Adam Ritzer -- N/A -- Private Investor

Right. So let me rephrase it. If you do see what you're saying and what the other companies in the industry related areas are saying, how much revenue upside is there? I mean is there 10%, 20%, 30%? And historically, I know you haven't owned Bristow for more than a year, but how much revenue upside could a new cycle bring to you guys? Like, I think that's what people are trying to figure out, how good could things do? And how much better can it be from here?

Chris Bradshaw -- President, Chief Executive Officer & Director

Yes. I appreciate the background behind the question. Consistent with our long-standing policy, we don't provide financial guidance. So any kind of quote about percentages with cost to guidance, which we don't do. But there is significant upside and really better utilization of the fleet is what's going to drive most of that upside.

Adam Ritzer -- N/A -- Private Investor

Okay. I appreciate it, thanks very much.

Operator

And we'll take a follow-up question from Andres Menocal with Evercore ISI.

Andres Menocal -- Evercore ISI -- Analyst

Just a couple, I guess, just housekeeping questions, or just how to think about a couple of line items on the P&L. It seemed like D&A just jumped up a fair amount, which you provided color around in the press group release. But how should we think about D&A going forward? Is what we saw in the most recent quarter reflective of how we'd be from here on out? I understand that you don't give financial guidance.

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

Sure. So we did have an adjustment -- an immaterial adjustment to depreciation for previously undepreciated assets during this period. This included $4.2 million of nonrecurring expense.

Andres Menocal -- Evercore ISI -- Analyst

Okay. Perfect. And just one more, if I may. Taxes, it just -- and again, doesn't really impact your valuations too much, but just trying to understand how to think about it from a cash perspective. I know you have some net operating losses, but it seems like in the past six quarters or so, it's just been either positive or negative. Just trying to understand how to best think about the tax position going forward.

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

I mean from a cash tax perspective, we noted in our S-4, and that really hasn't changed much today, that somewhere between $10 million, $15 million of cash taxes. Our cash -- our taxes that book on the income statement fluctuate from time to time, depending on jurisdictions and what their profitability in those certain jurisdictions are. But we do have a level of taxes that we will pay on an annual basis, so it could be around $15 million.

Andres Menocal -- Evercore ISI -- Analyst

Okay great. Thank you so much.

Operator

And at this time, I'm currently showing no further questions.

Chris Bradshaw -- President, Chief Executive Officer & Director

Thank you, Casey, and thank you, everyone, for participating. We look forward to speaking to you again next quarter. I hope everyone stays safe and well.

Operator

[Operator Closing Remarks]

Duration: 26 minutes

Call participants:

Crystal Gordon -- Senior Vice President, General Counsel, Head of Government Affairs & Corporate Secretary

Chris Bradshaw -- President, Chief Executive Officer & Director

Jennifer Whalen -- Senior Vice President & Chief Financial Officer

Andres Menocal -- Evercore ISI -- Analyst

John Deysher -- Pinnacle -- Analyst

Adam Ritzer -- N/A -- Private Investor

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