BRS
#Thank you, <UNK>.
Please turn to slide 4.
Good morning.
Welcome to our fourth-quarter fiscal-year 2018 earnings call.
We will begin the call as always with a review of safety, our number-one core value; and with safety improvement, the first priority of our fiscal 2018 STRIVE priorities.
I am proud of the effort and results our employees continue to achieve in safety improvement during an extremely challenging time in our industry.
Bristow has always believed that periods of market decline should not translate into a decline in safety performance.
In fact, we further believe that safety improvement is measured not only by the score, as in accident rates or TRIR statistics; but, as importantly, it is also how our team is playing on the field in both reporting and risk identification before an incident or accident happens.
We did finish fiscal 2018 with no class A or B air accident and we also experienced fewer injuries this year than last.
But the foundation for continuous safety improvement at Bristow is also the willingness of our employees to report hazards and issues of concern.
And we continue to see extremely robust reporting from our employees, better than in years past, that puts Bristow in the best position to address risks before an accident or incident occurs.
In particular, I want to congratulate our team in Trinidad for accomplishing Target Zero performance for the entire fiscal year, but outstanding reporting also.
I also want to recognize continued and significant year-over-year improvement in our fixed wing operations at Eastern Airways and Airnorth.
The Organizational and Safety Effectiveness Survey, or OSES, we completed this past year, gave us reassurance that our Target Zero culture and commitment to safety is stronger than ever, especially on the flight line and in our shops.
In recent weeks, our area leadership teams in each country have been actively engaging with employees through focus groups and town halls to understand the specific actions we will take in fiscal 2019 that will make the greatest difference in areas identified in the OSES, dealing specifically with operational effectiveness and employee engagement.
The early feedback from these engagements is extremely positive, and is leading to specific actions locally and globally to further improve safety, operational effectiveness, and employee engagement.
As part of this fiscal 2019 engagement, we will also employ Target Zero in a way that speaks to all generations of our team, whether it be new or veteran employees of Bristow or among our passengers, and specifically how Target Zero will improve their lives in the next decade.
Please stay tuned.
Turn to slide 5.
During the fourth quarter and for the full fiscal year, we have successfully accomplished our fiscal 2018 STRIVE priorities.
This page shows that.
The successes on this page and the previous page provide runway from fiscal 2018 survivability to fiscal 2019 sustainability, and ultimately a return to profitability.
So let me discuss these 2018 STRIVE successes with some comments on fiscal 2019 that <UNK> will then expand upon.
Our first priority, as I spoke about: safety improvement.
We discussed this on slide 4.
I am tremendously proud of the Bristow team for achieving yet another safe quarter with an increase in our safety record and reporting, the play on the field, both sequentially from the third quarter of fiscal 2018 and also quarterly year-over-year.
Two, cost efficiencies.
We have successfully reduced G&A to 12% of revenue, excluding one-off restructuring charges, and this is a level not seen since fiscal 2014.
<UNK> will discuss this in more detail.
But in addition to the previous received $125 million of OEM cost recoveries, agreements for an additional $11 million were finalized this month.
In fiscal 2019, we will continue to work with our OEM partners to create a sustainable business model with further cost efficiencies.
Three, portfolio and fleet optimization.
As our aircraft leases continue to roll off, we were able to lower our aircraft rent expense 11% throughout this fiscal year.
Improving capital efficiency through the return of these aircraft is critical to both improve profitability and improve debt to EBITDA, as we currently expect to reduce rent expense even further in fiscal 2019, as we have the ability to return 21 leased aircraft during the year.
In addition, aircraft sales continue to be a positive for our portfolio and fleet optimization, as we have successfully deferred CapEx, as discussed on our second-quarter fiscal 2018 earnings call.
Bristow now has minimal aircraft capital expenditures during fiscal 2019 of only USD20 million.
Fourth, revenue growth.
Our fiscal 2018 financial results reflect a continuation of Bristow's success in this global short cycle market for aviation services.
Remember, we define short cycle as unforeseen call out requests for contracts measured in weeks and months, not years.
This short cycle work was driven mostly by clients' exploration and production demand with short lead times for rotary services, particularly in the Gulf of Mexico, Norway, and the United Kingdom.
In fact, I'm happy to highlight that we have had a three-year contract extension in Norway that we announced this morning in a press release, with an existing customer that will increase utilization from three to up to five medium aircraft.
Additionally, we have won another three-year contract extension commencing in the second-quarter fiscal 2019 which utilizes one existing large aircraft.
But it's still a very competitive market out there.
And there is still clearly an oversupply of aircraft, with Bristow losing some contract tenders in fiscal 2018, even with that success.
In March and April, the Group lost contracts in Africa and Brazil, with leadership getting some of the revenue back with recontracting of those aircraft already, and other portfolio management which is underway.
We are also seeing an increase in activity in all of our core areas now.
But, similar to last year, there isn't absolute visibility on this recontracting.
And two, we don't expect to see this uptick in the first quarter of fiscal 2019 either.
Lastly, I just want to touch on an important aspect of our business ---+ not just our commercial successes, which give us a lot of confidence in fiscal 2019 ---+ but our strong liquidity position and increased runway over the next several years due to the successful actions taken in the second half of fiscal 2018.
We have eliminated near-term financing risk, and have over $350 million of cash on our balance sheet due to the excellent work of <UNK> <UNK> and our finance and accounting teams, on top of which the operational teams helped contribute.
I would like to highlight that that strong liquidity, coupled with our strong operating leverage, helped shape our guidance for fiscal year 2019 even with less visibility that we see.
And we define operating leverage as utilizing existing aircraft with minimal additional cost, allowing much of that future revenue to fall the bottom line, similar to 2018.
And with that, I will hand it over to <UNK> to give you additional insight into our liquidity and our fiscal year 2019 guidance.
Thank you, <UNK>.
As <UNK> mentioned, we were successful in fiscal 2018 by setting a strong foundation for the future which gives us confidence as we execute in fiscal 2019.
And in line with the prior three fiscal years, in spite of challenging conditions, we ended fiscal 2018 with $380 million in liquidity.
Our fiscal 2018 ending liquidity is a result of many financings and other positive actions taken over the past two years, including $630 million of equipment financings, the issuance of $144 million of convertible senior notes, and our recent $350 million five-year senior secured notes offering.
Importantly, with a portion of these proceeds, we paid off and terminated our 2019 bank maturities, thereby increased our liquidity runway with our first senior note maturity not until fiscal 2023, and with a manageable annual debt amortization of approximately $50 million per year for the next three years.
Additionally, in April 2018, we further increased our liquidity with our new $75 million five-year ABL facility.
This additional source of liquidity is not included in our March 31, 2018, liquidity balance of $380 million.
The borrowing capacity under the ABL facility was approximately $25 million as of May 23, 2018.
Please see slide 35 for a complete listing of our debt repayments and amortization schedule as of March 31, 2018.
In addition to the financings, other fiscal 2018 liquidity-enhancing actions included the deferral of approximately $190 million of aircraft CapEx into future periods, and $136 million in OEM cost recoveries.
We also successfully reduced total CapEx from fiscal 2017 to fiscal 2018 by $89 million or 66%.
And we continue to make further progress in fiscal 2019, which I'll touch upon on the next slide.
We also reduced G&A costs from fiscal 2017 to fiscal 2018 by approximately $10 million or 5%, excluding restructuring costs.
G&A cost reductions continue to remain a focus; and, since fiscal 2015, we have reduced G&A costs by approximately $75 million.
We returned eight leased aircraft in fiscal 2018 and have the ability to return an additional 21 aircraft during fiscal 2019, having already returned six through May.
Of the returned aircraft, four were H225s.
And we have the ability to return three more during the remainder of fiscal 2019, all of which will further reduce cash leased costs in fiscal 2020.
Fiscal 2018 was clearly a culmination of several years of effective execution on a number of important fronts, providing the required liquidity to allow us to remain focused on improving operational performance and increasing cash flow.
Note that on May 18, 2018, our cash balance was $362 million, which is net of approximately $25 million of principal, interest, and redundancy costs paid since March 31, 2018.
Please turn to slide 7.
Before we get into our fiscal 2019 financial guidance, it is important to highlight that although oil prices are at multiyear highs, the primary beneficiary continues to be onshore oilfield services rather than offshore.
However, with that said, as we saw last year with our improving financial performance throughout the year, fourth-quarter fiscal 2017 continues to look like the base from which our EBITDA, flight hours, and LACE rates are building.
Indicators remain that the market demand for offshore aviation services continue to stabilize, primarily driven by increased short cycle work and the expectation for a larger number of FIDs in calendar years 2018 and 2019.
For fiscal 2019, we are providing guidance ranges for similar financial metrics, including revenue, adjusted EBITDA, rent, and other measures, as we did in fiscal 2018.
For fiscal 2019, initial adjusted EBITDA guidance range is $90 million to $140 million.
Although wide, this guidance range reflects the dynamic nature of the offshore market due to the short cycle work.
Also, given our operating leverage, an increase or decrease in activity impacts the bottom line materially as incremental margins are significantly higher.
Turning to our lines of service, for our oil and gas operations, similar to fiscal 2018, our fiscal 2019 guidance reflects the limited visibility from short cycle offshore activity.
For example, the average drilling contract length of our non-major oil and gas clients in the Gulf of Mexico is approximately 180 days, highlighting the short cycle nature of the increased flying activity.
In addition, the initial guidance reflects the benefit of OEM cost recoveries realized in fiscal 2018, not fully present in fiscal 2019; the loss of a contract in Africa at the end of fiscal 2018; lowered financial expectations from Lider; partially offset by lower rent expense.
For our UK SAR operations, our increase in year-over-year fiscal 2019 guidance primarily reflects the full-year benefit of having all 10 SAR facilities operational on a full UK SAR basis rather than some Gap SAR facilities, combined with OEM cost recoveries that will benefit fiscal 2019 results.
Eastern and Airnorth fiscal adjusted EBITDA guidance remains in line with fiscal 2018 results.
Guidance for key cost measures, including G&A and rent, is lower in fiscal 2019 compared to fiscal 2018, reflecting the benefit of cost reduction actions taken last year.
Interest expense is projected to increase in fiscal 2019 by about $25 million as a result of our new $350 million 8 3/4% senior notes issued in February.
Lastly, we have further reduced our expectations for non-aircraft CapEx spend by about 40% from fiscal 2018 to $25 million in fiscal 2019, with an expectation of aircraft sales proceeds of about $15 million.
Similar to last year, we expect to update our guidance as the year progresses.
With that, I will turn the call over to <UNK> for closing comments.
Thank you, <UNK>.
So let's sum it up before we go to Q&A.
Commodity macroeconomic drivers, including politics and other things, are making the highest oil prices since the end of calendar year 2014.
And this has positively impacted the overall operating financial positions of our clients and service providers, including us.
That's a very good thing.
And all stakeholders, including Bristow, are benefiting.
But onshore producers and service providers are benefiting more.
In addition, the supply and demand imbalance in the offshore services sector, including helicopters, continues to make the offshore market challenging.
Recently, we have seen are early signs of stability through an increase in short cycle work and the number of projected FID awards.
We've also seen an increase in our flight hours year-over-year, pretty materially at 10%.
This has led to modestly higher lease rate year-over-year and our better financial results in fiscal 2018; but also a balanced view for fiscal 2019 today, in May, given the lack of revenue visibility.
We believe that we are well positioned to capture the upturn in the offshore market whenever it occurs, and it's already starting to occur.
But similar to last year, we need to maintain an increased cost efficiencies so revenue falls straight to the bottom line.
Our fiscal 2019 priorities capitalize on fiscal 2018 successes by, one, continuing our safety improvement journey; two, proactively managing our cost structure across a more commercially responsive and proactive hub structure; three, revenue growth, by being competitive in this short cycle market; and four, increased aircraft utilization of our existing fleet, leading to improved financial returns measured by return on invested capital.
Bristow has a game plan for fiscal 2019 to address this market and deliver on all of our fiscal 2019 STRIVE priorities, similar to last year.
We continue to pursue improvements through further OpEx efficiencies, lease cost savings, CapEx reductions, and other initiatives both internally and externally.
To continue our successes from this low point of fiscal fourth-quarter 2017, we must change the way we do business.
And we did that in 2018, and were very successful at it.
There is need to continue this innovation and greater cost efficiencies as we return to sustainability and profitability in the near future.
With that, I will turn it over to the operator for Q&A.
Let's talk about calendar year 2019, which again, for us, is mostly our fiscal year 20.
There's no doubt, very similar to our peers in the offshore, that we do see a better fiscal year 2020, or calendar year 2019, then we do this year.
And don't get me wrong; we see a better FY19, also, it's just we don't see as much of the visibility on the back end right now.
And so we're being very balanced in putting that type of LACE rate growth in, in fiscal year 2019.
For 2020, we see more of it.
The recent contract, for example, that we won, and talked about this morning in a press release, starts really in fiscal year 2020.
So we are already starting to see signs of that.
We're also seeing a number of aircraft that were in the market and unutilized or underutilized start to move either out of the market of oil and gas or also starting to be utilized.
For us specifically, that is S-76s in the Gulf of Mexico.
But we're also starting to see, and getting balance on, our S-92s globally.
But that being said, there is still an oversupply of aircraft.
I'd say that we're mostly in balance right now with AW139s.
And so the market is much more in balance this year than it was last year.
That being said, it is still very competitive.
We have brought our costs down.
And I'm very confident that that cost structure, which can get even more competitive over time with our OEMs, will be able to succeed in a way that it was similar to last year.
But again, we're being balanced.
We don't see as much of that visibility, especially in this first half of this year, as we would like.
And, in the end, we've been fairly balanced in the past and I think that served us well.
But I will say this: both <UNK> and Al and the teams have done a great job.
And if I didn't think them enough on this call, both in how they operated safely, but also our commercial responsiveness to this client base, has been I've seen in almost a decade at the Company.
And it gives me a lot of confidence as we move into fiscal year 2019, and also fiscal year 2020.
Look, and I would frankly maybe steer you towards the clients.
Sometimes I don't like to speak for our clients on these calls.
But I will say this: first and foremost, in the helicopter and aviation space, the OEMs, our supply chain, have significantly brought down the production of new helicopters.
There really aren't any being brought onboard, of any amount, anytime soon.
There are a few new types that are coming on.
But even that, compared to even midcycle, is much, much lower to your ---+ and I think on a relative basis to rigs and boats, that helps this industry a lot.
That being said, it is still an oversupply.
We are working through that.
And so for us being able to move 225s, for example, out of this industry is important.
Not adding new types of aircraft when there's still oversupply of excellent aircraft like the S-92, the S-76, is important to this industry that we maintain that measure.
But you're right; there has been a significant reduction in the supply of aircraft.
And that's not going to if ---+ as the uptick starts happening, and I've told our teams this, this upturn will happen gradually, and then all of a sudden.
And that's what we're seeing right now.
It's gradual.
The LACE rates are moving up.
Our LACE rates are approximately 3% higher year-over-year.
That's a good thing.
But it's also ---+ we want to try and stay balanced as we talk about what we can do in FY19.
That being said, our cost structure is fabulous from the standpoint of being able to get most of that extra revenue down to the bottom line.
I still believe we can do better, both as a company and as an industry.
Yes, there is, <UNK>, actually.
In the K ---+ and we've been very transparent out there in terms of the benefits of both the AW settlement and the Airbus settlement ---+ and actually within the K, on page 101, for example, there's actually a lot of detail around the impact of that.
But last year, Airbus benefited us by about ---+ a little over $15 million on the income statement.
And we still have some benefit of that into FY19, but not to the same extent as we had in FY18.
And then the recent OEM settlement with AW is around $11 million, which we'll actually pick that up, and that's really flowing through the SAR line.
The headwinds you referenced, in and around Africa and Lider, I alluded to, really the ---+ Lider historically have gotten retained or some kind of equity earnings from them.
Last year we got about $7 million, but obviously some of the changes in contracts, some of the headwinds they faced in the contract in the near-term down there, that will be impacted.
And then the roll-off of this African contract at the end of March will impact our operations out of Africa.
And as we sit here today, we're still looking at redeploying those assets.
We've actually redeployed some of those out of Africa, bringing them back here.
And so those assets are not completely fully, if you will, recontracted or utilized as we sit here today, just given the contract rolled off recently.
But we think LACE rates down in Africa could be down around 25% year-over-year.
So that gives you a sense of how to put some parameters around that, <UNK>.
Is that what you were looking for.
On the ladder first, on the non-aircraft CapEx: quite honestly, <UNK>, it's across the board.
What goes in that bucket is land and buildings, IT, mods.
So across the board we ---+ I mean, I think it's fair to say we are scrutinizing every dollar that gets spent in this company.
You really have to justify it twice.
So that's reflective of just a trend we've seen over the last three or four years.
And there's an element in there, actually it would be a little bit lower, but we actually have some fixed wing engine rebuilds to get done this year, and that's just kind of timing, if you will.
You have to do those things through the life of the aircraft.
So, otherwise, it would be a bit lower than that.
On the rent, the ---+ a couple of things.
There's a handful of aircraft that actually go back at the end of FY19, so we don't actually have any real benefit from that built in.
I mean, there are 21 aircraft to go back this year.
We've given back six already.
We've got three more 225s to go back, so those are easy to give back.
The rest are really ---+ we've got about ---+ remaining, about eight 92s, of which about half of those go back at the end of the year.
So, in effect, what I'm backing into is to get the benefit this year, all I've got to really do is give back around four 92s, the 225s, and I get the lion's share of the benefit.
So we have a high degree of comfort around the range ---+ obviously the range we've provided.
Sure, I'll take that, and then I might also give it over to <UNK> <UNK>.
Dan, always our May calls are a bit difficult for us in this downturn.
There's no doubt that we've bottomed fourth quarter of fiscal 2017, and we've done a great job getting our cost structure in line to be competitive, and 2018 successes show that.
But what we're trying to tell the Street now is we have a lot of confidence that we can get a lot of these LACE rates moving.
And especially in Africa, where currently we're looking at less utilized aircraft, either moving them out or keeping some of them in.
Either way, we're already seeing signs that we're putting those aircraft back to work.
At this stage of the game, though, we feel it would be not balanced to give you guys a significant amount of upside revenue in a forecast and a marketplace that, even at $70, $80 for offshore, is still showing a level of gradual recovery, and not significant, rapid recovery in one year.
Do I have confidence that we'll be able to get there.
Absolutely.
And we had the liquidity window to be able to do that and continue to work with OEM partners, continue to work with internal cost structure, even be that much more competitive.
But in the end, we've got to be balanced in what we show you guys in May, and that's what we've done.
But like I said, all markets are seeing increased hours, and a lot of that revenue will fall to the bottom line.
But stay tuned to how we actually look at the rest of the year.
Because, for us, it's about the execution on a quarterly by quarterly and even a monthly basis as we go after some of this new revenue.
And there is revenue to go after.
<UNK>.
Yes, I agree, <UNK>.
I think it's important to highlight that those contracts in Nigeria, or in Africa, ended in March.
And pulling those aircraft down, as <UNK> alluded to, we've moved some of those assets out.
They are back, going through rework and we'll be working on recontracting and replacing that revenue.
So those aircraft were back in my hub.
The other aircraft remained in Africa, and as <UNK> alluded to, we're working on recontracting those, as well, now.
And Dan, we have a lot of confidence.
Again, one of the markets that is actually recovering a bit faster than in the past is Africa.
And it's not just Nigeria.
When you look at Senegal, Mauritania, Angola ---+ all those markets are recovering.
It's just gradually, and then all of a sudden.
Again, it can be very easy for a management team with less visibility into this market, but I'm following what I think is the best practices of some of my peers in boats and rigs to be able to give you guys a sense that, again, it's a gradual recovery on the offshore.
A lot of the benefit right now, in May of 2018, of $70 to $80 oil is accruing to the onshore.
It's coming to us; there's no doubt it's coming to us.
But it's going to be gradual, and then all of a sudden.
Yes, <UNK>, that is correct.
But <UNK> ---+ it's <UNK> ---+ just to your point.
But there is a lot more to go after.
And partnership with the OEMs, and again, you saw last year, we believe in working with them.
But they better show some partnership; otherwise, there are actions that we can take to grab efficiencies on our own.
This is not ---+ we're not just dependent on them.
We can do a lot of things on our own to bring our cost structure down, if, for whatever reason, that partnership is not being shown.
And so it's not meant to be a threat to the OEMs; it's just that there's only so much we can do, given issues associated with PBH, our TAP agreements.
And so for us, we're encouraged by what we see with partnership with our OEMS, but there are actions that we can take to lower that, too, without them.
Just want to say again ---+ because I don't think I emphasized this maybe enough ---+ is how proud we are of the teams and their work in fiscal 2018.
It's been a hard year with the new Bristow hub structure.
I want to thank everybody in your areas.
Stay tuned for the Target Zero deployment that we're going to be doing.
And then also I think stay tuned for how we're going to be able to be successful in this marketplace as it unfolds in 2019.
Thank you very much.
