Bristow Group, Inc.

Good day, everyone, and welcome to Bristow Group Reports third quarter 2024 earnings call. Today's call is being recorded. After the speaker's 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 the number five on your telephone keypad. At this time, I would like to turn the call over to Red Tillohan, Senior Manager of Investor Relations and Financial Reporting.

Thank you, Robbie. Good morning, everyone, and welcome to Bristow Group's third quarter of 2024 earnings call. I'm 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 risk and uncertainties, that are described in more detail on slide three of our investor presentation. You may access the 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 the investor presentation. I'll now turn the call over to our President and CEO.

Chris? Thank you, Red. And thanks, everyone, for joining the call on an otherwise slow news day. I want to thank all the Bristow team members around the world for their continued focus on safety, which resulted in very good performance in the third quarter. As always, safety remains Bristow's number one core value and our highest operational priority. In conjunction with the company's strong Q3 financial results, we are pleased to raise Bristow's adjusted EBITDA guidance for full year 2024 to $220 to $230 million. Positive demand trends, coupled with a tight supply of offshore helicopters, support good visibility for significant improvements in the company's margins, free cash flow, and capital returns. I will now hand it over to our CFO for a more detailed review of Q3 results. Jennifer?

Thank you, Chris. Today, I will begin with a sequential quarter comparison of Bristow's financial results. EBITDA adjusted to exclude special items asset dispositions, and foreign exchange, with 60.2 million for the third quarter of 2024, compared to 71.3 million in the preceding quarter. Operating revenues increased 3.9 million, primarily due to higher utilization and favorable foreign exchange rate impacts in government services and fixed-wing services, partially offset by lower utilization in America's offshore energy services and the absence of a one-time benefit in the preceding quarter related to a change in accounting treatment for lease revenues received from Cougar. Operating expenses were $16.3 million higher in the current quarter due to higher operating personnel costs, repairs and maintenance, and other operating expenses. The increase in operating personnel costs were related to the finalization of a labor agreement in the UK during the current quarter. the absence of seasonal personnel cost variations in Norway, a one-time benefit related to an adjustment for tax equalization in Suriname, and insurance reserve adjustments recognized in the preceding quarter, which were previously noted in our last earnings call. Excluding the impact of seasonal and non-recurring items, operating personnel costs would have otherwise been 3 million higher in the current quarter and largely related to increased headcount and support of new contracts. General and administrative expenses were 2 million lower, primarily due to lower professional service fees. As noted in previous earnings calls, the other income and expense line item is primarily comprised of non-cash foreign currency gains and losses, which we exclude from our adjusted EBITDA calculation. Those supply chain challenges continue to impact us. A review of our third quarter's results and 2024 forecast demonstrate signs of continuing strengthening of our business. As such, we have raised our 2024 adjusted EBITDA guidance to 220 to 230 million. The primary drivers that continue to support our positive outlook and increased guidance include increased utilization and rates in Africa, This region has performed better than expected over the course of this year and is expected to maintain its strong performance through the rest of 2024 and into 2025. Higher ad hoc activity in our Americas and UK OES business, though this is expected to reduce in the remainder of the year, and higher yields in our scheduled passenger transport and a short-term increase in charter activity in our fixed-wing business. Turning now to cash flows. Our operating cash flows were $66 million on positive working capital in the current quarter compared to $34 million in the preceding quarter, illustrating a 96% increase. We have now funded 60% of the capital investments needed for our UK and Irish Coast Guard contracts. The remaining capital investment is expected to largely conclude in the next two quarters. Finally, Bristow continues to benefit from a strong balance sheet and liquidity position. As of September 30th, our available liquidity was $260 million, and we believe that our business model will continue to generate strong cash flows. At this time, I'll turn the call back to Chris for further remarks. Chris?

Thank you. As Jennifer noted, Bristow's business is performing well today. and we expect the company's growth to accelerate over the next two years. The investments we are making to grow and diversify our leading government services business will result in attractive long-term cash flow yields for the company well into the middle of the next decade. In offshore energy services, the industry fundamentals remain positive, and we continue to believe that we are in the midst of a multi-year upcycle. This is coupled with a tight supply dynamic with limited new helicopter additions over the last eight years and long lead times for new builds. The current effective utilization for the most relevant heavy and super medium helicopter models is at or near 100%. As indicated by the company's guidance metrics, we expect to generate positive net cash flows in the latter half of 2025 and beyond. Bristow has a disciplined and focused capital allocation approach that will prioritize the protection of our strong balance sheet, allow for attractive organic investments, like the ones driving our increased financial guidance, and facilitate the return of capital to shareholders. With that, let's open the line for questions. Robbie?

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 the number five once again. We'll pause for just a moment to compile the Q&A roster. All right. The first question is from Chris Lee from Evacor. Your line is now open.

Hi, team. Thank you for taking my questions. I guess my first question is, I was just kind of curious to know if you could elaborate on the factors behind the recent decrease in utilization within the Americas region. Additionally, as you raise your 2024 adjusted EBITDA guidance, can you provide insights into your underlying assumptions for the Americas specifically and discuss how you expect utilization to trend in the region through the remainder of the year and into 2025?

Good morning, Chris. I'm glad you could join us. As I noted in my prepared remarks, there are really two primary drivers for the utilization and lower utilization in the Americas in Q3. Really, first is the change in accounting for Cougar. If you recall, last quarter, we changed from a cash basis of accounting to accrual basis accounting, which had a benefit in that quarter that didn't recur. Now, that should be fairly stable going forward. And also, there was a project in Suriname that completed over the last quarter that also contributed to the lower utilization.

In terms of outlook, we remain positive on utilization and growth potential in our Americas business. The performance of that business for us this year has been consistent with our internal expectations. As we look throughout the region, there are positive demand signals certainly in Suriname, which Jennifer mentioned, which is an area that's a young basin, but it's had extremely promising exploration finds. And we'll be transitioning to a development and production mode here, along with additional exploration going forward. So good demand for helicopters expected in that region of the world. Also, Brazil is an area that we expect to grow as fast or faster than any other offshore basin in the world, with a number of drilling rigs that are coming into the market, as well as the number of SPSOs that are expected to be installed in Brazil over the next few years. And even in the more mature markets in the region, such as Trinidad and the U.S., Gulf of Mexico, we have positive demand signals from our customers. So we remain very optimistic about the utilization and outlook for our America's business the rest of this year, 2025 and beyond.

Really appreciate the color. I think my follow-up question is, I know that you touched on the offering expenses, Jennifer. The increase of $16 million this quarter, it seems like there's other key factors at play as well. So I was kind of wondering if you could break down the remaining components of this expense increase and kind of provide the guidance on how we should think about these costs as we move forward.

Sure. So outside of the personnel cost, which we talked about, which is about $13 million of the $16 million increase in operating expenses, the other two drivers are repairs and maintenance and our other expense. Repairs and maintenance will fluctuate with flight hours and the type of flight hour. Not every flight hour is created equal as it relates to which aircraft are flying. Also, there is part of the variation is timing of repairs for some of our aircraft that don't fall under power by the hour agreement. So that can vary from cycles from when we're doing major repairs. On the other expense side, that really is related to new contracts. We have new contracts starting for our search and rescue business particularly. So as we put on new contracts, that other cost will also increase.

Perfect. I'll return it back to the queue. Thank you. Yeah.

The next question is from Josh Sullivan from the Benchmark Company. Your line is now open.

Hey, good morning. Morning, Josh. Congratulations on the quarter here, especially in the face of the slow news day. But just, you know, given the momentum here, And, you know, the raise last quarter, this quarter on 24, you know, as that plays out, what are the current thoughts on 25? You know, anything to infer on maintaining the 25 outlook here?

Sure. Thank you for the question. As a reminder, we did increase the 2025 guidance last quarter, and that really was to reflect, you know, some of the things that we were seeing in 24 guidance. 25 will be a year where we are still operationalizing the Irish Coast Guard and the UK SAR 2G contracts while continuing to perform on the offshore energy side of the business. And that year really will then transition into 2026 where you see the more significant increase in adjusted EBITDA as those contracts are fully operationalized.

Got it. And then you have something like $125 million to go on your new government contract capex here. Is that feasible to do in two quarters? Is there capacity to execute on that?

I mean, the short answer is yes. These aircraft deliveries are really – it's primarily aircraft deliveries, and it's for these two contracts I had mentioned, UK's R2G and the Irish Coast Guard, which the contracts are – beginning to start. So we will take delivery of those and get those ready and get fine.

And then just one on the labor settlement in the UK, you know, what did that entail? Any long-term implications there?

We've been in extended negotiations with our air crews in the United Kingdom. going back some time. In Q3, we were pleased to finalize and announce a new agreement, new collective bargaining agreement with that workforce, the pilots and tech crews in the UK. As part of finalizing that agreement, we did recognize some back pay, so some pay related to prior periods, including prior years, to catch up. So there was a back pay amount that is one time. That's why you see the larger impact and call out that we noted in Q3 results. But moving forward, we now have a multi-year agreement with that portion of our workforce and pleased to have an agreement that we think works for both our employee base as well as the company. Got it.

And then Lockheed made some changes on the S92 gearbox lifecycle. How has that helped with capacity and any other increase in availability of parts from the supply chain in the future that you see coming?

Yes, the extension that you noted is helpful, and we're pleased to see that development. It will allow – it will facilitate the return of some of our S92s to service over the coming quarters. So, again, pleased about that. On the other side of the coin, unfortunately, there are other components for which we're still seeing significant delays in both delivery and or repairs, which is causing still a number of S-92 airframes to remain idle on the ground. So hopefully, continued progress can be made on those components as well.

And then just one last one, just on, you know, as far as election implications? I mean, do you think or do you believe that any, you know, increased availability of or reduced regulation is going to increase activity for any of your customers in the near or short term?

First of all, I'd like to share my congratulatory sentiments with all those who were elected to public office yesterday. From a business standpoint, we will actively monitor any changes in policy and or other tangible developments that might have an impact on our business. I would remind everyone that while we are a U.S.-based company with 15% of our revenues generated in the U.S., we do earn 85% of our revenues from other countries. So we are a multinational company with multinational considerations that include foreign exchange rates, also a complicated supply chain, so any changes in a tariff or trade regime that might Impact the supply chain are also developments that we will monitor. Specifically here to the U.S. and the Gulf of Mexico, supply chain problems, which we spoke about in the prior question, have been our biggest challenge. Related to your question about the MGB for the S92, we're pleased to share the news that we do have an idle S92 that's been unserviceable for some time here in the U.S., waiting parts, that we are in the process of returning to service. at the beginning of the year. So that will be a positive benefit for the company in 2025 for our U.S. business. But, again, from a global perspective, the business is performing well. We had a very positive outlook for Bristow's business yesterday, and we have a very positive outlook for Bristow's business today.

Great. Thank you.

Thank you. Once again, if you have a question, you may press star 5 on your telephone keypad. The next question is from Steve Silver from Argus. Please go ahead.

Thanks, Operator, and congratulations to the team on the increased guidance. With the new star contract investments being 60% funded at this point and most of the balance expected to be funded over the next couple of quarters, I was hoping you could provide some color on how that funding is going to change take shape, whether it's expected to come from the company's free cash flow or from additional debt, and what impact that might have on near-term liquidity and leverage.

Sure. Good to hear from you. So, we announced very early this year that we had upsized our facility that we have for our UK SAR operations, and really that was to help fund the UK SAR 2G part of And then mid-year, we announced this new facility for the Irish Coast Guard contract at very favorable rates that we were able to achieve based on that contract. And again, that's going to help fund the Irish Coast Guard contract. So that will be primarily how we fund the rest of that, how we have been funding the SCAPEX and how we will continue to fund it. So it will, you know, increase the leverage some. over the next couple of quarters, and then we expect that to then level out. We won't have the significant capex anymore, and the financing will be in place.

Great. Thanks for that. And one more, I guess, on a related follow-up. Given the fact that this investment phase is almost behind you and these contracts are on their way to becoming fully implemented, is there any update in your thinking about the capital allocation strategy as you start to look a little further out down the road?

Thank you for the question, Steve. No material changes to our capital allocation strategy. strategy, although I think it is a good opportunity to reemphasize how we do think about our capital allocation framework. So, number one, we're going to be in a position to generate positive net cash flows in the latter half of 2025 and beyond, as you just referenced and Jennifer commented on once we finish the funding of these large government projects. So, we're going to continue to prioritize the protection of our strong balance sheet. We do have still a lot of exposure to the oil and gas markets, which can be volatile. We want to make sure that we have a balance sheet which is strong enough to withstand any and all market conditions. Number two, we want to make sure that we have the flexibility to fund organic growth opportunities like the ones that are driving the significant increases in the financial guidance that we've provided. And then third, While doing all of that, we do believe that the company will be in a position to return capital to shareholders, and we're evaluating whether that might include opportunistic share repurchases and or a potential dividend strategy. We expect, as we get into next year, again, and complete the funding of these big government contracts, which should largely be concluded in Q1 of 2025, that at that time we'll be in a position to further crystallize that capital allocation approach.

Great. Thank you so much for the extra color. Thank you.

There are no further questions in the queue. I will now turn the call back over to Christopher Bradshaw for closing remarks.

Thank you, Robbie, and thanks again, everyone, for joining the call, especially with everything else going on today. We appreciate your interest in Bristow. In the meantime, I hope everyone stays safe and well. Take care.

This concludes today's call. You may now disconnect at any time.