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Presentation

Operator: Good day, everyone, and welcome to the December Quarter 2022. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. It is now my pleasure to turn the call over to Red Tilahun. Please go ahead.

Red Tilahun: Thank you, Nicky. Good morning, everyone, and welcome to Bristow Group’s December quarter and 2022 earnings call. I am joined on the call today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President and Chief Financial Officer, Jennifer Whalen. Before we begin, I’d like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of our investor presentation. You may act to 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 will now turn the call over to our President and CEO. Chris?

Chris Bradshaw: Thank you, Red, 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. The Company once again achieved very good safety performance in the December quarter and calendar 2022. Over the recent quarters, the total number of lost workdays has decreased by more than 50%. I want to thank and commend all of our Bristow team members around the world for their continued dedication to our mission and Bristow’s Target Zero Safety culture. Thank you. Turning now to recent operational highlights. During the fourth quarter, Bristow successfully launched operations on new government contracts to provide search and rescue helicopter services for the Netherlands, and separately for the Dutch Caribbean Coast Guard.

The Netherlands work is a 10-year contract, delivering critical SAR operations, utilizing AW189 helicopters at the Den Helder and Midden-Zeeland Airport on behalf of the Netherlands post park. The Dutch Caribbean work is a 10-year contract, delivering critical SAR operations, utilizing AW139 helicopters in the Dutch and Philly, ranging from Curt Allen in the South to Saint Martin in the North, on behalf of the Dutch Caribbean Coast Guard. We are honored to add these two important mandates to our growing government services systems. In January, Bristow entered into two new equipment financing for an aggregate amount of approximately £140 million. The proceeds from the financing were used to refinance the previous equipment facilities coming due and to support the Company’s obligations under our SAR contract in the U.K. The credit facilities have 13-year terms with repayment due in quarterly installments and they bear interest at a rate equal to SONIA plus 275 basis.

We were pleased to complete these transactions as part of our continued approach to protect Bristow’s strong balance sheet and liquidity position. And we believe the terms of the financing demonstrate Bristow’s industry-leading access to capital. I will now hand it over to our CFO for a review of the quarter’s financial results and updated 2023 guidance. Jennifer?

Jennifer Whalen: Thank you, Chris. As previously announced, we changed our fiscal year-end from March 31 to December 31. Therefore, the discussion today will focus on the fourth quarter of 2022. As a reminder, beginning last quarter, we changed our adjusted EBITDA presentation to exclude foreign currency gains and losses that are reported in other income to present the results of operations of the business more clearly. These foreign exchange gains and losses that are reported in other income are primarily non-cash and relate to balance sheet items. Today, I will begin with an analysis of the sequential quarter comparison of Bristow’s financial results. EBITDA adjusted to exclude special items, asset dispositions and foreign exchange was $36.3 million for the fourth quarter of 2022 compared to $33.9 million in the third quarter or an increase of approximately $2 million.

Operating revenues increased $5 million, primarily due to higher government services revenues due to the commencement of new contracts and higher activity levels in offshore energy. Operating expenses were $3.3 million higher primarily due to subcontractor costs, higher personnel and lease expenses. General and administrative expenses were higher by $0.3 million, primarily due to higher compensation and IT-related costs. As noted previously, other income is primarily comprised of non-cash foreign currency gains and losses, which we have excluded from our adjusted EBITDA calculation. As we announced last quarter, we have initiated guidance for calendar year 2023 14 to 16. As discussed, foreign currency has a significant effect on our financial results.

With the strengthening of the British Pound Sterling relative to the U.S. dollar over the last few months, we’ve increased our financial outlook. We anticipate revenues to be in the range of $1.2 billion to $1.3 billion with adjusted EBITDA, excluding asset dispositions and foreign exchange of $150 million to $170 million when using an average British Pound to U.S. dollar exchange rate of 1.22. We also increased our 2023 CapEx outlook due to an acceleration of previously announced U.K. SAR 2G spend to ensure successful contract execution and transition. Note that this is a change in timing of cash flows, the total CapEx spend related to SAR 2G is not expected to change. Finally, Bristow continues to benefit from a strong balance sheet and liquidity position.

As of December 31, our available liquidity was $240 million after cash outflows of $32 million for the purchase of aircraft and $24 million related to the PBH buying. As we have stated before, we still believe that this business model will continue to generate strong cash flows. At this time, I’ll turn the call back to Chris for further remarks. Chris?

Chris Bradshaw: Thank you, Jennifer. I will now provide some additional highlights on the outlook for Bristow’s business. Our leading government services business has continued to grow and now includes SAR services in the U.K., the Falkland Islands with the Netherlands, the Dutch Caribbean region. 2023 will see the benefit of a full year contribution from each of these contracts. These attractive long-term contracts provide a stable and robust cash flow foundation for the Company. In addition, we are currently involved in other active tender processes for government contracts, and we believe Bristow is well positioned to continue the growth of our government services system. The offshore energy services market is in the early innings of a multiyear growth cycle.

We have once again included slides in our earnings presentation that summarize data from third-party analysts supporting the outlook for a significant increase in upstream oil and gas spending over the next few years and a tightening market for offshore helicopter. As noted on Slide 12, Barclays Research expects offshore spending to increase by 24% in 2023, following a 12% increase in ’22. They expect this multiyear growth cycle to continue in 2024 and ’25. On the next slide, we show current data on the offshore helicopter market from Steve Robertson who does a tremendous job covering the industry at his firm, Air & Sea Analytics. The increasing activity in offshore energy is driving a very constructive supply and demand balance for offshore helicopter.

At this time last year, we expected that the market for AW139 medium helicopters as well as the market for super medium helicopters, both the AW189 and H175 models would be very tight. And we expected that placing idle S-92 heavy helicopter back work on new contracts would be the best way to meet increased demand. Due to supply chain challenges that have delayed parts and repairs for the S-92 helicopters therefore, eliminate the number that are serviceable today. The overall market has tightened even more quickly than expected. As you can see in utilization start, there is very little available capacity in the market now. This tightness in the equipment market, combined with the constrained global labor force is resulting in significant net increases in leading-edge rates.

We expect that the improvement in Bristow’s financial results in 2023 will be back-end weighted to the second half of the year. As you will recall, the first quarter of the calendar year is traditionally our weakest quarter due to seasonality as shorter daylight hours and implement weather adversely impacts operations. In addition to that typical seasonal pattern, first part of the year will see more idle aircraft, we concluded a large contract in Guyana at year-end. We are in the process of transitioning and reconfiguring those and other aircraft for new contracts that have been won on attractive terms in places like the U.S. Gulf of Mexico, Brazil and the North Sea. Those contracts are scheduled to begin later this year, which supports our view that the EBITDA run rate at year-end will be significantly higher than the first half of this year.

In summary, we are very encouraged by the improved fundamentals and outlook for Bristow’s business in 2023. While the strong U.S. dollar is somewhat masking the full magnitude of this improvement, we are confident that increasing offshore energy activity a growing government services business and a recovering fixed wing business will drive robust cash flow generation going forward. With that, let’s open the line for questions.

Operator: We’ll take our first question from Chris Lee with Evercore ISI. Please go ahead. Your line is open.

Chris Lee: This is Chris Lee from Evercore ISI filling in for James Wise. I have a couple of quick questions here. So my first question is, given all the discussion around the multiyear growth cycle in Offshore Energy Services, what is the timing and the ramp-up of revenues for Bristow?

Chris Bradshaw: Chris, thanks for the question. So, we have already entered into new contracts that have been won and secured by Bristow. A number of them are scheduled to start throughout the course of this year. Some of them being back-end weighted. For example, in Brazil, we’ve been successful in recent tender rounds with Petrobras in securing a number of new contracts for AW139 helicopters. They are scheduled to start in the second half of this year. We’re currently in the process of preparing those aircraft for their desired configuration and then transitioning them down to Brazil. Also, as we announced towards the end of last year, we were successful in winning a new large contract to provide search and rescue services to Equinor for the southern part of Norway that contract begins in September of this year.

We’re also currently in the process of ramping up for additional contract support in Nigeria as well as the U.S. Gulf of Mexico. So throughout the course of this calendar year, we’re going to continue to see better utilization of the fleet, driving higher revenues and stronger cash flows out of our offshore services.

Chris Lee: Got you. My follow-up question is. You mentioned the tightening in the equipment market, combined with the constrained global labor force, is kind of like resulting in significant net increases in leading edge rates. But what about the Company costs that are also increasing, specifically in the labor and like supply chain perspective? And what does this mean for Bristow as bottom line?

Chris Bradshaw: Yes. So, we are seeing some inflationary pressures in our cost structure. You referenced labor. That’s something that, obviously, we always have to be mindful of. It’s important for us to maintain a competitive compensation and benefit structure. We do have fairly good visibility on that because a number of our workforces around the globe are unionized. And so we have, in some cases, multiyear union agreements. So, we do have some visibility on what those amounts are. Supply chain is another area which fortunately with our long-term power by the hour or PBH support agreement. We do have some visibility and security of what that cost structure will be. It’s definitely the case that the rate increases we’re seeing are net increases, so well above the inflationary costs that we’re experiencing. And that’s, again, driven by the tight supply and balance in the market.

Chris Lee: Got you. Okay. So one more question is, if that’s okay. From my understanding, you’re currently doing a small bit of offshore wind work in Europe. Do you see the growth potential here in the U.S. or anywhere in the world? And what would need to happen in the offshore wind industry space for it to be viable and lucrative space for Bristow and the overall offshore helicopter industry?

Chris Bradshaw: You’re correct that we are supporting on a small-scale offshore wind activity in the U.K. today. Overall, we believe that the offshore wind industry will be an important and growing component of the energy transition that’s taking place globally. It’s already a fairly mature market in Northwest Europe and parts of Asia. It’s really a nascent market here in the U.S. However, there have been a handful of large projects that have been approved to proceed in future years here in the United States. There are others that are in the pipeline for evaluation up to a final investment decision. So again, we think that market overall will grow. I think the question is how much of a role that will be for offshore helicopters to support the industry and what the opportunity will be for Bristow there.

Again, if we look to Northwest Europe, which is already a more mature market, there are currently a number of smaller helicopter companies who specialize in that segment. And so we can look to them and evaluate what they’re doing and also consider that as an opportunity to enter the market. Here in the U.S., just to underscore where we are in the evolution of the industry, as of now, there’s no — there are no offshore helicopters supporting offshore wind in the U.S. because the projects aren’t there yet. But we do believe there will be coming. So, overall, it will be a growing market. I think there’s an open question as to how much that will lead to offshore helicopter demand. And then specifically for Bristow, we obviously are going to evaluate it and need to determine in conversations with customers — potential customers whether the rates and financial returns are enough to meet our expectations return thresholds.

Operator: We will take our next question from Josh Sullivan with Benchmark Company. Please go ahead.

Josh Sullivan: Can you just expand on need to accelerate CapEx as it relates to the new U.K. government SAR contract? And then what you mean by contract execution risk?

Chris Bradshaw: Sure. Happy to address that. First thing we’ll state is that the aggregate amount of CapEx needed for that contract has not changed. It’s the same. We have pulled forward the timing of the capital expenditure. Looking at the time line to start up of the contracts, we saw an opportunity to bring the aircraft in earlier, which will give us better assurance that we’ll be able to complete the modifications and final configuration in time to ensure the successful startup on time for that important case SAR 2G contract. So really, what it is, is, again, no change in the aggregate amount of capital, a pull forward on timing and an enhancement of the assurance that we’ll be able to start on time successfully.

Josh Sullivan: Got it. And then as far as the recent structural change announcement and the addition of two COOs, I think, in order to increase scale and drive growth in government services. How is that going to drive new opportunities I think the Irish SAR tenders coming up, but outside of that, what other opportunities should we be thinking about as it relates to that structural change?

Chris Bradshaw: Sure. Thank you for the question. One thing I want to clarify upfront is that, this is really a realignment of the existing team. So, not a change in overall spend or G&A, but realigning the existing team around the core end markets of government services and offshore services. I think what it will allow us to do is to get closer to our customers in each one of those key markets and hopefully be able to adapt and address their needs in a better way in a timely fashion. Specific to government services, one of the things that’s really drove the internal management realignment there is that our government services has increased significantly in scale and complexity now operating in a number of different jurisdictions.

So, we think the focus is warranted. I think it will better allow us to pursue the additional opportunities that you mentioned by having that type of focus of the team. Irish Coast Guard is an opportunity that we’re actively participating in today. While we don’t know the exact date, the expectation is that the winner of that important and sizable new contract will be announced sometime over the next few months, by this summer. We believe we’re well positioned there, but obviously not taking anything for granted. Beyond that, we are participating currently in a couple of smaller government services, tender processes in Europe. And then looking further down the line, we believe there may be additional nationwide search and rescue support opportunities in places like Norway and Australia.

But again, those time lines are not yet set. But we think that the opportunity portfolio in the government services realm will continue to grow.

Josh Sullivan: And then the chart you have in there for the helicopter utilization for 2022. It looks like you still have about 10 that are not on lease yet. What’s the strategy for those off-lease aircraft? Are you waiting for better pricing? Are they part of the use of the current growth plan?

Chris Bradshaw: So, we do have some orders, some of which are flexible to bring new aircraft into the Company. In terms of what’s firm right now, we have orders out for six new AW139, so our configured helicopters that will become part of the U.K. SAR 2G fleet. We also have the ability to bring in more AW189 helicopters if we need them for either SAR opportunities or offshore energy services opportunity. So that’s specific to the Bristow fleet. In terms of the market data that was presented on Slide 13 of the presentation, that comes from Steve Robertson at Air & Sea Analytics. This is looking at the entire global fleet of offshore configured helicopters. Some of the data, specifically that for AW139 and then the super medium aircraft, the 189 and the H175 will look very similar to where it was kind of middle of calendar 2022.

The bigger change on this graph, which again is the whole industry, is really on that S-92 line, where you’ve seen a significant increase in the effective utilization. That’s reflective of the tight equipment markets that we discussed earlier. And really, again, an input into what is certainly a meaningful increase in leading-edge rates for the industry.

Josh Sullivan: Got it. And then maybe one on the fixed wing operations. Where are you in the fleet upgrades? Any market dynamics on the demand side you can reveal for us?

Chris Bradshaw: Yes. In Australia, we’re still working through that. We’re looking at bringing in some additional lease new 190s for the Air North business. Those market opportunities really dissolved with the lessor. So, we’re going to keep some 170s for a little bit longer than we expected. We actually purchased two of those E170s last year to facilitate the time line we’re going to need to complete the transition. Overall, I think we are still looking to bring in the larger aircraft on attractive terms moving forward, but it’s going to take a little more time to complete the transition from the E170 to E190s in the Air North business.

Operator: We’ll take our next question from Steve Silver with Argus Research. Please go ahead.

Steve Silver: I noticed in your presentation, you guys included a net asset value slide and it suggests that the shares are currently trading at a significant discount. Just broadly speaking, I was just curious how you guys view the current value of the stock and to what you might attribute the current disconnect to NAV.

Chris Bradshaw: Steve. Thanks for the question. For our long-standing practice, we did publish our annual NAV disclosure this year. Again, a little bit of background on how this is derived. So once a year, we receive a third-party appraisal for all of the owned helicopters and aircraft that we have in the fleet. That’s what’s reflected in the $1.325 billion of aircraft value is that third-party appraised value. We then take the net book value of the other assets in the Company, less the liabilities to get to the aggregate net asset value, which is again that $1.3 billion number, which translates on a per share number to roughly $48 per share NAV today, again, based upon the third-party appraisals for the fleet that obviously is a significant difference, the current share price trading at a substantial discount to that.

I would note that as we sold aircraft over time, including over the last couple of years, as you’ll see in our current financial disclosures, they tend to be much closer to the amounts we’re carrying them on the balance sheet with relatively small gains and losses on a net basis recognized over the last few periods as you’ve seen in our 10-K. In terms of the question or the aspect of the question and how we think about the fleet value, really referencing back to that discussion that we had on the current fleet utilization for the newer generation, most in-demand helicopters today, which are those AW139 medium, the super medium and then the S-92s, given the tightness in the equipment market, we are seeing a constructive trend in terms of secondary values for those helicopters, a number of them being in such short supply that helps support values in the market.

Steve Silver: Great. That’s helpful. And you guys have mentioned the accelerated near-term CapEx expenses. Can you discuss just whether the recent debt financing you guys just did play any role in Bristow’s capacity to move those expenses forward?

Chris Bradshaw: Happy to address that. So we have the ability to fund all of our U.K. SAR 2G capital needs with the existing resources that we had, both the cash already on the balance sheet as well as cash that we expect to generate over the coming months and years. However, in order to optimize the capital structure, we did take an opportunity to slightly upsize the equipment financing facilities. So there’s roughly an incremental after refinancing and paying transaction fees roughly an incremental £30 million that we brought into the Company in January when we completed that financing. Again, that’s more of just looking at an optimal capital structure. We’re confident we know we have the ability to finance the needs to support the U.K. SAR 2G and look forward to starting up what is really an attractive long-term contract that will see us continue to provide this important service to the people of the United Kingdom well into the middle of the next decade.

Operator: And that concludes our call. I will now turn the call over to Chris for closing remarks.

Chris Bradshaw: Thank you, Nicky, and thanks, everyone, for joining the call. As you can see, we have a very optimistic outlook for Bristow’s business. The fundamentals have improved significantly. We’re seeing that across our government services business, which has been growing. We’re also seeing that as a much more productive market for the offshore energy business, which has really better fundamentals than we’ve seen certainly in the last eight years. So a lot of reason for optimism for improved results for the Company as we move through the course of 2023 and beyond. I appreciate your participation and look forward to speaking again next quarter. Thank you.

Operator: And this does conclude today’s program. Thank you for your participation. You may disconnect at any time.