Bristow Group's (BRS) CEO Jonathan Baliff on Q1 2015 Results - Earnings Call Transcript

Aug. 6.14 | About: Bristow Group (BRS)

Bristow Group, Inc. (NYSE:BRS)

Q1 2015 Earnings Conference Call

August 5, 2014 10:00 AM ET

Executives

Linda McNeill – Director, IR

Jonathan Baliff – President and CEO

John Briscoe – SVP and CFO

Jeremy Akel – SVP and COO

Analysts

Jon Donnell – Howard Weil Incorporated

Jim Crandell – Cowen

Brandon Dobell – William Blair

Gregory Lewis – Credit Suisse

Daniel Burke – Johnson Rice

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Bristow Group’s First Quarter 2015 Earnings Conference Call. This conference is being recorded today, August 05, 2014.

I would now like to turn the call over to Linda McNeill, Director of Investor Relations. Please go ahead, ma’am.

Linda McNeill

Thank you, Casey, and good morning, everyone. Welcome to Bristow Group’s first quarter fiscal ‘15 earnings call. I am Linda McNeill, Director of Investor Relations. With me on the call today are Jonathan Baliff, President and CEO, John Briscoe, Senior Vice President and CFO; Jeremy Akel, Senior Vice President and Chief Operating Officer; and Brian Allman, Vice President and Chief Accounting Officer.

We hope you’ve seen our earnings release, which was issued yesterday afternoon. It is posted in the Investor Relations section of our website at bristowgroup.com.

Let me remind everyone that during the call, Bristow Group management may make forward-looking statements that reflect our beliefs, expectations, hopes, intentions or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on slide 3.

Additionally, to the extent we discuss non-GAAP measures during the call. Please see our earnings release or the investor presentation on our website for the calculation of these measures and the GAAP reconciliations.

With that, I’d like to turn the call over to Jonathan. Jonathan?

Jonathan Baliff

Good morning and thank you for joining us on our first quarter or June 30, quarter end earnings call for fiscal 2015. Please turn to slide 5, as I will continue our tradition of making a few comments on Bristow’s safety performance this quarter.

Bristow’s commitment to target zero safety continues to be at the core of everything we do. It is a testament to the passion and professionalism of our employees that the team achieved a first quarter fiscal year 2015 results or no air or ground accidents in our global commercial rotary wing operations.

Our overall corporate TRIR was a world-class 0.07 with one ground lost work case this quarter due to a minor incident at Eastern Airways.

All but one of our EC225 fleet is now available for revenue service. The new gear-shaft has been redesigned and certified by IASA with the expectation that our entire global oil and gas fleet will have the new shaft installed in the next 12 to 24 months. We already have a number of aircraft flying with this new shaft with excellent results.

Continuing on with the North Sea, CAP 1145 introduction is progressing with sea-state restrictions enforced starting June 1, 2014, a new passenger emergency breathing devices to be in place by September 1, 2014.

Training of the North Sea, offshore workforce, on this new breathing system has commenced, with the rollout of new passenger life jackets incorporating the system commencing in mid-August.

We expect most locations to have these devices in-place by September 1 deadline. But there is a possibility that some passenger capacity restrictions may be necessary which could lead to additional flights being required by us, our competitors for our clients.

I do also want to report that on July 21, one of our Schweizer 300 aircraft experienced a rollover during a routine training flight at our training academy in Titusville, Florida. The instructor and student were uninjured and the investigation into the cause of the event is underway. It is too early to tell if this would be classified as a serious incident.

However Bristow leadership is proactively examining ways to improve the academy’s safety record as Bristow training by Bristow employees at Bristow facilities, is an integral part of our competitive advantage. We wholeheartedly believe that the academy’s incident rate not only can match that of our commercial businesses excellent results but can and should exceed them.

Please turn to slide 6. Before I continue, I want to provide some context for understanding our results this quarter and in the future. One of the hallmarks of safety excellence is transparency. And sometimes, investors have to guess what our sentiment was for the quarter and found this hard to extrapolate for their full-year modeling, especially given we only provide guidance for a full-year.

Starting with this call and on this slide, we will provide one comment which describes the overall results before we get into the financial specifics. So here it goes.

First quarter fiscal year 2015 is characterized by outstanding revenue growth, above our internal expectations without sacrificing EBITDA margins. For the specifics, operating revenue was $437.3 million which was 21.6% increase from the first quarter of fiscal year 2014. This was driven by strong organic LACE and LACE rate improvements in Europe, including commencement of the U.K. GAAP search and rescue contract for the MCA.

We also had news LACE contracts Australia start-up and also and this is important, a more favorable mix of larger aircraft following some of the restructurings that we’ve completed in our North American business unit.

Adjusted EBITDA in the first quarter of fiscal year 2015 increased 24.5% from the first quarter of fiscal year 2014. And adjusted EPS increased 32% year-over-year. This superior performance is a testament to the passionate client focus of our team members across the globe.

First quarter fiscal 2015 GAAP EPS was $1.23 a share, excluding special items and asset dispositions, our adjusted EPS for the first quarter of fiscal 2015 was $1.32 per share. Historically, the first quarter is our lowest adjusted EPS quarter as our second half results are usually better than our first half.

This record first quarter for Bristow on an adjusted EPS basis was due to macro demand for helicopter services, combined with carrying the world-class client focus and operational excellence of our fourth quarter FY14 into this new fiscal year.

We’ve generated $24.5 million in absolute Bristow value-added or BVA in the first quarter of FY15, a $23 million increase over the first quarter of FY14, thanks to the previously mentioned operating revenue growth and margin expansion.

Our cash flow remained strong with our overall liquidity at $331.3 million, and this is after spending a record $200 million on organic CapEx this quarter. If you remember, less than three and half years ago, we spent about $200 million in organic CapEx for the full fiscal year.

BVA continues to drive our long-term cash flow improvements as we focus on good long-term decisions and not on quarter-to-quarter results.

On July 31, 2014, our board of directors approved a quarterly dividend of $0.32 per share. Also in this first quarter of fiscal year 2015, we spent $20.2 million to repurchase over 270,000 shares of common stock. As our stock traded at levels, management believes we’re very attractive to purchase for you our shareholders.

We have repurchased a total of $102 million of stocks since November of 2013, and delivered on our commitment to return cash to our shareholders through significant dividend increases and purchases of shares at attractive prices.

We believe this solid performance in this quarter will continue in fiscal 2015. As management is conservative and it is still early in the year, today we are reaffirming our fiscal year 2015 adjusted EPS guidance range of $4.70 to $5.20. And as everybody knows, this excludes gains and losses on aircraft dispositions and certain special items.

Please turn to slide 7. Given a lot of market discussion about demand for offshore logistics for our oil and gas clients generally and helicopter services specifically, we wanted to provide an update on what Bristow has seen in the marketplace for our services.

Bottom line, we continue to see strong short-term and long-term fundamentals for our sector, for us and our competitors. The softness in day rates for offshore drillers has not impacted our global consolidated logistics business. And we have a stable production underpinning that makes that possible.

In fact, there were over 160 new offshore exploration rigs that we will be delivered in the next two years. And all of these rigs will need helicopter services and support. This trend is mirrored by the increasing amount of FPSO and floating L&G activity giving us a compelling view that demand will continue to remain strong and will increase.

At this same time, large helicopter supply continues to be tight, with production line sold out at our major partner suppliers until calendar year ‘16.

So we are hearing about a lot of our client concerns over their rising costs and renewed emphasis on capital spending discipline, however what Bristow and our competitors see is continued growth in tenders in global helicopter demand. In fact, in certain markets at record pace.

Now we are very active in helping our clients manage their costs, while at the same time, spending money to increase the safety and efficiency of our and our industry services. Our at Bristow, SAP implementation is part of these efforts. And when combined with the introduction of new technology, fuel and capital efficient aircraft like the Sikorsky S-76D and the Agusta AW189, these provide mutually beneficial solutions for the cost structures of our global clients.

And because offshore exploration projects still have significant momentum even though the planning and procurement timeframes are extending, these are still within the horizons that provide a predictable 10% to 15% adjusted EPS growth rate for our shareholders. And again, this is excluding the U.K. SAR contract which starts in approximately 1 year and provides $1 a share as we disclosed previously, in addition to this 10% to 15% growth rate.

Just to give you an example of some of this record or significant demand, Petrobras has recently issued a tender for start-up of helicopter services in mid-calendar year ‘15 to mid-calendar year ‘16, long term contracts requiring 31 aircrafts, three to seven of these would be incremental, the rest should see new pricing as we provide existing aircraft on longer term contracts. And this contributes further to the tightness of supply worldwide.

At the same time, Bristo also continues to receive search and rescue increase both in our civilian search and rescue efforts and also in our oil and gas search and rescue efforts. We’re working to bring many of these tenders to a successful fruition in the near future for our clients and our shareholders.

Let’s talk about some of the specific business units as we turn to slide 8. Our European business unit our largest business unit, continue with strong performance in the first quarter of fiscal ‘15 with a net addition of Four Large Aircraft Equivalent or LACE. The timing of aircraft deliveries caused a slight decrease in LACE rate sequentially when 10.84 million in Q4 FY14 to 10.6 million in Q1 FY15, as the aircraft starts service in this second quarter.

However, the year-over-year LACE rate increased by over 10% as new technology aircraft came online and older technology were moved to help for sale. Please keep in mind that LACE does not include our fixed wing aircraft at our Eastern affiliate.

We recovered $7.7 million in maintenance credit, from originally equipment manufacturers that offset ongoing cost, past cost and future cost that had not returned to service and this improve our adjusted EBITDA margins by $4.8 million as well as in Australia by $2 million in the first quarter of FY15. And these compensate us for existing expenses.

And these types of credits we’ve been receiving for many, many years plus or minus over the last and it’s just the way that we do business in partnership with our OEMs.

We do anticipate additional credits to be recovered and received through at least the third quarter of fiscal year ‘15. But all of these credits, including the expenses that they’re offsetting are included in our fiscal year ‘15 guidance range.

In our first quarter of FY15, $39.8 million in operating revenue and $9.3 million in adjusted EBITDA were contributed by our Eastern Airways affiliate. Remember, Bristow helicopters acquired 60% interest in Eastern in February of 2014. Adjusted EBITDA margin was 23.4% which is lower than our oil and gas helicopter operations but very strong for fixed wings operations of their type. And we see strong synergies with our clients providing and end-to-end solution in the future.

The annual adjusted EBITDA margin run rate for Eastern is still expected to be in the mid-teens for the full year. We anticipate continued solid performance in our European business unit and expect adjusted EBITDA margin to be in the low 30s for full year ‘15, fiscal ‘15, which is slightly lower than fiscal ‘14 margin but this is due to the inclusion of our partner Eastern Airways.

Looking forward, again getting to the idea of giving you guys a kind of one phrase characterization, the Eastern, the European business unit is a bit of the gift that keeps giving for both our clients in our safe and efficient services and for our shareholders as we grow that business to services outside of our traditional oil and gas client base to include the government of the United Kingdom.

I’m pleased to announce that we now have a new head of our European business unit, reporting to Mike Imlach, his name is Alan Corbett. He will begin soon. We are very much looking forward to bringing him on, he’s part of the Bristow family. He has close to 35 years of experience in the oil and gas industry. And he’s going to join Bristow following a very successful track record in senior management at Baker Hughes.

Please turn to slide 9. Turning to search and rescue in the United Kingdom, we are proud to report that since the start of our U.K. Gap SAR contract in June 2013, we have conducted over 340 incident free missions and rescued or assisted over 320 people.

In the first quarter of FY15, $13 million of operating revenue was generated from this contract and over $50.8 million has been generated since the beginning of the contract.

Turning to U.K. SAR. Construction continues on the Inverness and Humberside SAR bases, which are due to become fully operational in April Calendar year April 2015. The U.K. SAR implementation of this larger contract and start-up are on schedule and on budget and is a testament to the passion and professionalism of the people prosecuting this contract.

We discussed on our Analyst Day from the U.K. SAR contract, we continue to expect a ramp-up. Starting next year of an additional $1 of EPS when the contract is fully operational by fiscal year 2018.

We expect to complete the least financing on our search and rescue helicopters this year, this fiscal year. With the previously anticipated having these completed by the first quarter of fiscal 2015, but we’re actually bringing on these aircraft in an ownership structure and we’ll continue to lease them as the market becomes available and as approvals become available from our partner in the United Kingdom.

We are actively pursuing private and public SARs opportunities and are aware of other opportunities yet to be awarded for over 16 aircraft in various countries. Currently, the Falkland Islands search and rescue contract with U.K. government is expected to be awarded in the next few months with the contract start date between calendar year ‘15 and calendar year ‘16.

Please turn to slide 10. In West Africa, pricing improvements and increased utilization drove revenue increases in our business unit leading to a 5.5% increase in operating revenue for the first quarter of fiscal 2015. LACE and overall flying activity both increased drying this revenue increase.

However, training costs associated with the introduction of a new aircraft type in this region and some increased salaries resulted in a 13.8% decrease in adjusted EBITDA compared with the first quarter of FY14. This also resulted in a corresponding decrease in adjusted EBITDA margin of 25.6% in the first quarter of ‘15 compared to the 31.3% in the first quarter of ‘14.

We do not expect these higher level training costs to continue to impact the margins for the future quarters. And again we have to emphasize that leadership and management, we run this business on a yearly basis. And we’ve seen this type of quarterly decrease in margins in West Africa before approximately two years ago, and we recovered smartly in the succeeding quarters.

The outlook really for this, the one-liner is, we have a power of legacy of both our people, our relationships with the government, our relationships with our clients. And we expect this to lead to extensions of contracts in the future as we introduce new technology medium aircraft and expect EBITDA margins to be in the low 30s.

Please turn to slide 11. North America operating revenue decreased slightly due to a LACE decrease in the first quarter to 33 from 37 as part of the progress towards our strategy to shift our aircraft mix from smaller single-engine aircraft to larger twin-engine aircraft. This shift help drive the 10.7% increase in our LACE rate year-over-year.

And as you see, North America’s adjusted EBITDA and adjusted EBITDA margin improved significantly to $22 million and 39.7% respective in the first quarter of FY15 compared to the $17 million and 29.2% respectively in the first quarter of FY14. And again, this is driven by a change in fleet mix and the reversal of a $4.4 million or $0.08 per diluted EPS of a bad debt expense related to a client that had previously filed for bankruptcy.

Even without that $4.4 million you’re seeing significant increases in EBITDA and EBITDA margin.

The outlook is characterized by a recovery that continues, both in the macro-environment in the Gulf of Mexico, still presents what we think is the second best geology of our clients but more importantly we’re shifting our fleet mix and our employees and our focus to that ultra deep-water and deep-water with larger aircraft with super-mediums and light-heavies.

And we continue to restructure the Gulf of Mexico to be the premier helicopter service provider in the region, benefiting from both our global scope but also our laser focus on client satisfaction. We anticipate that fiscal year ‘15 adjusted EBITDA margins to be in the low to mid-30s.

Please turn to slide 12, in Australia, our LACE increase year-over-year from 19 to 23 this quarter and our LACE rate increased year-over-year to $8.27 million per LACE from the $8.04 million last year. This reflects the ramp-up of our INPEX contract as other – as well as other recent awards.

As a result of these new contracts and OEM maintenance expense credits already spoken about, adjusted EBITDA increased to $11 million in this quarter. And adjusted EBITDA margin increased to 23.7% from 17.7% in the previous year.

It did remain flat sequentially but you’re seeing that improvement as we get operational scale in this region with the INPEX contract. And it’s my pleasure to say that all of our Australian EC225 fleet has been returned to service.

The outlook, we call it, it’s coming out from down under. We’ve had a lot of volatility in this region, really caused by more short-term exploration contracts with large aircraft. And as we change the fleet mix to new technology EC225, the introduction of the Sikorsky S-92, you’re going to see this turnaround in Australia continue with the business underpinned by longer production contracts and even longer exploration contracts utilizing larger aircrafts.

We’ll continue to retire the older technology LACE as part of our fleet plan but this is a testament to Alan Blake and his team going through a tremendous amount of work over the last year and half to get this contract started and done in a way that honors Bristow’s core values. We anticipate fiscal year ‘15 adjusted EBITDA margins to be in the low 20s.

Please turn to slide 13, our other international business unit operating revenue increased as LACE decreased from 27 to 25 this quarter but our LACE rate increased to 16.7% over the same period. This is the result of new contracts with better terms including our previously announced Tanzania award which began in the fourth quarter of FY14.

Adjusted EBITDA and adjusted EBITDA margin in the first quarter of FY15 decreased to $14.7 million respectively compared to the $22.2 million in the previous year’s quarter. But this was primarily due to a decrease in earnings from our unconsolidated affiliate leader and aircraft tri-lease contract and in Malaysia which will then be redeployed in the coming year.

Our outlook for this region, we’re poised to serve our key customers on short notice, deploy into new regions and also see significant expansion and new opportunities in Brazil, Ghana, Malta, Mozambique and Russia.

The outlook remains positive. For example, we recently won an award in Surinam Guyana for one existing larger craft beginning in the first quarter of our fiscal year ‘15, ‘16. And we continue to see new opportunities in both new and existing markets. Expect our other international business units adjusted EBITDA margins to be in the low 40s.

Please turn to slide 14. As we promised on our leader Analyst Day in New York last year, we are now providing some additional financial information to help you model leader. Please keep in mind, leader reports on a calendar year basis and we reflect the results in Bristow’s earnings on our fiscal year basis from our unconsolidated affiliate line and in our other international business unit.

The leader as a standalone basis, saw very nice revenue growth also on a last 12-month basis and the last nine-month basis. LACE rate increased from $7.93 million as of June30, 2014 from the $7.34 million as of September 30, 2014 which is what you, our shareholders saw on our Analyst Day approximately nine months ago.

Leader generated $60.3 million in EBITDA in the first half of the calendar year 2014. EBITDA declined compared to the previous year, primarily due to delayed contract start-ups and lower fixed wings sales which are all now, we’re going to see better in the second half of their calendar year.

EBITDA run rates are expected to be better in the second half and the first, similar to Bristow. But leader contributed $3.6 million in absolute BVA to the 24.5 million of BVA that Bristow generated in the first quarter of ‘15 due to really excellent capital asset management.

We also saw their debt to trailing 12-month EBITDA be a very low 3.1. They generally are one of the best, if not the best capitalized companies of their nature in Brazil and we’re very happy to see that they’re growing their business but keeping their leverage fairly low.

The outlook for leader, growth acceleration. It’s positive, we have the new tenders coming out with those start dates happening next year. And we look forward to partnering as we have a very large global fleet presence that we can bring to bear for leader as especially as they have a fantastic balance sheet when compared to others and also using our balance sheet to help them grow.

With that, I turn the call over to John for a more detailed review of some of our financial results.

John Briscoe

Thank you, Jonathan. Before I start my prepared remarks, I have a few initial comments. As most of you know, I’ve been with Bristow for about 60 days and I’m absolutely thrilled to be working with the team at Bristow.

The company has a fantastic culture focused on safety first, great people that work as a team and act like owners and a culture of capital discipline that drives free cash flow and better than market returns. These are the things that differentiate Bristow and would make it a leader in any industry.

Many of you listening realize the compelling long-term differentiators that make our sector unique and create significant growth opportunities. I believe these secular differentiators, growth opportunities and great culture make Bristow an outstanding investing opportunity with significant upside to our current share price.

I will be focused on telling this compelling story in a way that is clear, transparent and gives a clear view to our opportunities.

Now let’s go over the financial highlights of the quarter. Please turn to slide 16. As Jonathan mentioned earlier, as a result of improvements in operating performance in Europe, Australia and North America, our adjusted EPS improved to $1.32 per common share compared to $1 in the prior year quarter and $1.35 in the March 2014 quarter.

Our adjusted EBITDA margin was 29.2%, an improvement from last year’s Q1 margin of 28.5% and represents a record for our fiscal first quarter. This Q1 margin improvement as compared to the prior year first quarter was due to a number of items including strong performance in Europe, the start of certain contracts, reduction of foreign exchange losses as well as our ability to recoup costs from an OEM for amounts that negatively impacted our results in Europe and Australia in prior years and continue in the current year.

We expect additional OEM credits will have a positive impact on our results in the same regions during at least the second and third quarters of fiscal 2015, although at reduced amounts.

Additionally, we’ve benefited from $4.4 million or $0.08 per share resulting from the reversal of bad debt expense in our North America business unit, related to a client that previously filed for bankruptcy.

We do not show this favorable recovery as a special item, just as we did not show the original loss as a special item. We are making a concerted effort to reduce the number of special items over the coming quarters and our filter will be, is it part of operating point to point logistics business.

We believe receivable write-offs and recoveries are part of our operations. Similarly, we see the OEM credits as part of our operations as we continue to incur additional cost related to the out-of-service equipment and one EC225 aircraft still has not returned to service.

These positive items were partially offset by reduction and earnings from leader in Brazil as compared to the prior year Q1 primarily due to higher income taxes and reduced aircraft sales.

Please turn to slide 17. LACE or large aircraft equivalent and LACE rate continue the upward trend led by new technology aircraft, improved utilization and improved contract terms.

In Q1 fiscal 2015, our overall LACE rate improved 8.8% year-over-year to $9.55 million per LACE primarily due to new technology aircraft additions that generally produce higher LACE rates.

Our LACE count increased by 2 from 161 in Q1 fiscal 2014 to 163 in Q1 fiscal 2015. In Q1 fiscal 2015, we upgraded our fleet by adding six large and three medium aircraft to our fleet and retiring nine smaller aircrafts.

We also exercised three options this quarter and one option expired. We continued to review our supply chain and aircraft ordering strategy with an eye to leverage our global scale and size as a strategic advantage and we continue to see an overall shortage in aircraft supply compared to future demand.

If you look at the chart on the left side of slide 17, you can see that our consolidated commercial fleet count is converging to our LACE count. This reflects continued progress towards our fleet management plan which includes a shift toward larger aircraft and fewer types of aircraft which will drive fleet efficiencies and lower cost in the future.

I want to highlight one additional point for Q2 of fiscal 2015. During the next few quarters, we will begin taking delivery of aircraft for the SAR contract in the United Kingdom. These aircraft deliveries will temporarily reduce the LACE rate for our European business unit until the aircraft begin earning revenue in the first quarter of fiscal 2016.

Turning to slide 18, our gross cash flow returns increased to 13% annual return in Q1 2015 calculated on a trailing four-quarter basis. This represents an increase from 12.4% at the prior fiscal year-end and continues our upward trend of improving cash returns from our gross invested capital.

Our gross cash flow return metric is at an attractive level and well above our cost of capital, but I want to highlight the fact that we are actively investing capital in our business including for our U.K. SAR contracts.

The additional cash flow from the investments in the U.K. SAR are not expected to begin to ramp up until early fiscal 2016 and will continue to increase until the U.K. SAR contract is fully operational at the end of fiscal 2018. As a result, we believe our gross cash flow returns will continue to grow as we monetize the U.K. SAR investments and achieve compounding returns from our capital investments in our oil and gas logistic services.

We’re still value added or BVA measure – or BVA, measures our cash returns above a conservatively positive capital of 10.5%. BVA was a positive $24.5 million which is $23 million higher than BVA in Q1 fiscal 2015. This year-over-year improvement was primarily driven by margin improvement and revenue growth partially offset by the addition of new aircraft and other capital expenditures.

Most of this improvement in BVA and similarly gross cash flow returns was attributable to Europe and North America business units with Europe generating a $22.3 million improvement and North America a $6.5 million improvement over the previous Q1 fiscal 2014.

This was partially offset by declines in our other international and West Africa business units. I want to emphasize that BVA is how we internally drive improvements in cash returns and is also the largest part of our incentive compensation.

BVA focuses our people on making prudent long-term decisions related to capital deployment and working capital. So you may see some quarter to quarter variability in BVA while we maintain an improving long-term trend in gross cash flow returns.

Please turn to slide 19, operating cash flow in Q1 fiscal 2015 is $37.3 million which is 3% higher than Q1 fiscal 2014. The increase in net cash flows provided by operating activities is primarily due to the growth in revenue during the current quarter.

In Q1 fiscal 2015, total capital expenditures were $200.5 million with $172.1 million spent on aircraft. Also in Q1 2015, we received proceeds of $6.6 million primarily from the sale of four aircraft compared to $1.9 million received in Q1 fiscal 2014.

Our total liquidity declined during Q1 of fiscal 2015 and is attributed to U.K. SAR sale, leaseback transactions that were anticipated to close in Q1 but are now expected to close in Q2.

If they had closed as planned, our total liquidity would have been in line with the three most recent quarters and we expect this higher level of liquidity in Q2. However, we have ample liquidity and we are well above our internal minimum liquidity threshold of $200 million.

In Q1 of fiscal 2015, we invested $200 million in CapEx did not enter into any new leases or sale leasebacks and our adjusted debt to capital and adjusted debt to EBITDA remained almost flat.

During Q1 fiscal 2015, cash was used for the payment of dividends on our common stock totaling $11.4 million and share repurchases totaling $20.2 million. Subsequently in July 2014, we spent an additional $3.8 million to repurchase another 52,428 shares of common stock. As of July 31, 2014, we had $31.7 million remaining under the current board authorization.

Please turn to slide 20. On this slide I provide a view to our capital deployment strategy. Everything on this slide is consistent with information communicated previously by Bristow, but as a new CFO I believe it is important to share my views and also try to provide some additional clarity to the concept.

We have a great summary of our strategy in our 10-Q, but when I think about capital deployment, I think of a waterfall of cash and capital that moves down to ultimately returning cash to shareholders. For me the water is continually flowing to the bottom and the goal of our capital deployment strategy is to accelerate the flow of cash.

A strong balance sheet differentiates us and gives us opportunities like the U.K. SAR contract and other SAR and non-SAR opportunities including our market leading position in the oil-gas sector.

Focusing on our cash flow returns allows us to target 10% to 15% annual adjusted EPS for us. Our leasing strategy of 30% to 35% of our LACE helps drive down our cost to capital. Our reinvestment rate of over 100% drives future compounding and growth of our cash flow returns.

BVA provides the internal discipline for both capital investment and future accretive M&A. A target of returning 20% to 30% of our forward earnings per share through dividends and solid execution of our share repurchase program give our shareholders long-term share price appreciation and along with our strong secular growth story, make it attractive to new shareholders.

We expect to continue to repurchase shares focused mostly on our internal views that our shares are presently undervalued as it appears the market is not considering the full benefits of the U.K. SAR contract cash flows, the compounding of our continued reinvestment in our business at high rates and the positive differentiators of the point-to-point logistics business from the rest of the oil field services industry.

Now please turn to page 21. Based on the first quarter results, we continue to anticipate increasing cash flow returns, strong EBITDA and EPS results for fiscal 2015, and the 13.5 new LACE expected to be delivered in the remainder of fiscal 2015 including 5 U.K. SAR aircrafts.

Today we are reaffirming our annual adjusted EPS guidance range for fiscal 2015 of $4.70 to $5.20 per share which excludes the impact of aircraft sales and special items.

While our first quarter results exceeded street expectations and exceeded our expectations, our outlook for the remainder of fiscal 2015 is unchanged and we need more time before we consider an increase to our guidance.

Remember that U.K. SAR is expected to ramp-up to provide an incremental $1 per share of adjusted EPS in fiscal 2018. And this is in addition to our anticipated long-term adjusted EPS growth of 10% to 15% per year.

Our guidance on annual financial metrics including our guidance on other annual financial metrics, including our LACE and LACE rate are also unchanged. I also want to note that we expect our non-aircraft lease expense will stay around $20 million to $25 million for fiscal 2015.

Now, I turn it back to Jonathan for final comments.

Jonathan Baliff

Thank you, John. Please turn to slide 22, just a few bullets to finish this up. Safety continues to be our number one core value as we continue to strive to achieve target zero. I’m proud of our global teams across the world who are responsible for improvement this fiscal year, especially in ground safety and air accident rates on a year-over-year basis.

Management’s fiscal year ‘15 focus is on execution for our clients, while continuing to strengthen our capital deployment strategy that John spoke about, for you our shareholder.

Despite our client’s concerns, and there are concerns and they are our concerns over their rising operational costs and allude scrutiny on capital spending, demand for Bristow’s exceptional services continues to be strong.

We are pleased with our results in the first quarter and remain positive about the remainder of the fiscal year. We are reaffirming our fiscal 2015 EPS guidance and also our operational cash flow performance continues to be strong in advance of significant CapEx as we ramp up for our U.K. SAR implementation next year.

Finally, I want to thank all of Bristow’s employees who put in so much hard work on the SAP and eFlight implementations. They’re truly pulling double, triple and even quadruple duty in this commitment. And are adding to a capability that is an example to us all of what is possible to achieve at Bristow and continues Bill’s legacy of premier performer in the oilfield service space and beyond.

And with that operator, I would like to turn the call over to you and our shareholders for any questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is from Mr. Jon Donnell with Howard Weil.

Jon Donnell – Howard Weil Incorporated

Good morning, guys.

Jonathan Baliff

Good morning, Jon. How are you?

John Briscoe

Good morning, Jon.

Jon Donnell – Howard Weil Incorporated

Doing well. Thanks. Obviously a lot of new details, especially in the Europe business segment here. And appreciate that but I just want to make sure that were thinking about this in the right way. And perhaps you can help us a little bit just in determining kind of the direction of each of these things.

I guess first off with the maintenance credits. It sounds like there’s still going to be some positive impacts of that going forward. But I wonder if you could maybe give us a historical perspective of is this something that’s completely new or has it been kind of embedded in the numbers before? I don’t know that we’ve had this kind of detail broken out of the positives versus negatives on a quarter-to-quarter basis.

And I just wanted to think about as we look back to maybe trying to compare to past margin performance there in the Europe business unit, taking out the Gap SAR and the EC225 issues, is something like a mid 30s or upper 30s EBITDA margin range for just the helicopters, something to be modeling as we go forward and get to a more normalized basis or are there other pieces that we need to be considering for that?

Jonathan Baliff

Sure, let me take that one Jon. The first thing about OEM credits and the nature of them, this is not a new phenomenon. And I would say it’s existed as long as we’ve had partnership agreements as part of our ongoing support. Helicopter just begins its life at the start of the sale but our partnerships allow us to have a relationship with the OEMs on parts and other maintenance that we do for ourselves or they actually do for some of our components.

So, we’ve actually had in our numbers, credits that have offset expenses and that’s the important part to note here. We are disclosing the nature of these OEM credits because they are of a magnitude that there is a materiality. However, the economic reality is no different, if it was $4 million of credit or it was $400,000 of credit.

The issue is we are taking significant expenses, we have opportunity cost with grounded aircraft that are OEMs. And it’s not restricted to just one OEM, all of them provide excellent partnership that allows us to offset that and just think of it as – again, it’s the life of a 30-year machine that we’re trying to work through. It’s not just about one specific quarter, we have to disclose it to you as part of one quarter.

But we’re anticipating both expenses that are happening in the current quarter but also expenses that could happen in future quarters that these credits are offset. And so, yes, is it complicate? Somewhat. Is it normal? Absolutely. And again, we don’t think that shareholders should exclude them because you shouldn’t also exclude the costs, these are real costs that we’re having mid to as part of our safe and efficient service to our clients.

So that’s where I would talk about the credits, include them, they’re part of our guidance. It’s how management thinks about things. I think the good news is we don’t see this level of crediting so that we have to actually disclose going out years, totally going out for the next couple of quarters.

I think the more important thing in Europe that you have to understand is we actually include in our fixed wing operation that has significant revenue and EBITDA contribution. And again, we didn’t partner with Eastern to get into the fixed wing business by itself. We’re doing this to provide our clients with a more seamless point-to-point logistic service.

And so, for us, the issue is financial results due to a lower EBITDA margin business kind of joining with our higher EBITDA rotary wing business. That’s what’s actually creating some of the low-30s overall margin in our European business unit. But I think we’re giving you enough disclosure that you kind of start figuring that out as Eastern comes into our numbers.

Jon Donnell – Howard Weil Incorporated

Okay. That goes right into my next question of just the EBITDA margin performance was a lot better than expected, at least from my perspective here for Eastern during the quarter. I’m just wondering how much of that was kind of one off or it sounds like the expectation is for that to be a little bit lower here going forward.

And then also just in conjunction with that too to kind of wrap up the margin discussion is on the Gap SAR is that, are those operations and those revenues coming with accretive overall EBITDA margin in the business unit or how should we be thinking about those here over the coming quarters as well?

John Briscoe

I’ll take the last part, absolutely accretive. That’s clear. Jeremy or Jonathan, you want to take the first part.

Jonathan Baliff

I’ll take the Eastern. Again, we managed and Eastern manages itself on a long-term basis, it’s not a quarter-to-quarter basis. And there, we’ve always seen a little bit of seasonality in their numbers as their number of flights during longer daylight hours can happen, have a tendency not to fly as much as night because of airport restrictions at the airports that fly out of the sea.

You get a little bit of seasonality. But again, we still believe that that business is kind of mid-teens which is an excellent margin for our fixed wing regional operator and we don’t expect that to change.

What we do expect to change is our ability to differentiate point-to-point just in our rotary wing and get more clients and better service on a seamless basis for our broader European client base.

And I think you actually asked one more question, concerning Gap, and I think Gap SAR, I think John already answered that.

Jon Donnell – Howard Weil Incorporated

Yes. Those are accretive margins to the overall business unit. And even to just the helicopter operations excluding the Eastern?

John Briscoe

That’s correct. I mean, if you remember Jon, in our earnings, I’m sorry, Analyst Day two years ago when we gave a number of pages on the margins and the BVA of U.K. SAR and Gap SAR. Gap SAR is accretive to our oil and gas business, not as much as U.K. SAR. U.K. SAR is actually more accretive than even Gap SAR just because of the nature of the contract. So both are accretive to oil and gas.

But we expect to do much better in oil and gas, so I don’t want to restrict us on being able to drive more to even better due to Jeremy’s and the operational teams, operational excellence initiatives.

Jon Donnell – Howard Weil Incorporated

Okay. Thank you very much for taking my questions, guys.

Jonathan Baliff

Thank you. Talk to you later.

John Briscoe

Thank you.

Operator

Thank you. Mr. Jim Crandell with Cowen. Please go ahead with your question.

Jim Crandell – Cowen

Good morning. Nice quarter, guys.

Jonathan Baliff

Thank you, Jim.

John Briscoe

Good morning, Jim. Thank you.

Jim Crandell – Cowen

And, John, congratulations on joining such a high-quality Company.

John Briscoe

Well, thanks Jim. I’m having a lot of fun.

Jim Crandell – Cowen

Great to hear. My first question is as your helicopters come off contract in the world, and let’s assume for the point of the question they’re coming off four year contracts internationally, can you give us a sense as to the magnitude of the price improvement that a helicopter would roll to on average versus the rate negotiated four years ago?

John Briscoe

We’ve publicly, I’m going to take this one Jim. When we publicly disclosed and Jeremy can give you some information, and it hasn’t changed is that given this what we call trailing edge to leading edge pricing has improved generally overall pricing, 10% to 30% globally as an average globally.

But we have seen our Brazilian pricing trailing edge to leading edge significantly improve above that 30% and that’s driven a good chunk of that 10% to 30%. That’s kind of – that’s the way I would say it, right now. And we still continue to see that dynamic and you see it in our lease rates. I don’t know Jeremy if you want to?

Jeremy Akel

No, I mean, no more. That is right.

Jim Crandell – Cowen

Jonathan, is the, with so many ultra-deep water rigs being built, certainly the helicopters that serve that market. You can understand that they’re doing very well. But we’ve seen reductions in the mid-water and maybe even shallow-water demand. Does that create any excess capacity for your helicopters that serve that market sort of on a global basis?

Jeremy Akel

Jim, the answer is, this is Jeremy by the way. The answer is not really. Our sort of fleet mix and our future fleet mix is leaning towards as Jonathan said earlier in the call, medium to heavy aircraft. So our exposure to that effect that you’re speaking of it very low.

We’re not seeing that yet in our results and we don’t anticipate seeing anything significant over the next few quarters in that area from a diluted perspective.

John Briscoe

And Jim, this is John, I have one additional comment. A big part of that is also an oversupply issue with the mid-water and shallow water rigs. And so, you have a little bit of cannibalization that’s happening there with deep-water rigs moving down to mid-water.

And remember there is about 100 jack-ups, over 100 jack-ups that are coming out in the next two years as well significant deliveries in the past. And so that’s helping to create that over-supply issue and creating some stacking.

Jim Crandell – Cowen

Okay. And just if I could sneak in one last question. How would you characterize the overall level of new builds today? I know there’s quite a backlog and one would have to wait for, I don’t know, two years or more to, if you were ordering new helicopters today. But do you see any from your suppliers or do you see any diminution in ordering, acceleration in ordering, what are you noticing happening in the industry as a whole?

Jeremy Akel

Jim, again Jeremy here. I think we mentioned, Jonathan mentioned supplier earlier in the call to calendar year ‘16 is where we’re seeing the large helicopter supply its lead times to push out to. And so we essentially, reconfirming that statement. You would probably, you could assert that on the mediums, the supply lead times are slightly less if you want to look for some trending.

However, just to remind you and those on the call, we have significant number of options in place with our OEMs that allows us to short-circuit with lead times for need be.

Jim Crandell – Cowen

Okay. Good. That’s helpful. Thank you, Jeremy.

Jeremy Akel

Okay.

John Briscoe

Thank you, Jim.

Jonathan Baliff

Thanks Jim.

Operator

Thank you. Mr. Brandon Dobell with William Blair. Please go ahead with your question.

Brandon Dobell – William Blair

Thanks. I guess I need to focus on Australia and the Gulf for a second. When should we anticipate a positive impact from the mix shift in those two geographies or operating units to plateau or slowdown are we in the third inning of that aircraft mix shift, the eighth-inning? Just trying to gage when those year-on-year comparisons get a little tougher?

Jonathan Baliff

Obviously, you and I obviously spoke a lot about baseball these last – we do have a global employee force. So we’re kind of in the – I would say we’re in the first half of the first period. If it was football, we’re in the fourth and if it’s baseball, first period in hockey, I got to put that one in there.

So, we’re in the early stages of it. I would, the INPEX contract has just started. The North American restructuring is although the restructure itself I would say is finishing up. The benefits of that to our clients is now just appearing to them and also appearing in our financials.

So, for you guys actually seen what was in essence the result of a lot of hard work last year on Rob Phillips who leads our North American business unit, and Alan Blake leads Australia and their teams, I mean, a lot of work. And now we’re starting to see the benefits of that work come to fruition. But it’s only the early days yet.

Brandon Dobell – William Blair

Okay. Any expectations for the rules that are going into place in the North Sea around passenger safety and capacity and things like that to make their way outside of the North Sea, perhaps into other regions for you guys or is there any discussions of how the impact of those rules may flow into other spots?

Jeremy Akel

Yes, Greg, this is Jeremy, very insightful question. It is a topic of conversation for us. It’s a topic of conversation for the joint operators review association that we’ve created to drive standards globally. We are looking at hose rules from CAP 1145 and how they might apply in other regions.

But we’re not taking sort of a blanket position that they do until we look at it in a measured way and consult with our customers to ensure that their implementation is appropriate for the regions we’re working at. But the debate is definitely out there.

Brandon Dobell – William Blair

Okay. Great. Thanks, guys. Appreciate it.

John Briscoe

Thanks Brandon.

Operator

Thank you. Mr. Gregory Lewis with Credit Suisse. Please go ahead with your question.

Gregory Lewis – Credit Suisse

Yes, thank you and good morning. It looks like it’s about 11 o’clock so I’ll try to be quick.

Jonathan Baliff

Don’t worry.

Gregory Lewis – Credit Suisse

Lucky me. It’s my lucky day. Not to harp on the maintenance credits but I guess what I would say is last quarter we took them – you were able to benefit from maintenance credit, which was I guess related to last year over the full year. Is this a continuation of that maintenance credit or is this something new? And was this related to what on things last year or was this more real-time?

Jonathan Baliff

Yes. As I said before, it does relate to some of the issues associated with last year. But there are ongoing costs associated with that. So, I will say it’s not restricted just one aircraft or one OEM. There are credits and other benefits that we’re getting from all of our OEM partners.

And so, for us it’s really not as much about the past, it’s really about these current and future costs as we run our business on an annual basis. And so that’s how we thought about these larger credits, it’s really about an ongoing yearly offset of significant expenses. Last year’s credit really offset a lot of last year’s costs. These years credits offset on a yearly basis, this year’s cost and could extend a little bit into some of the costs we might get in FY16.

But again, it really does for lack of better word, amortized it comes down a lot as we move into the fourth quarter of this year and first quarter of next year.

Gregory Lewis – Credit Suisse

Okay great. And then just as we think about modeling LACE outgoing forward I mean I’m sorry, SAR. As we think about modeling SAR outgoing forward. Clearly there’s going to be an opportunity for sale on lease backs for this SAR fleet.

As we think about that roughly $1 of earnings guidance, or earnings contribution from SAR, is that, do we have a sense for whether that’s an un-leased number and or is that sort of bare-bones type number? I mean, I guess I’m trying to figure out if there’s maneuverability to the upside, or potentially downside, if we’re going to be leasing some of these aircraft?

Jonathan Baliff

Nice try for us to give you forward guidance which gradually we don’t do as a matter of course. That being said, all of the EPS guidance we’ve given you on U.K. SAR is after financing both leases and ownership. Remember we’re still going to own a significant number of these U.K. SAR aircraft.

And so, but that EPS dollar is really after all of the financing cost that were generally done at conservative rates. And the best thing I will tell you is, let us prosecute what is the end-game of these financings.

And if we feel a need to bring up that dollar we’ll do so at an appropriate time. But just know that that EPS does already take into account all the leases for the U.K. SAR aircraft and Gap SAR aircraft too.

Gregory Lewis – Credit Suisse

Okay. Thank you very much.

Jonathan Baliff

Operator, we’ll take questions from one more caller.

Operator

Thank you. Mr. Daniel Burke with Johnson Rice, please go ahead with your question.

Daniel Burke – Johnson Rice

Thanks for squeezing me in, guys.

Jonathan Baliff

No, thank you.

Daniel Burke – Johnson Rice

I’ll be fast in deference to the hour. The outlook for Europe certainly seems very positive. I know last quarter, Jonathan, you all talked about having 11 LACE allocated to the EBU market in FY15. I was just wondering if there’s any update. It looks like you added a fair chunk of LACE in the first fiscal quarter as it stands?

Jonathan Baliff

Yes, I mean, some of this is pretty fluid Daniel. We’ve allocated those kind of on a medium long-term basis. Short-term we’ve been in some deploy aircraft into Europe to make sure that we’re covering for our clients on CAP 1145 and that’s a bit of a dynamic situation.

So, I’d say that the magnitude is in and around that 11 but no, that it can go up probably from there just given the nature of some of the short-term deployments we need to make sure our clients are being serviced. And we have some capacity globally to be able to do that.

Daniel Burke – Johnson Rice

Okay great. And then, I think maybe just one other one on the financial side. On the 6.25 notes, you guys bought that just a little bit there. Can you talk about the strategy there?

Jonathan Baliff

Well, the strategy is to try to be opportunistic and how we manage our cost of capital. And see, when we see opportunities to step out there and buyback debt, we’re going to devote some of our free cash flow to do that. So, it’s part of the overall capital deployment strategy that we think about.

And so, we don’t just think about returning cash to shareholders. Clearly that’s at the bottom of the waterfall and where we want everything to end up. But we do improve our cost to capital when we bought back some of this high cost debt. And so you will continue to see us do some things in the market as we have those opportunities.

Daniel Burke – Johnson Rice

Okay. Well, great, guys. I’ll take the last couple off-line. Thanks so much for the time.

Jonathan Baliff

No worries, Daniel. Thank you very much. Operator, I think we’re going to be concluding the call right now with just saying thank you everybody for your time and effort here. We look forward to talking to you more throughout the month as we progress on our business plan. Thank you again.

Operator

Ladies and gentlemen, this concludes the Bristow Group’s first quarter 2015 earnings conference call. If you’d like to listen to a replay at today’s conference, please dial toll-free 1-888-203-11121-888-203-1112 or Toll-1-719-457-08201-719-457-0820. The conference, then I would like to thank you for your participation. You may now disconnect.

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Bristow (NYSE:BRS): FQ1 EPS of $1.32 beats by $0.21. Revenue of $472.5M (+18.4% Y/Y) beats by $21.19M.