Bristow Group Inc (VTOL) Q2 2022 Earnings Call Transcript

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Bristow Group Inc (VTOL -1.76%)
Q2 2022 Earnings Call
Nov 4, 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 Second Quarter Fiscal Year 2020 Results. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Crystal Gordon, Senior Vice President, General Counsel. Please go ahead, ma'am.

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

Thank you, Anna, and good morning, everyone. Welcome to Bristow Group's Second 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. Let me remind everyone, during the call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on slide three 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?

Christopher Bradshaw -- President and Chief Executive Officer

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 have achieved our target of 0 air accidents thus far in fiscal year 2022. We are also continuing last year's progress on delivering fewer lost time incidents in the workplace. I want to thank and commend everyone on the Bristow team for their hard work and dedication to place safety first every day.

The company continues to make significant integration progress following the merger of Era and Bristow last year. As of September 30, synergy projects representing approximately $46 million of annualized savings have been completed, which means that we have already captured over 90% of of the target synergy projects identified with the merger. This progress is made possible by a dedicated group of Bristow team members who have worked diligently to analyze, design and execute upon a plan to deliver a more efficient cost structure for the company and our stakeholders.

As previously disclosed, in July of this year, Bristow repurchased approximately 550,000 shares for gross consideration of $15 million, representing an average purchase price of $27.24 per share. In addition, during the quarter, we paid approximately $5 million to extinguish debt our Aeronorth business in Australia. We continue to believe that our strong balance sheet and robust free cash flow profile present multiple opportunities to create value for Bristow shareholders.

With that, I will hand it over to our for a more detailed review of financial results. Jennifer?

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

Thank you, Chris. Today, I will begin with the sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $45 million for the second quarter of fiscal year '22 compared to $40 million in the first quarter, or an increase of approximately $5 million. As Chris noted in our earnings release, our current quarter financial results were adversely affected by Hurricane Ida, pandemic-related travel restrictions in Australia, labor union settlement costs from Norway and U.K. SAR2G contract bid costs.

Excluding these items, adjusted EBITDA would have been approximately $3 million higher. Operating revenues increased $1.8 million, primarily due to higher utilization in oil and gas services. Operating expenses were $4.3 million higher due to increased personnel costs, the recognition of insurance deductible following the impact of Hurricane Ida, and higher maintenance and fuel costs. General and administrative expenses were $1.5 million higher due to increased insurance costs and higher professional service fees.

Merger-related costs were $0.6 million in the current quarter compared with $1.7 million in the previous quarter. Furthermore, other income was $15.3 million in the current quarter, primarily driven by a bankruptcy-related settlement of $9 million. Income tax expense was $14.5 million in the current quarter, primarily driven by the previously mentioned bankruptcy-related settlement, insurance proceeds and aircraft sales.

Finally, Bristow continues to benefit from a strong balance sheet and liquidity position. As of September 30, available liquidity was $288 million, and our net debt to LTM adjusted EBITDA ratio was approximately two times. In the last 12 months, we have generated $158 million in adjusted free cash flow, excluding net proceeds from asset sales, and believe that this business model will continue to have strong free cash flow.

At this time, I'll turn the call back to Chris for further remarks. Chris?

Christopher Bradshaw -- President and Chief Executive Officer

Thank you, Jennifer. As noted in our last two earnings calls, and this year's 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 in earnest next year. Indeed, the recent strength in commodity prices and improving market conditions have enhanced our belief that we are on the precipice of a multiyear investment cycle with oil and gas market fundamentals poised to remain constructive for at least the next few years.

Bristow's financial results will benefit greatly from the expected increase in offshore oil and gas spending. Beyond oil and gas services, we believe compelling growth opportunities exist in government and military services, offshore wind farm support and advance their mobility. In particular, Bristow is well positioned to win additional government SAR contracts in pending and upcoming tender processes in both Europe and the Americas.

With that, let's open the line for questions. Anna?

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from James West with Evercore ISI.

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

Good morning, everybody.

Christopher Bradshaw -- President and Chief Executive Officer

Good morning, James.

James West -- Evercore ISI -- Analyst

So Chris, it looks to me, if we look at the global market for the helicopters or the categories that you operate in that most or irrelatively tied at this point except for the S-92 class. I guess, one, is that a fair statement? And two, how do you see that market tighten as we go into the offshore cycle that you envision and certainly, we agree with in '22?

Christopher Bradshaw -- President and Chief Executive Officer

Jim, you're right. The excess supply in the industry is primarily concentrated in the heavy asset class, primarily the S-92 model helicopters. Beyond that, it is more constructive in terms of supply demand balance. There is still some auto capacity in the median helicopter class. But as we see activity picking back up, and we're already starting to see signs of that in certain regions, and we think it will accelerate next year.

We believe that medium class, primarily AW139 supply demand balance will tighten rather quickly. And as you noted, once you get down to the light helicopter categories already a tight supply demand balance. So yes, excess supply is very much concentrated in the heavies, the S-92s. We think that is likely a multiyear recovery process. It will be a combination of some equipment being phased out of operations as well as any benefit coming from increased activity as new exploration projects to move forward.

James West -- Evercore ISI -- Analyst

Okay. Got you. That's very helpful. And then maybe a little bit unrelated follow-up. You recently announced an order for electric vertical aircraft, and I know you're exploring some other market opportunities there. Could you maybe help us with what the size of the capital commitment could be? What markets you think are more attractive or maybe even least attractive for Bristow's already 70-plus year history of aviation? And kind of how you think about getting into the electric market as well as versus the oil and gas opportunity? Obviously, it's the future here, but I'm trying to understand kind of how you're envisioning in this future?

Christopher Bradshaw -- President and Chief Executive Officer

Thank you for the question, James. At this stage in the development of the advanced mobility industry, we are not making any firm capital commitments. However, what we are doing is working with the companies that are developing these aircraft. And we started this process a couple of years ago, have really accelerated efforts this year on our diligence to determine which aircraft developers, we think are going to be the leaders for the relevant mission profiles developing relationships there. We've signed some partnerships.

We're also having some other discussions that may become publicly announced at some point. We believe that these aircraft will be used in a variety of applications. Some of them will displace current services that our fleet is doing, particularly in the lighter end, in our light singles on like twin side of the fleet. Other mission profiles will be an expansion of additional services for existing customers, and other mission profiles will be an expansion into new end markets with a different set of customers. And we believe that Bristow is well positioned to participate in a variety of channels throughout the value chain.

That could range from model similar to what we do today, where we either own or lease the aircraft, and we -- our full operations and maintenance throughout the life cycle of the aircraft. In other situations, we may provide more discrete services for certain products and certain geographic regions. So we do think there will be a spectrum from geographic region to geographic region and from end market to end market. But we believe on the whole, this is potentially a very large market for the global industry, and we believe that Bristow is well positioned as the world's global leader in flight to participate actively throughout the supply chain.

James West -- Evercore ISI -- Analyst

Okay, got it. Thanks, Chris. Very helpful.

Christopher Bradshaw -- President and Chief Executive Officer

Yeah.

Operator

We'll now take our next question from Dio Balani with SKF.

Dio Balani -- SKF -- Analyst

Hi guys, thanks for the time. I just had a question regarding the treasury stock. Is there any reason you guys are not canceling the shares?

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

There's not -- there's no particular reason.

Dio Balani -- SKF -- Analyst

Got it. Okay. And then one other thing was you guys looks like you're starting to see some capital expense from the big majors come back? Or is that still delayed, because in terms of budgets for next year? And I know you said it's multiyear cycle. Just curious what you guys are seeing.

Christopher Bradshaw -- President and Chief Executive Officer

Our view is that we believe a significant broad-based and recovery in spending will begin in earnest next year, and we do think it will be a multiyear increase in spending. What we're seeing now early stages here in late 2021, are some green shoots, primarily concentrated in the Americas. And this is new exploration projects moving forward, increasing demand for helicopters from Brazil in the Caribbean, also in the U.S. Gulf of Mexico. Again, at this stage, short-term exploration projects, but starting to develop a pipeline that will drive that more broad-based increase in overall activity beginning in earnings next year.

Dio Balani -- SKF -- Analyst

Perfect, thank you.

Christopher Bradshaw -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] We'll now take our next question from Adam Ritzer, private investor.

Adam Ritzer -- private investor -- Analyst

I had a question regarding the capex in the quarter. It looks like you guys bought an S-92 that was coming off lease. Is there a reason why you decided to acquire that or just let it roll off and use one of your existing S-92s?

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

Adam, thanks for the question. This was tied to a particular lease, a one-off lease that existed, has a good fit for some time where it had a put option where the helicopter was put to us, and we were happy with the value that we're able to acquire that helicopter for, but it was part of the base agreement.

Adam Ritzer -- private investor -- Analyst

Got it. So it was put to you instead of you guys were going out and buying it. How much did that cost you?

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

It was about $5.5 million.

Adam Ritzer -- private investor -- Analyst

Great. And I guess, getting back to the last question here. I know it's been a while since we've seen a good long so. How -- what's the lag effect in terms of when we see an announcement for Transocean or Valaris announcing a new rig order starting up, let's say, in January. Do you guys see the orders for the helicopters needed immediately? Or is there a lag in terms of when your business see -- starts getting orders to supply those contracts?

Christopher Bradshaw -- President and Chief Executive Officer

There's definitely a lag. We are late cycle. Thus the degree or period of the lag will vary from situation-to-situation. But typically speaking, when an oil and gas company is looking to move forward with the new projects, securing the drilling rig is one of the first things they'll do, and oftentimes securing the helicopters is one of the last things that they'll do. So there will be a lag over time. But it does create a pipeline, which provides some visibility for us of an overall increase in activity.

Adam Ritzer -- private investor -- Analyst

Obviously, you could track all the announcements, and rig is going to be placed over the next, whatever, six to 12 months. And you know with the lag when you're going to start seeing that business, right? Can you talk a little bit more about Guyana and Suriname. I mean it seems like almost a -- there's more discoveries there. Exxon is talking about a $10 billion barrel basin. Can you tell us how many tops you have roughly there now? And over the next, I don't know, a number of years, what it may take to service that basin?

Christopher Bradshaw -- President and Chief Executive Officer

Well, as of now, between the two countries, we have roughly 10 helicopters. This remains a region that we're very excited about in terms of growth going forward. Bristow today is the sole helicopter service provider in both those countries. We believe that they will continue to grow in terms of demand. We're not providing forecast at this time in terms of how the helicopter will ramp over time.

A lot of that is depending on some factors that we don't have good visibility on over the medium and long term. But we do have enough visibility to say, it will grow, and we believe it will grow significantly. This is the area of the world that's had the most prolific deepwater discoveries over the last several years, and activity is only going to increase.

Adam Ritzer -- private investor -- Analyst

Right. That's pretty clear. I mean it's significant -- could it double that significantly? Or I know you never like to say this kind of stuff, but...

Christopher Bradshaw -- President and Chief Executive Officer

That's certainly within the realm of possibility. Again, no guarantees, but it's certainly within the realm of possibility.

Adam Ritzer -- private investor -- Analyst

Got it. Right. Okay. And then I know when you guys announced the merger with Bristow. You were talking about like $240 million of EBITDA run rate. Now you're at, I don't know, $180 million, $190 million. So there was a $50 million, $60 million delta. Can you maybe talk about what areas has caused the biggest drop off? Like is it Brazil or West Africa or Kuga? Maybe give us a little more color on how you get back to that twofold over the next year or 2?

Christopher Bradshaw -- President and Chief Executive Officer

Yes. So we're happy to speak about that directionally. Obviously, it's been a very large impact to the overall industry over the last 18 months with what's happened with the pandemic, and then the oil market crisis. Pleased that commodity prices have recovered as much as they have now. And we think that is going to remain the case, is our constructive view which you've heard. In terms of the areas that you're driving some of the biggest increases.

Certainly, West Africa is one of those. If you look at our business in Nigeria, revenues are down about 40% year-over-year. This is typical for that market. It typically moves the fastest and the most both up and down in up cycles and down cycles. Another area that's been particularly hard hit is Canada and the cover business, and we've made some disclosures there about the impairment and the move to recognizing revenues on a cash collection basis. So that's been an area significantly impacted, down percentage-wise, even more than the Nigeria market that I referenced.

The U.K. market has been a difficult one, both in terms of overall activity as well as the competitive landscape. Some of that's been in the news in terms of the trading of contracts for price concessions there. So that's been an area that's been more challenged. In contrast to that, we have had some areas that have held up fairly well, such as Norway, such as the Caribbean region that we mentioned, Trinidad, Suriname, Guyana. Collectively, that could be in triangle region that continued to grow even throughout this difficult period of time.

In terms of your question about when we get back to a run rate. What I would say, directionally, and again, to provide some historical context here, you will be familiar that we've expressed before, our view is that if one looks at the activity levels in offshore helicopters back in 2014, we view that as a high watermark. We don't think we're going to get back to the 2014 levels. However, as we look at the activity levels in 2019, which were, pre pandemic, right around the time that we were announcing the merger.

It is our belief that the industry will both get back to those levels and surpass them. Precisely when that will happen is hard to say. We do think that recovery begins in earnest next year. We think it builds through 2023. It could be by the time -- at the end of in 2023, 2024, you're back to that sort of level pre pandemic. But again, we're not speaking with any kind of specificity. What I would say directionally is we do think we get back to and surpass the 2019 levels at some point.

Adam Ritzer -- private investor -- Analyst

Okay, that's very helpful. I appreciate it. Keep up the good work. Thank you.

Christopher Bradshaw -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And we'll take our next question from Lenny Dunn with Mutual Trust Company of America.

Lenny Dunn -- Mutual Trust Company of America -- Analyst

Good morning. And you're doing a very good job of transitioning. But I had a couple of questions on the debt pay down. Are you going to get a little more aggressive with that so that the balance sheet, which is probably the thing restricting the stock, gets better? And the second part of that is, at what point then would you be able to start paying dividends assuming you got the balance sheet in a better shape?

Christopher Bradshaw -- President and Chief Executive Officer

Thank you for the question, Lenny I appreciate that. We did pay down about $5 million of debt this quarter. As of right now, we have really two primary securities in our debt structure. One are the senior notes, which don't mature until 2028. The other is some bank debt that we have with Lumbar, which is really attached to our U.K. SAR business. That does have an amortization schedule, so we will be adhering to that amortization schedule. So you will see a natural decline in that amount of debt over time.

As we think about return of capital to shareholders, where we are at this stage in the cycle, and the amount of visibility that we have, our preference has been toward share buybacks, specifically opportunistic share buybacks. We're pleased to have returned about $50 million of capital to shareholders over the last 12-month period ended September 30. If you think about dividends, I think at some point that may well come into the equation in terms of return of capital to shareholders. It's likely contingent upon better visibility and certainty around the recovery and the pace of the recovery in the broader oil and gas market.

Lenny Dunn -- Mutual Trust Company of America -- Analyst

Okay. When you say opportunistic repurchases of stock, is there any harm in just doing a regular open market purchases if the share price stays on the level it's at?

Christopher Bradshaw -- President and Chief Executive Officer

No harm in doing that. Indeed, our opportunistic repurchases have been done in the open market, and about $50 million have been executed over the last 12 months ended September 30. When we use the word optimistic -- I'm sorry, opportunistic, it's really to distinguish it from a more programmatic approach where we say, we're just going to buy x number of shares every quarter regardless. Rather, we've been more opportunistic, exactly using the open market repurchases similar to what you referenced.

Lenny Dunn -- Mutual Trust Company of America -- Analyst

Okay. And then the last thing is that I think the story is becoming pretty compelling. Are you going to be doing something with a physical road show as opposed to a virtual contact?

Christopher Bradshaw -- President and Chief Executive Officer

We look forward to getting back on the road. Some of the conferences that we've -- really all of the comments we've been able to participate in thus far have been hosted as fuel formats. Our hope and expectation is that those will start to happen physically as well. Beyond the road show -- sorry, beyond the conference aspect, when we think about road shows, yes, I think trips to New York, Boston, some of the money centers to sit down both with analysts and a large investment accounts is something that we're interested in doing.

Lenny Dunn -- Mutual Trust Company of America -- Analyst

I think your story is pretty compelling now, and you've been out of long enough that you have a track record. So I think it's time to do it, but that's my opinion.

Operator

[Operator Closing Remarks]

Duration: 25 minutes

Call participants:

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

Christopher Bradshaw -- President and Chief Executive Officer

Jennifer Dawn Whalen -- Senior Vice President, Chief Financial Officer

James West -- Evercore ISI -- Analyst

Dio Balani -- SKF -- Analyst

Adam Ritzer -- private investor -- Analyst

Lenny Dunn -- Mutual Trust Company of America -- Analyst

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