Bristow Group Inc
NYSE:VTOL
Earnings Call Analysis
Q4-2023 Analysis
Bristow Group Inc
Bristow has navigated through a challenging phase, with their adjusted EBITDA in the latter half of 2023 reaching $102.6 million, outpacing the first half’s $67.9 million. In the fourth quarter alone, however, earnings have slightly tapered off to $46 million from $56.6 million in the previous quarter due to lower utilization in some services and increased operating expenses. Despite this, the company reported a strong full-year result of $171 million EBITDA, which comfortably sits within their upwardly revised guidance range of $165 million to $175 million.
Bristow has reinforced its positive outlook for 2024, projecting a 20% increase in EBITDA over 2023, targeting between $190 million and $220 million. This growth expectation stems from new projects in Brazil, Norway, and the Gulf of Mexico, as well as from achieving improved contract rates and expecting an uptick in flight hours.
Bristow plans to fortify its fleet and services through considerable capital investments, such as a $300 million investment relating to contracts with the U.K. and Irish Coast Guard, anticipated mainly in 2024. This expansion includes integrating 11 new helicopters to support long-term contracts and acquiring 10 AW189 helicopters for delivery between 2025 and 2028, pointing to a strategic horizon beyond immediate fiscal cycles.
The Irish Coast Guard contract, set to commence this October with a full transition by mid-2025, promises to be a significant contributor to Bristow's financials, with the second half of 2025 anticipated to demonstrate the full financial benefit of the contract.
Operational hurdles include persistent delays in the supply chain, particularly for parts and repairs of the S-92 helicopters, that are expected to extend at least until the end of the current calendar year. Bristow is mitigating these issues to maintain their service levels despite the industry-wide challenge.
Bristow is positioning itself in the emerging Advanced Air Mobility market through strategic partnerships and technological innovation. They aim to leverage their expertise in vertical flight solutions to serve new applications and customer demands, reinforcing their commitment to being a leader in the aviation industry well into the future.
The company is actively discussing additional financing to support their ventures, capitalizing on their standing with banks that recognize the credit quality of government services Bristow provides. Updates on these financing arrangements will be made public upon their finalization.
A recent accident involving one of Bristow's crewed helicopters resulted in the loss of a life – a tragic event for the company and those affected. While Bristow's priority is supporting the families and team members involved, they disclose that the accident does not have a material financial impact on the company.
As part of its strategic planning, Bristow is emphasizing the operational efficiency offered by aircraft such as the AW189 helicopters. These aircraft are presented as cost-effective alternatives for servicing traditional heavy missions, providing a more compelling price point with lower operational costs and environmental impact due to reduced fuel consumption.
Bristow’s leadership believes the stock price does not fully reflect the company’s net asset value, indicating they consider the current market valuation a compelling entry point for investors.
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Good day, everyone, and welcome to Bristow Group Reports Fourth Quarter and Full Year 2023 Earnings Conference Call. Today's call is being recorded. [Operator Instructions].At this time, I would like to turn the call over to Red Tilahun, Senior Manager of Investor Relations and Financial Reporting.
Thank you, Daniel. Good morning, everyone, and welcome to Bristow Group's Fourth Quarter and Full Year 2023 Earnings Conference 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 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 our earnings release and our investor presentation. I will now turn the call over to our President and CEO. Chris?
Thank you, Red. On February 28, one of Bristow's Search and Rescue helicopters, registration LN-OIJ with 6 crew members on board was involved in an accident giving a SAR training exercise approximately 15 nautical miles west of Bergen, Norway. On behalf of all Bristow team members around the world, I extend our heartfelt condolences to the family and friends of our dear colleague whose life was lost at the tragic accident.This is a deeply sad and difficult time, and we will carry this loss with us always. We are relieved to share that the other 5 core members have now either been released in the hospital or remain in stable conditions at the hospital. Our highest priority, we take care of our crew and their family members to provide them with any assistance needed. Bristow is fully cooperating with authorities investigating the accident and we will provide future updates as appropriate. Looking back on 2023, I want to thank and commend the Bristow team for delivering many successful outcomes last year. We continue to progress our strategic goal to grow and diversify our leading Government Services business with the successful award of the EUR 670 million Irish Coast Guard contract, building upon the recent addition of key government contracts in the United Kingdom, Dutch Caribbean, the Netherlands, and the Falkland Islands. In our Offshore Energy Services business, the second half of 2023 marks the positive inflection point beginning what we believe will be a multiyear growth cycle. With the largest global fleet of offshore helicopters and a significant presence in key regions, Bristow expects to be a primary beneficiary of this extended growth cycle in Offshore Energy. I will now hand it over to our CFO for a review of financial results. Jennifer?
Thank you, Chris. 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 $46 million for the fourth quarter of 2023 compared to $56.6 million in the third quarter for a total of $102.6 million in the second half of 2023 compared to $67.9 million in the first half, consistent with our outlook for the second half of 2023 would mark the positive inflection point for Bristow's financial results. Operating revenues were lower by $0.7 million, primarily due to lower utilization in government services and our Fixed Wing business, partially offset by increases in offshore energy services due to a new contract in Norway and increased utilization in Africa. Operating expenses were $8.8 million higher in the current quarter, primarily due to higher fuel, lease and equipment, repairs and maintenance, and personnel costs. General and administrative expenses were $2.1 million lower primarily due to lower compensation costs. Earnings from unconsolidated affiliates were $2.6 million lower due to seasonality at Cougar. As noted in previous earnings calls, the other income line item is primarily comprised of noncash foreign currency gains and losses, which we've excluded from our adjusted EBITDA acquisition. In our third quarter earnings announcement, we raised our 2023 adjusted EBITDA guidance from $150 million to $170 million to $165 million to $175 million, and we are pleased to announce full-year 2023 results of $171 million or just over the midpoint of our increased guidance and over the high end of our original guidance for 2023. Based on the results from Q4 and full-year 2023, we reaffirm Bristow's 2024 financial outlook with an EBITDA range of $190 million to $220 million. The midpoint for adjusted EBITDA for 2024 is 20% higher than 2023, which would represent the second consecutive year of more than 20% EBITDA growth. This increase is primarily driven by the expected growth in our Offshore Energy line of service. In 2023, we started new projects in Brazil, Norway, and the Gulf of Mexico with the full-year EBITDA impact of those reflected in 2024. In addition, we have been successful in achieving more favorable rates compared to our expiring contracts, and we expect to benefit from higher flight hours from short-term exploration campaign. Further details are available on Slides 11 and 12 of the presentation. Finally, Bristow continues to benefit from a strong balance sheet and liquidity position. As of December 31, our available liquidity was $251 million. As we have noted in our earnings presentation in prior calls, we have a capital investment of approximately $300 million related to the successful award of contracts with the U.K. and Irish Coast Guard. Much of this capital investment is expected to happen in 2024 as we will be adding 11 new helicopters to our fleet. Our search and rescue contracts are long-term in nature, typically 10 years with attractive returns. So once we're through with the investment period, we have long-term cash yield as noted on Slide 14 of our presentation. We plan to fund this investment with cash on hand, operating cash flows, the recently announced upside on our NatWest facility, other potential financing, and/or aircraft leasing. Due to the nature of these long-term cash-generative contracts, we have access to competitive financing and sufficient flexibility on how we structure it. In addition, last week, we announced the purchase of 10 AW189 helicopters to be delivered between 2025 and 2028. As of now, we plan to fund these purchases with operating cash flows but could end up financing or leasing them if there are other uses of capital over time. As we've stated before, we 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?
Thank you. As Jennifer noted, 2024 is expected to be an important year for Bristow's business. In our government services line, we are scheduled to launch operations for the Irish Coast Guard from our first base in Ireland as well as commence the transition of operations to the new SAR2G contract in the United Kingdom, both in the fourth quarter of this year. Those are large contract transition projects with extended transition timeline running through mid-2025 in Ireland and through the end of 2026 for UKSAR2G. In our Offshore Energy Services business, we[Audio Gap]for a robust and long-duration upcycle. We expect aircraft utilization and rates to continue to increase, which will drive significant improvements in cash flow generation in 2024 and beyond. In order to capitalize on these opportunities and meet customer demand, we recently announced a strategic fleet upgrade with orders for 10 AW189 helicopters plus options for an additional 10 AW189. The AW189 is a leading super medium helicopter offering reliable and safe, long-range, high-capacity performance while allowing for lower operating costs than traditional heavy helicopters. These new aircraft will offer added flexibility as well as superior operational and environmental performance, including lower CO2 emissions and comparable aircraft types. Bristow currently operates 21 AW189 helicopters globally in both offshore crew transport as well as search and rescue missions with an additional 5 already scheduled for delivery [indiscernible].As we have discussed in recent earnings calls, the supply and demand balance for offshore configured, heavy, and super medium helicopters has become quite tight with limited available capacity. There are roughly 200 offshore configured S-92 helicopters in the market today, partly due to a number of these airframes being unserviceable as they await critical parts due to persistent supply chain challenges, the global S-92 fleet is at or near full effective utilization levels. Amongst the current super media model helicopters, there are roughly AW189 and H175 models in the offshore market today. Both of these models are at or near full effective utilization levels as well. With current manufacturing lead times for the AW189 at approximately 24 months, the ability to bring in new capacity is constrained. Bristow's new framework agreement for AW189 represents a flexible solution to meet customer demand for fleet transition and fleet expansion needs, while driving robust EBITDA growth at attractive return for Bristow stakeholders. With that, let's open the line for questions. Daniel?
[Operator Instructions]. The first question is from Josh Sullivan from The Benchmark Company.
As far as the Irish Star contract, what does that transition look like?
We are honored and excited to be starting up the Irish Coast Guard contract. The first phase is scheduled to come online beginning this October. There is a transition period that carries through mid-2025. So through next summer to start up all 4 of the operating bases there for the Irish Coast Guard operated by Bristow.
So we should expect around Q2 '25 to see the full financial impact. Is that right?
Not quite full impact in Q2. The final startup would really be in mid-2025, so late Q2, early Q3. But certainly, in the second half of next year, second half of 2025 would be indicative of the full run rate benefit of the Irish Coast Guard contract.
Okay. And then just with tight MRO markets globally, can you comment just on the availability of parts and service? How does it look for the S-92 opportunities?
The helicopter industry as a whole continues to be challenged by supply chain issues. That is many of the models. A lot of the critical components, for example, windshields, maybe common parts across different helicopter models. But as you referenced, Josh, to date, it's really the supply chain situation, which has been a persistent one for the S-92 over the last couple of years, which is the most acute challenge, and we are still seeing very extended delays in the delivery of parts and repairs for the S-92. And we expect, based upon the latest information that's available to us that those delays will continue at least through the end of this calendar year. So that continues to be a challenge, which has impacted the industry as a whole.
And then maybe just switching over to the AAM market. We are getting closer to some certification of some of these products. Can you update us just on your strategy at this point? And then maybe any comments?
Yes. Happy to do that, and thank you for the question. Advanced Air Mobility is developing new industry that Bristow started looking at really about 5 years ago, understanding what we thought the technologies could be, what the potential mission applications could be, whether there's a role for Bristow to play in that new supply chain. And then beginning really about 3 years ago in earnest started furthering some partnerships with what we believe are some of the leading companies developing those new products. We did some diligence and research to determine the teams that we thought had the right background, skill sets, capabilities, the right technology, the right resources to bring those aircraft through to certification and eventually put them into production. And over the course of that time, we have signed now a number of partnerships, again, with what we think will be some of the leaders in that new space. And as the global leader in innovative and sustainable vertical flight solutions, we do think there'll be an important role for Bristow to play there. We think that will start initially with servicing some new applications, complementary additive ones for some of our existing customers, whether that be cargo logistics or eventually more regional passenger movements. So again, we think this is going to be an important part of the future of the aviation industry, and we think there's a role for Bristow to play there as a leader in vertical lift. The THC partnership, which we recently announced is a newer one. That is with the helicopter and jet company, or THC in Saudi Arabia, which we see as the clear leader in the vertical lift industry in that country, in the Kingdom. And I think they see in Bristow company who has the expertise and a leading position now in Advanced Air Mobility that can be additive to what they're doing. So we're [indiscernible] to work with THC, which we view as the clear leader in the Kingdom of Saudi Arabia.
And then just the comments around -- you have the NatWest facility, but just the other financing options that you might have available as far as these government contracts.
Sure, Josh. It's Jennifer. As I noted in my comments, we do have a lot of flexibility with the financing, particularly around the Government Services Contracts that the banks tend to look through our credit to the credit quality of the governments that we're servicing. So that gives us pretty favorable financing. So we're in the middle of discussing some additional financing with some other banks. And once we close those, we'll announce those to the public.
And then I guess just lastly, touching on the Norway incident, obviously, a difficult moment. But what are the financial impacts we should think about?
Thank you, Josh, for the sentiment and the question on that important event. The most material impact and the biggest one, obviously, is really the life that was lost and the impact on the family, friends, and loved ones of that individual. Also the other crew members who were on board the aircraft, we are relieved that those individuals are now all recovering and improving either out of the hospital for 4 out of the 5 and the one who remains in the hospital, again, stable and improving conditions. So we're pleased with that status. Our priority is to continue to support our crew, provide their families with the resources that they need, support really our whole team in Norway from this tragic accident. But from a business standpoint, transitioning to that lens, there really is not a material financial impact to the company related to the accident.
Next question comes from Steve Silver from Argus Research.
And my condolences to the families and to the entire group for last week's accident as well. You guys provided some of the benefits of the AW189 helicopters as factors for the coming -- pretty much the aircraft of choice for the fleet expansion moving forward. But are there any other material features beyond the supply chain factors that you see it as making a good alternative for the Offshore Energy Contracts typically serviced by the S92s?
Steve, thank you again for the well wishes and nuances. On the 189, the aircraft offers a number of efficiency benefits relative to some other existing technologies in the market today. It can really perform a high percentage of the missions that were traditionally performed by heavy helicopters, but it can do so more efficiently and at lower operating costs. So lower fuel burn, which helps from a lower CO2 emission standpoint, but also a lower absolute cost in terms of operations of the aircraft. So it provides an efficient solution to service a lot of the very high percentage of the traditional heavy missions at a more compelling price point.
Great. Your presentation has periodically over time included a slide talking about the company's net asset value, suggesting that the shares are trading at a discount on that metric. Just broadly speaking, could you just speak to your current thinking as to the primary factors that might be accounting for that disconnect?
Thank you, Steve, for the question. As has been our long-standing practice, we did publish our annual NAV disclosure again this year. A little bit of background on how it's derived. So once a year, we receive a third-party appraisal for all our owned helicopters and aircraft that we have in the fleet, and that's what's reflected in the $1.3 billion of aircraft value from that third-party appraisal. We then take the net book value of the other assets come up with the aggregate net asset value, which is again that $1.3 billion number, which translates to a number of roughly $47 per share NAV today. And this is obviously a substantial discount to our current price, which we believe will be a compelling entry point for the stock.
[Operator Instructions]. There are no further questions in the queue. I will now turn the call back over to Christopher Bradshaw for closing remarks.
Thank you, Daniel, and thanks, everyone, for joining the call this quarter. We'll talk to you again next time. Be safe. Stay well.