Good day, and welcome to the Bristow Group Fiscal Q3 2021 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..

Thank you, Jordan, and good morning, everyone. Welcome to Bristow Group's Third Quarter Fiscal Year 2021 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 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?.

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.

I want to thank and commend all of our Bristow team members for their focus and dedication to place safety first every day, despite the numerous potential distractions in the world around us.

We have achieved our target of zero air accidents thus far in FY'21 and remain committed to achieving the highest safety standards to ensure that all of our customers and employees return home safely. We are also pleased with our financial results this quarter, which demonstrated resilient revenues and adjusted EBITDA performance.

During the quarter, we repaid $40 million of debt and repurchased over 100,000 shares of common stock. With our strong balance sheet, $345 million of total liquidity and continued positive free cash flow generation. Bristow possesses industry-leading financial flexibility.

The company continues to make significant integration progress, following the merger of Era and Bristow in June 2020. We have increased the amount of identified synergies to at least $50 million of annualized run rate cost savings, which is $15 million higher than the original total.

As of January 31, Synergy Projects representing $27 million of annualized savings have already been completed. We expect to capture over 80% of the total synergy projects by the 1-year anniversary of the merger, resulting in a more efficient cost structure for the company.

I want to take a brief moment to note that we do not expect a material impact to Bristow's business from the recently issued executive order that cause new oil and gas leases in federal waters. To begin with, Bristow is currently servicing just 3 drilling rigs in the U.S.

Gulf of Mexico, which evidences our limited exposure to drilling and exploration activities. With the exception of a few helicopters supporting those drilling rigs, the rest of our helicopter fleet in the U.S. Gulf of Mexico is supporting production work and other activities.

Furthermore, the suspension announced in the executive order applies to the issuance of new leases, not activity on existing leases. This is underscored by the fact that 22 new drilling permits have been issued in the Gulf of Mexico since President Biden took office. I will now turn it over to our CFO for a more detailed review of financial results.

Jennifer?.

Thank you, Chris. I will begin with a sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items and asset dispositions was $47 million for the third quarter of fiscal year 2021 compared to $54 million in the second quarter or a decrease of $7 million.

This decrease was primarily due to foreign currency gains in the prior quarter. Revenues increased $4.6 million, primarily due to part sales related to helicopters sold and increased oil and gas revenues due to higher utilization in those regions.

Operating expenses were $3.7 million lower due to severance costs recognized in the previous quarter, partially offset by higher maintenance costs. General and administrative expenses were $1.3 million lower due to lower professional services fees.

In addition, there was an impairment charge of $52 million during the quarter related to the investment Vancouver in Canada, which is considered a special item and not in adjusted EBITDA. As a reminder, the close of the merger was on June 11.

And due to the fact that Bristow was the accounting acquirer in the transaction, the previous year comparable quarter does not include results from legacy Era Group Inc. Prior periods only include operating results of legacy Bristow Group Inc.

To help with the comparability of the periods presented I will focus on the pro forma results as if legacy Bristow and Era were merged in the prior year quarter. With that reminder, I will move on to the current year quarter versus pro forma prior year quarter discussion.

EBITDA adjusted for special items and asset dispositions was $47 million in the current quarter versus pro forma EBITDA adjusted for special items in the prior year quarter of $53 million. The primary driver for the decrease in pro forma EBITDA is higher foreign currency gains in the prior year quarter compared to the current year quarter.

Revenues decreased $55 million, primarily due to lower utilization in the oil and gas and fixed-wing services. Operating expenses were $50 million lower due to decreased activities. General and administrative expenses were $14 million lower, primarily due to lower compensation costs and professional services fees.

Finally, we generated adjusted free cash flow, excluding net CapEx of $27 million for the current quarter. The adjusted free cash flow, excluding net CapEx, was lower than the previous quarter primarily due to changes in working capital due to the timing of payments.

The average of the 2 quarters is approximately $42 million in free cash flow, normalizing for timing of payments. In addition, we generated $11 million in net proceeds from the sale of helicopters during the quarter. At this time, I'll turn the call back to Chris for further remarks.

Chris?.

Thank you, Jennifer. Following our recent merger, the combined Bristow is a larger and more diversified company, with aircraft located in 15 different countries. We enjoy cash flow stability resulting from our government services contracts and an oil and gas business that is more than 80% weighted to production support activities.

The last two quarters of combined company financial performance clearly demonstrate the benefits of the merger. And future periods will benefit from additional synergy capture, as we ramp up to the full $50 million run rate savings.

Going forward, we will continue to execute a capital disciplined approach, focused on generating positive cash flow, protecting the balance sheet and opportunistically returning capital to shareholders. With that, let's open the line for questions.

Jordan?.

[Operator Instructions]. And it does look like we have our first question from Adam Ritzer..

I guess I'm starting off the whole lease effect in the Gulf of Mexico, I don't - how are they still granting permits, basically said they don't want any more leasing.

Could you maybe give a little more detail on what's really going on down there?.

Sure. So the difference between a lease and a permit is that a lease is the right to that plot of water and the seabed underneath it. Those are awarded in auctions that take place periodically over time. A permit would be specific to a well and activity that the oil and gas company is performing on the lease that the company has the rights to.

So the permits, that have been issued, and again, 22 of them since President Biden took office have been issued, those are for existing leases. So effectively, what the current suspension does is pause the issuance of new leases or rights to work on new plots of water and the underlying seabed..

Got it. Okay. A question on Guyana, Suriname. It seems like almost every day, there's new wells being drilled, new companies being active in that trend.

Can you maybe talk about how many common copters you guys have down there now? And potentially what that might look like over the next, I don't know, 3 to 5 years?.

Sure. So the Caribbean triangle has certainly been one of the bright spots for us and remains a bright spot for us globally. First, in Trinidad, where we've had the leading presence for more than 60 years now, that market has been fairly stable over the last 12 months despite the overall challenges in the broader oil and gas industry.

And then across the waters in Guyana and Suriname, which you mentioned, where Bristow is currently the sole operator today of offshore helicopter support to the oil and gas companies who have had such success finding the prolific reserves in those 2 countries thus far. We currently have a handful of helicopters servicing the customer in Guyana.

And a few servicing a variety of customers in Suriname on their exploration projects. That market has grown during the last downturn. It's growing now, and we expect it will continue to grow.

In terms of a specific number, we're not quoting or targeting a specified aircraft count by a certain date, but I do think globally, this will be perhaps the highest growth rate offshore oil and gas region that we see..

Okay. Great. I'm sure you guys listen to the recent Air & Sea Analytics call, in which they discussed the potential for wind. I think they said there's potential over 100 aircraft over the next 10 years.

Can you talk about anything that you have going on there or essentially what your plans might be to participate in the wind growth?.

Yes. We are optimistic about that model. We do think that offshore wind will be an important part of the global energy transition over the next several years. It's already a fairly mature market in Europe and Asia, but one that's expected to continue to grow rapidly in those regions.

The market is very much a nascent one here in the U.S., but again, it's expected to grow significantly with multiple projects and billions of dollars scheduled to be invested and, we believe, more on the heels of that. Today, at Bristow, we do not have any exposure.

In the U.S., that's because the one operating wind farm today is so close to shore that it's supported by boats, but the new wind farms that are scheduled to be developed are going to require offshore helicopter support. We think Bristow is very well positioned for that, given our extensive experience operating in difficult offshore conditions.

And importantly, the thousands and thousands of hours that we have with hoist experience, which is incredibly important when you get into the operating and maintenance phase of the wind farm. So a very much nascent, but we'll be growing market in the U.S., we think we're well positioned there.

In Europe, post-merger, this is going to be a strategic priority for Bristow to penetrate that market and take advantage of some of the growth opportunities that we see there. And so we're working now to position ourselves.

We do think there will potentially be some more near-term work that will be available in Europe, given the already well-established nature of that. So no exposure today, but definitely a new strategic priority for the company and one that we're opportunistic about the potential in that market..

Great.

Do you have copters in the fleet now that can service some of those things you mentioned? Or would that require additional CapEx?.

So it's really two important phases to the life cycle of an offshore wind farm. At the beginning, in the development and construction phase, the helicopters that are used to support the work, which are really transporting those construction crews to and from the offshore facilities, are very much what we have in the fleet today.

The most competitive model would be an AW139 and crew change configuration. So definitely within our warehouse, as you know, we're the largest operator of 139s in the world today. After the field and the wind farm is operational, you transition into the operations and maintenance phase or O&M phase of the life cycle.

For that work, the mission profile is hoisting the maintenance technicians down to the top of the Bristow to do the work that they're required for either scheduled or unscheduled maintenance. And for that, the most likely helicopter models would be new variants of light twin model helicopters.

So those would be either H145 or AW169s that are the most popular in that industry today. And for that, we would need to go and spend some capital to bring those new variants into our fleet. But we think the returns and the attractiveness of that would justify the new CapEx, if we are successful in winning the work..

Got it.

And I'd assume no - for a number of years without contracts, you wouldn't be purchasing any of those new copters, would that be a fair statement?.

We will remain disciplined with our capital. I think as you referenced, this is not a build it and they will come type approach. We're going to be disciplined with how we look to deploy capital because we do believe we have other attractive uses for capital allocation..

Got it. What happened with Cougar? I looked in the Q look quick, it said you lost a significant customer.

Is that why you guys wrote it down all of a sudden instead of during the Bristow bankruptcy?.

Jennifer, do you want to talk about Cougar?.

Yes. Adam, good to talk about you. As we've disclosed in our previous filings, we monitor our equity investments for other than temporary impairment. There were events during the quarter that led us to determine that the Cougar investment was other than temporarily impaired.

But most notably, the lots of the customers who also wrote charge an impairment of about $425 million and the consolidation of the market up there, which led us to impair this investment. We do continue to lease aircraft and facilities into Cougar to support their operations and expect to do so going forward.

But the market up there has just deteriorated quite a bit during the quarter..

Okay. Got it.

And is there any update on what's going on with the leader negotiations on getting that sold and finished up?.

No update there, Adam. We have exited our shareholder position and leader. We are working through the procedural process there to recoup money for our former interest, but no material update there..

Okay. What - is there anything new going on in the consolidation gain? I noticed that PHI said they hired a banker that might just be for their EMS builds. Babcock is reviewing everything. There's rumors of CHC going Chapter 22.

Can you perhaps give us any color or comments on the consolidation on next phase?.

Well, I can't comment on any specific situation, but I would say that we continue to believe that the industry needs and would benefit from additional consolidation.

A lot of the rationale that underpin the logic of the Bristow Era merger would apply in other combinations in different parts of the world where there is an excess amount of capacity, too much equipment, too many operators. And we believe the market would benefit from consolidation. From our perspective, we continue to see interest there.

And if we - if there's another transaction that has some of the similar benefits of consolidating a market, creating value from synergies by eliminating overlapping costs, we would be interested in that. But any potential M&A opportunity would need to fit within our financial parameters as well.

And our strategic priorities of maintaining a strong balance sheet and positive free cash flow profile. So we - as we've been in the past, we're going to be disciplined in any approach to consolidations..

[Operator Instructions]. And we'll take our next question from Jason Stan with Clayton..

Can you elaborate a little bit more on Cougar? Just, I guess, was it just one customer leaving that forced you to have the write-off? Just trying to get a sense of are we bottoming with regard to kind of pricing and customers and kind of the cycle here? Or are we still trying to find the bottom?.

Well, specific to Cougar, which is in East Canada, there has been consolidation there that market is challenged.

I'm not sure we can predict where the market bottoms that, but we did have a significant customer that did an impairment at the same time, we are doing the impairment and a couple of other customers that consolidated, which sort of strings that market..

Yes. And I would add globally to that, that I think we are pleased with the resiliency that we've seen in our revenues. Over the last couple of quarters, you can see that we were actually up a modest amount sequentially.

So I think beyond just Canada, on a global basis, we are seeing signs of the market stabilizing off of, obviously, what are lower activity levels but stabilizing. And we're not expecting any broad-based significant market recovery in calendar '21.

And that's okay because Bristow will still generate a substantial amount of free cash flow this year, even with oil prices where they are.

As we get into 2022 and beyond, we are more constructive about what will be a need for a growing offshore oil and gas market, and we're very much positioned to benefit significantly from that upside when the market recovery does come..

Okay. That's helpful. And the NAV slide that you put on Slide 13 is kind of interesting, the NAV and the net book value.

Is there a net margin which you guys think about is appropriate to earn off of that NAV? If I look at JTX or should we be - how should we be comping you or thinking about the expectation of a net margin for Bristow and your goals going forward for returns on that capital?.

Sure. So we haven't disclosed and don't discuss externally a specific return threshold that we're targeting for competitive reasons. I would note that the industry as a whole has really struggled to earn it..

Any return..

Yes. But what I think, clearly, in the case of Bristow, what you're seeing now is a real cash flow generating company. And we think that we're going to have an opportunity to earn attractive returns as we really pull-through all the synergies from the merger.

Get our cost crusher to as efficient as it can be and continue to be focused on generating positive free cash flow, which we're doing now. We've done in a substantial way over the last couple of quarters, even in a very depressed environment..

Okay. And I guess, lastly, can you talk a little bit to capital allocation? Are you able to buy back your higher cost debt? And when should - I guess, between buybacks, I was surprised you maybe buy back more stock in the quarter. And then what are the limitations on your ability to buyback, the high-cost debt relative to our cash earnings, nothing.

Just the balance that you guys are thinking about there and the sense of urgency you have?.

Sure. So first, I'll review where we see our capital allocation alternatives and then kind of talk about what we've done recently and also what we're looking at.

So we think that in this environment, given the challenging conditions in the broader oil and gas market and a limited amount of visibility that priority 1a should be protecting the balance sheet. We also believe that we'll have opportunities to return capital to shareholders on an opportunistic basis.

And then beyond that, we do believe that for M&A, having a strong balance sheet for some of the consolidation opportunities that we spoke about earlier in the call is an important strategic advantage. And then finally, CapEx for new aircraft is not expected to be a significant source of capital allocation in the near to foreseeable future.

However, caveat there, if we do win a new government search and rescue contract or an offshore wind opportunity that we talked about earlier in the call, then we might have a very focused need for new aircraft there if the returns are right. So that's how we see our alternatives.

Recently, we've very much been both protecting the balance sheet with debt pay downs. We paid down a great deal of debt since the merger closed last June. At the same time, we've also returned some capital to shareholders through targeted share repurchases on an opportunistic basis.

Since we announced the $75 million share repurchase program this past September, we bought back about $10 million worth of stock. So again, we think, given our strong balance sheet, our high visibility of continued positive free cash flow generation that we can both protect the balance sheet and repurchase some shares.

However, given the limited visibility in the broader market I discussed earlier, priority 1A, will be protecting the balance sheet. On that note, as you've pointed out, we do have a large cash balance today. We are evaluating options for our debt structure.

We are aware that there have been some tightening attractive market conditions in the financial markets over the last couple of months.

And if we have an opportunity to go out and do something that would benefit the company in terms of simplifying the balance sheet, maybe extending some maturities and all of that can be accomplished on an attractive rate, then I think that's something we're going to be interested in pursuing. So we're actively monitoring our opportunities there.

And if we see something, we're going to try to take advantage of that..

Okay. All right. And I guess just lastly on the debt side.

Is the debt liquid enough for you to buy, like in the open market? Or is it just not really, really trade, the high-cost piece?.

Yes, the 7.75% notes are very thinly traded. We were able to buy back $12 million face value of those notes in November at a slight discount to par. We bought them back at 97.5 so we're really pleased to bring those back in. But to your point, they are fairly thinly traded.

And I think some of the holders are happy to just - to carry them because I think many people view it as just money good..

And we'll take our next question from John Deysher with Pinnacle..

I was just curious, Chris, what is your visibility for calendar 2021 versus '20? I know probably most of the offshore oil and gas budgets of your customers have been set. And I think you alluded to this earlier, but how does 2021 look versus 2020 for the offshore oil and gas market..

If we look at the two most recently reported quarters, our fiscal Q2 and Q3 quarters ended September and December, respectively. I think what we've observed, John, is that the activity seems to have stabilized. Revenues were consistent between the two periods, actually up a little bit, a modest amount sequentially.

So we're seeing some stabilization in the market. For calendar '21, we're really not counting on any broad-based, significant increase above where things are today, which, again, is okay, because we're going to generate a substantial amount of cash flow this year regardless.

Where we start to be more constructive on additional spending from our customer base is in 2022 and beyond. We know there needs to be another spending cycle here because today's level of underinvestment is not sustainable.

It's going to result in higher commodity prices, and that we'll see, we think, more dollars go to work in deepwater projects around the world, and that should benefit our business..

Okay. Great.

Can you remind us as of December 31, what percentage of the business, offshore oil and gas, was contract versus spot? And do you anticipate any contracts rolling off in the next 12 to 18 months that might impact your business?.

I'll let Jennifer comment on the approximate mix of how much is contracted. I would say, in terms of what's coming up, from time to time, we have both new contract opportunities and contracts that are rolling off, but there's nothing that we expect to have a material business.

And obviously, we're focused not just on retaining our existing work, but also on winning the opportunities that are available out there.

But Jennifer, do you want to comment on the contract versus adhoc?.

Sure. I mean, I don't have precise percentages, but there's a couple of markets where our spot - where we have more spot activity than others, Gulf of Mexico being one of those. We do some. It's a low percentage number, especially of the overall revenues around the world today.

Gulf of Mexico and a couple of other places have some spots, but it's not a large part of that overall revenue..

Okay.

So contract might be, what, 80% or 90% of the business overall offshore?.

Yes. That's directionally correct..

Okay.

And you don't anticipate anything rolling off that would materially impact business going forward?.

Not that we're aware of today. We have some shorter-term projects we're supporting. We have others that are scheduled - that may be ending, and we have others that are scheduled to pick up. So there will be some pluses and minuses throughout the course of any year, but we're not looking at any kind of material impact to the business at this time..

And it would appear that there are no further questions on the phone lines at this time..

Great. Thank you, Jordan, and thank you, everyone. Hopefully, everyone continues to remain safe and well, and we look forward to speaking again next quarter. Take care..

And this does conclude today's call. Thank you for your participation. You may now disconnect..