Bristow Group's (BRS) CEO Jonathan Baliff on Q1 2017 Results - Earnings Call Transcript

| About: Bristow Group (BRS)
This article is now exclusive for PRO subscribers.

Bristow Group, Inc. (NYSE:BRS) Q1 2017 Earnings Conference Call August 5, 2016 10:00 AM ET


Linda McNeill - IR, Director

Jonathan Baliff - President & CEO

Chet Akiri - Acting SVP Operations, Chief Commercial Officer

Don Miller - SVP & CFO


Gregory Lewis - Credit Suisse

William Thompson - Barclays Capital

Daniel Burke - Johnson Rice & Company

Brandon Dobell - William Blair


Welcome to the Bristow Group First Quarter Earnings Conference Call. [Operator Instructions].I would now like to turn the conference over to your host, Miss Linda McNeill, Director of Investor Relations. Thank you Miss McNeill, you may begin.

Linda McNeill

Thank you Michelle and good morning everyone. Welcome to Bristow Group's first-quarter fiscal 2017 earnings call. I am Linda McNeill, Director of Investor Relations and with me on the call are Jonathan Baliff, President and CEO; Chet Akiri, SVP of Operations and Chief Commercial Officer; Don Miller, SVP and Chief Financial 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

Let me remind everyone that, during the call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 2 of the presentation. Additionally, to the extent we discuss non-GAAP measures during the call, please see our earnings release or the investor presentation on our website with the calculation of these measures and the GAAP reconciliations.

With that, I'll turn the call over to Jonathan. Jonathan?

Jonathan Baliff

Thank you, Linda. Good morning and welcome to our fiscal 2017 first-quarter earnings call. My prepared remarks this morning will cover several key topics and issues related to Bristow. Similar to the last number of calls, I will highlight the steps we're proactively taking to improve, but unlike the last quarterly update, I will not speak to each slide but instead more directly address key topics, including, one, safety; two, the market overview, especially given the H225 grounding; three, foreign exchange; four, a comment on our tax strategy; five, the financial outlook, especially for our very challenging fiscal year 2017 with respect to EBITDAR and EPS; and six, liquidity enhancements, including CapEx deferral and other positive cash flow impacts which impact FY '17, FY '18 and beyond.

Safety, I will begin with safety, our number one core value. Bristow's FY '17 action plan which is our strategy to survive this downturn, has three elements, first, safety improvement; second, aggressive cost reductions and revenue enhancements; and finally, prudent pursuit of opportunities, especially now, to improve liquidity. The Company-wide focus on safety performance is the first part of that FY '17 action plan and it's not just about safety compliance. It's about that performance and it's yielding positive results.

As you can see on Slide 4, this quarter, our air accident rate was zero while our TRIR was an improved 0.29 with significant improvements in health, safety and environmental performance in our global fixed wing and SAR operations compared to fiscal year 2016. Much has already been spoken about concerning the tragic H225 accident in Norway and the resulting grounding of this important aircraft type. On the safety front, I am proud of the collaborative efforts of my peers in conjunction with HeliOffshore to address industry issues following this grounding, especially the inauguration of a new HeliOffshore work stream that will work with OEMs and operators to improve industry system reliability and resiliency.

Market overview in Bristow performance -- for first quarter FY '17, we reported a GAAP net loss of $40.8 million and a diluted loss per share of $1.17 compared to a GAAP net loss of $3.3 million and a diluted loss per share of $0.27 for fiscal year 2016 first quarter. For an adjusted result overview, we had a net loss of $12 million this quarter and an adjusted net loss per share of $0.34 for the first quarter FY '17 compared to adjusted net income of $19.8 million and adjusted net earnings per share of $0.56 for the first quarter of fiscal year 2016.

These results are most directly related to a 27% decrease in Bristow oil and gas operating revenue year-over-year, but were only down 1% sequentially from our fourth-quarter fiscal year 2016. The decrease is due to continued lower global utilization of our services year-over-year and the ending of several contracts in our Americas region and LACE rate reductions, especially in our Asia-Pacific region. We're beginning to see some stabilization of the oil and gas business in most markets except for Australia which remains under pressure, particularly so because of the H225 grounding. Sequentially, consolidated adjusted EBITDAR and EBITDAR margins were down but evidencing this relative stabilization, our Americas and Africa regions actually showed sequential improvement quarter-over-quarter.

Foreign exchange. Let's talk about Brexit and the British pound per U.S. dollar exchange rate impacts on Bristow. First, Brexit is not expected to have any operational impacts on our North Sea business, whether it's our UK SAR contract or our UK oil and gas contracts. Second, the depreciation of the British pound versus the U.S. dollar in late June had limited impact on our first-quarter FY '17 operating and financial results as the change occurred late in the quarter. However, there was a negative EBITDAR impact of $6.3 million due to balance sheet revaluations of British pound denominated balances.

Assuming the U.S. dollar per British pound rate stays constant, we would not expect significant further impacts from the reevaluation of the balance sheet for the rest of our fiscal year 2017. However, from a P&L translation perspective, if the U.S. dollar per discount rate persists at the June 30 level for the remainder of fiscal year 2017, the translation of our British pound denominated operating results would decrease adjusted EBITDAR by approximately $15 million to $20 million for the remainder of fiscal year 2017, approximately half of which is from the UK SAR contract.

Remember our UK SAR contract revenue is in British pounds with the expenses predominantly in British pounds and euros and U.S. dollars. Finally, there has been market commentary concerning the exposure to the Nigerian naira versus the U.S. dollar for Bristow. Let me address that. The devaluation of the Nigerian naira which has been significant, has had minimal impact on our Q1 fiscal 2017 results as we're naturally hedged with the majority of our Nigerian revenue in U.S. dollars. So we're generally long U.S. dollars and short naira in that business unit and historically our naira revenues have been offset by our naira operating costs.

Tax, there has also been some market commentary concerning our tax strategies. Let me address this. Bristow is a highly regulated company in over 10 separate national jurisdictions with both securities, air operating certificate and tax oversight, to name a few and this is been the case for 50 years, over 50 years. Our structure fully complies with the tax laws in all jurisdictions in which we operate. Our long-standing tax and cash management strategy administers our tax rate and cash flow to maximize Bristow's operational efficiency and enterprise value for critical and life-saving services, as would be the goal for any international company. H225 grounding.

I could use the rest of my prepared remarks here on this topic, but the team and me can address specific questions in Q&A. Some important points to make though -- first, the accident remains under investigation with preliminary reports published but no root cause determined and Bristow will not speculate concerning the accident's root causes. The investigation is ongoing with no immediate timetable for an operational return to service from regulatory authorities.

Second, with one of the largest global fleets of relevant replacement aircraft for the H225 and, most importantly, crews to fly them and maintainers to fix them, Bristow is capitalizing on our unparalleled capabilities to service the critical needs for new and existing clients worldwide. Third, while the North Sea oil and gas market remains challenging, we're seeing some increased activity on the contract side as summer maintenance activities rise compared to last year and our operational performance for existing and new customers has been outstanding and recognized.

For example, as one of the largest SAR providers to oil and gas, Bristow demonstrated our global operational presence and strength as we mobilized assets around the globe to serve critical client needs during the H225 grounding. We also have begun offering oil and gas to our services in the U.S. Gulf of Mexico as well as putting aircraft in Nigeria to offer the service. We view this as an integral part of our differentiated aviation services product offering in this downturn. And although not easily seen due to Asia-Pacific and America's LACE rate decreases and the FX volatility I already spoke about, our European region is financially benefiting.

We recently signed a five-year renewal for five LACE and five -- in a five-year contract and a 1.5 LACE. These contracts reflect higher historical or actually around the same historical European Caspian LACE rates. Additionally, we were successful in winning some short-term contracts recently in Norway. From a fixed wing perspective, the H225 grounding presented more fixed wing flying for Bristow. For example, the S-92 gets paired with Eastern Embraers during this grounding to serve new and existing clients more effectively out of Scatsta and Sumburgh. We also we recently added new routes for both Airnorth in Australia and Eastern in the United Kingdom.

Finally, let me be very straightforward. Fiscal year 2017 will not be a good year for Bristow from an earnings and EBITDAR perspective and we will see a GAAP and adjusted net loss for earnings. This first-quarter oil and gas results, specifically EBITDAR, are indicative of the next three quarters' expected performance with potential upside from already underway cost reduction initiatives offset by foreign-currency exchange rate depreciation. Slide 9 shows other guidance metrics for UK SAR, for example, with adjustments in FY '17 for UK SAR due entirely to British pound weakness.

Despite rolloff of various aircraft from contracts in fiscal year 2017, especially in the Americas and Australia, we do not FY '18 upside for new -- we will see upsides from new contract wins in fiscal year 2018 and full UK SAR contributions which are expected to begin and have a positive EBITDAR operating cash flow and EPS impact in FY '18 and beyond. Liquidity enhancement and CapEx deferral. We continue to demonstrate success in our discussions with OEMs as, after June 30, we reached an understanding with them to defer approximately $95 million of oil and gas aircraft capital expenditures out of fiscal year 2017 and 2018. This represents a decrease in our fiscal year 2017 and fiscal year 2018 committed aircraft CapEx spend of nearly 40%.

Our liquidity as of August 3, 2016 was $292 million with cash flow from operations now turning positive and over $11 million in proceeds from aircraft sales as well as future financings to be sufficient to satisfy our capital commitments, including our oil and gas aircraft purchase commitments and the remaining capital expenditures in conjunction with the UK SAR contract. On a pro forma basis, as of today, our remaining aircraft CapEx for FY '17 adjusted for this oil and gas deferral I just mentioned as well as the payment we just made in July is only $25 million. Please refer to the chart on Slide 8 for further details.

We also improved liquidity in other ways. As I just said, we sold aircraft, but we also received a $28 million cash tax refund. As I said, we did pay progress payments in July for four UK SAR or Leonardo 189s. This payment represents virtually all of the UK SAR related CapEx for fiscal year 2017. And with the FIPS certification of our Leonardo 189s, those become very financial, especially in the lease market, if we decide to go that route. Covenant relief continues to provide us with ample financial flexibility, as shown on Slide 39. With multiple financing options being evaluated, including the sale leaseback market anchored by our mostly unsecured UK SAR assets and a global owned fleet with $2 billion estimated value, all this continues to be available. Our SAR assets in particular, whether UK SAR or oil and gas SAR, both aircraft and infrastructure, remain attractive potential sources of liquidity with the market very open to Bristow.

So, in conclusion, fiscal year 2017 will not be a good year for Bristow from an earnings and EBITDAR perspective as the P&L impact of the reduced utilization seen in the first quarter combined with the British pound depreciation will be realized in the future periods, future quarters of this year, especially if the U.S. dollar British pound rate remains at current levels or depreciates further.

We have an FY '17 action plan which is Bristow's strategy in this downturn to survive as the global sector leader with three elements. One, improve safety performance, not just safety compliance. Two, aggressively right size our cost structure to continue to serve clients globally while also capturing revenue with our global presence. And three, prudently pursue opportunities, especially liquidity enhancements. The priorities of this strategy are to focus on re-enforcing Target Zero safety, improve the liquidity position of Bristow, continue to reduce direct and G&A costs to achieve or improve the oil and gas rotary business and, finally, preserve Bristow's global capability for long-term diversification and growth.

Look. FY '17 will be a difficult year from an earnings perspective as the FY '17 results are expected to be indicative, as I spoke about. But I can tell you right now that Bristow does indeed have the proven tools to survive this downturn as the global sector leader and we demonstrated this during the quarter with our global team members' response to the H225 grounding, the partnership shown by our OEMs and CapEx deferral and our leadership's continued ability to right size the cost structure, reduce cash burn while still pursuing and capturing revenue in this market.

With that, we can begin Q&A.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Gregory Lewis

Could you elaborate a little bit more on the business mix for the oil and gas business in the second quarter? I realize that it's a challenged market, the outlook is challenging, but just try to better understand the activity, how it's sort of split in Q2 between sort of drilling and platform and other and also really trying to get an understanding of the increased flight hours in Europe and Africa and how much of that was seasonal and maybe how much of that is just Bristow winning new business?

Jonathan Baliff

I'm going to let Chet answer some of that, but let me begin by saying we're seeing especially stabilization in our markets. Asia-Pacific, we've lost some short-term contracts mostly due to utilization. But for the most part, we're flying for maintenance for our operating and production parts of our clients' value chain. We're continuing to do that. There are certain markets where we have flown and continue to fly for exploration, but it's been reduced. And that's why you see the reduction in Americas which for us has still been very exploration oriented or more exploration oriented and Asia-Pacific too which in Australia has a tendency to be more exploration with natural gas.

So we're still flying more especially this quarter for production. Exploration you saw in those markets drop off. I think the thing that you're seeing Greg and you are seeing it from reports by other peers, whether it be boats or aircraft, is that we're kind of bumping ground now at the bottom. The calendar year -- we're a fiscal year but if we start after February with the significant reduction in oil prices which is really what our clients use to forecast and put in their CapEx plans and OpEx plans for the rest of this year, that just -- now we're seeing the impact of that fully in our fourth quarter and first quarter.

Now we're kind of bumping around, kind of sawtoothing down at the bottom is the way I would describe it. One thing with us is we have given our clients pretty good help when it comes to our escalation costs and also discounting. And what ended up happening is then you've seen over the last let's say three or four quarters them then reduce activity levels. So that's what's happened. And now we're starting to adjust our cost structure to be able to get some of that back slowly. But unlike boats and maybe other companies, we have a very high operating leverage to this market.

It helped us in the upturn but it's hurting us now in the downturn. But I think you are seeing the industry start to adjust a lot of that cost structure although it's not easy to get some of it, especially labor costs and so you sort of see that starting to see stabilization. It's not to say -- and again, I don't want to remain too positive -- it's not to say all this is going to happen FY '17, but that's what you're seeing in the marketplace, if it helps you. It's still mostly production.

We've seen drop-off in exploration, but I think it's bumping around the bottom. And now for us it's about capturing revenue back, given our global presence and doing that mostly with -- because we have aircrews and aircraft available, especially replacing the 225 and that we're working to satisfy existing clients who are being asked by new clients to help do some work with them, especially in the last three or four months. Chet, any other commentary on that?

Chet Akiri

Just to add a bit of color to what Jonathan mentioned and really around your question on the drivers of the increases, I'll take two of our regions. First is the North Sea. Given the summer maintenance activities, we have seen increased flight hours in the North Sea, so with existing customers seeing upside on the flight hours. In addition, we've also seen a good pickup of new clients in the region and so it's coming from a combination of flight hours from existing clients as well as picking up new contracts.

The other region you saw an uptick on is Africa and the same there. We had a bit of a downturn in the first couple of months of the year based on the incidences there, but since then, the flight hours have picked up but we've also picked up additional contracts. There's been a lot of competitive issues happening in the region and we have been fortunate enough to be there to pick up those incremental client contracts. So again in Africa both from flight hours as well as from new contracts. Does that help, Greg?

Jonathan Baliff

One thing, Greg, I need to mention is that some of these contracts that we picked up in the last let's say six to nine months and really helps us in FY '18, so I want to b I got a little tongue-tied there in my prepared remarks, but I want to be clear. FY '18 upside is from new contract wins recently and also we will get the full effect of our FY '17 action plan cost reductions whereas some of those from last year we're getting this year, but we're really more in that area of time been able to right size over the last let's say six months and we'll get the full impact of that in FY '18.

Gregory Lewis

And then just I guess my follow-up would be around the H225, realizing what you can and cannot say in regards to this, but it seems to me a little bit of a mixed message here in that you talked about having the replacement equipment for 225s. It sounds like even you've been able to use the grounding of the 225s to win some work with the fixed wing fleet. I guess I'm just kind of wondering. Why not -- I mean this sounds like it's actually neutral but more positive than potentially negative to Bristow. I'm just trying to close that loop.

Jonathan Baliff

Greg, it's negative to Bristow. We're talking about work, but we still have costs associated with the 225. We're still spending -- we still have -- correct me if I'm wrong -- we have nine on lease, so we're paying those lease rates. We have reduced the cost of the 225s by putting them into storage and we quickly also reset some of our costs in labor and other places, but it's not a positive for us. And obviously, we'll be working with our partners to be able to reduce those costs or get back those costs over time depending on what happens here, but I don't want you to think that it's been a net positive.

And I think I mentioned it in my prepared remarks, especially in Australia where it's been difficult for us to overcome some of that and we're taking costs that's we're still trying to recover. So I don't want you to get an impression that -- the grounding that happened three years ago with the H225 was a much tighter market and although and the nature of that was different, we were able to more rapidly serve our client base there and I think here it's not as quick. I just don't want you to think that it's all positive.

Gregory Lewis

Okay. So when the replacements -- when the replacement equipment that has been -- sort of being allocated to this -- to be swapped into the market in the second quarter, how much of that equipment was actually back to work in Q2 or is that something that's going to be more of a Q3/Q4 event?

Jonathan Baliff

I don't want to get into -- it has some commercial sensitivities associated with it. But just one of the things I do want to comment on the overall market is that this is still an oversupplied market. I mean it is more in balance with the 225s grounded. There's approximately 200 of them that fly for oil and gas.

We've been able to be blessed with crews, excellent crews and maintainers and the aircrafts themselves to be able to supply. But there's still a workout of that replacement supply to tap in. There is still excess supply even with that. So it's going to take through the rest of the year. I don't want to get too specific about that, but I think we have one of the largest replacement fleets with both S-92s, 189s and other aircraft.

And really for me, the thing that I think is outstanding is we've been able to satisfy our clients, our clients, especially in SAR where there are a number of H225 SAR aircraft that have been now grounded, being able to do that life-saving, critical service is important.


Our next question comes from the line of William Thompson with Barclays. Please proceed with your question.

William Thompson

Maybe I'll just start where Greg left off, just a point on the replacement of the H225s. I think one of your peers had mentioned that the S-92 market was quite tight. Do you share that conviction? And secondarily, is there a liquid market for those S-92s in the secondary market?

Jonathan Baliff

I'm going to basically answer broadly and then Chet can answer more specifically. But I would say that it's tighter but I wouldn't call it tight because I remember when the market five, six years ago, that was a tight market, right? When the S-92 was used to replace the 225s when they were grounded before, that was a very tight market. I would not call this market that tight. I would just say it's tightening and again, that's what we're seeing globally.

I think other peers might have different views. Hopefully that benefits everybody. I would prefer to have that view, to be honest, but just we're not seeing it, so I don't want you to get that impression. And then as far as does it allow us to do S-92 sales better? Yet to be determined. I'll turn it over to Chet. It definitely helps on the financing of these S-92s, I think. If we were to do more sale-leasebacks or other types of financing that were secured, a lot of that $2 billion of capacity for us is S-92s and other types of aircraft. Chet?

Chet Akiri

So there are about 290 S-92s just in the civilian market. Of those, about 218 are in the oil and gas market. So prior to the 225 grounding, there were a number that were in essence on the ground not being utilized. And so what this has done and I think Jonathan's comment is correct, it's the event really had the effect of absorbing some of that excess capacity of S-92s in the market. We were in a position where we were long S-92s and so, as we saw decreased activity for example in Gulf of Mexico, we had S-92s in that region that we were able to mobilize and move to other regions like ECR. And so we have seen a I'd say shrinking of the overcapacity, but like Jonathan said, I wouldn't say it's tightened to the point it's too extremely tight. I would say it has tightened on a relative basis.

William Thompson

And then as a follow-up -- you mentioned, Jonathan, future financings. I just want to get clarification around that comment. And are you referring to sort of -- you also mentioned the UK SAR owned assets still being very strong candidates for sale-leaseback. Are those two tied or are we talking about different kind of financing options? And then how does Brexit and the weakness in the pound impact any ability to do any sort of sale-leasebacks with those UK SAR assets?

Jonathan Baliff

I'm going to let Don primarily answer, but the best thing I would say is we don't really comment on what we're trying to do specifically. We would just say we're evaluating options. I think the important piece is those options are very available to us, both from what we see in the marketplace, from the type of assets we have, especially non-oil and gas assets. But I would also say I think there's been some commentary that the oil and gas sale-leaseback market, the secured market, is not available and it is available. I wouldn't say it's the same as it was, again, three, five years ago, but it's still available. So Don?

Don Miller

So I would broadly just describe it not so much as whether it's sale-leaseback or exactly how we'll utilize the inherent value in either the oil and gas assets or the UK SAR assets. I would just more broadly refer to it as a like an equipment financing or equipment-based financing, i.e. that there is value in the assets, underlying assets. And I think as lessors, potential lessors or lenders look at us, they look at us as the long-term leader in the industry and the long-term survivor in the industry and look at us from a broader credit perspective there. They are comfortable with what they see.

And again, Jonathan alluded to it, but we've got $2 billion of effectively unencumbered assets, both PP&E and aircraft. So, again, it's really our goal here as we kind of worked through our action plan, i.e. you are now just seeing the CapEx deferral and as we move along, the plan here is to really leverage the inherent value in those assets. But you are on the right track. UK SAR assets basically zero correlation to oil and gas business. So lessors and lenders look at that and appreciate the difference between the two. To answer your last question, we've seen no change in interest from potential financiers around the UK SAR assets given Brexit.

Jonathan Baliff

Just something -- to answer a question which I think the market has had some commentary about -- what we're trying to do is not lever up this company to survive. What we're trying to do is push out maturities and create a profile for us similar to what our CapEx deferral did. And that's a simple as that. If we can grab some cheaper liquidity by doing that, that's okay too, but that's kind of what we're trying to do here.

We've always been a company that has espoused lower leasing, prudent balance sheet management. And don't get me wrong. I'm not happy with where the leverage is right now, but Don and myself and a number of the executives, we've been through these cycles before and know what you need to do as far as keeping your secured capacity available to be able to survive as the global sector leader and that's really what we're trying to do.


[Operator Instructions]. Our next question comes from the line Daniel Burke with Johnson Rice. Please proceed with your question.

Daniel Burke

Jonathan, I wanted to ask you a question. I appreciate some of the outlook commentary provided on the oil and gas side. I guess the way I was thinking about it was you guys did a $70 million EBITDAR quarter here in Q1 2017. And from what I can see, it looks like, if you analyzed the fixed wing and the UK SAR EBITDAR produced in the June quarter, you would be squarely online with expected full-year run rates. And you said oil/gas should be pretty similar for the rest of the year. So should we basically expect adjusted EBITDAR to kind of hang at the $70 million level for the next few quarters? Is that the right conclusion?

Jonathan Baliff

Again, first of all, I appreciate it. Usually you are joined with a few other peers who want us to give guidance. There is a reason why we did not give guidance for the full Company consolidated EBITDAR. It's because it's still a very volatile marketplace. As I said, there's been stabilization, but I don't want anybody leaving this call thinking that we're positive about FY '17.

We've got a lot of issues concerning the pound that still are not sorted out. There's still utilization that has declined in certain markets even though we've seen a little bit of an uptick in others. So I am not going to actually satisfy your question, Dan. Just know I think we've been pretty explicit that what we're trying to do is keep to kind of this first-quarter run rate, that the Brexit impact on the pound will be offset by cost-cutting as we see it today. But most importantly, most importantly, outside of FY '17, we have enhanced our liquidity. We'll continue to enhance our liquidity.

We have the tools to do it to continue to survive as the global sector leader. So that to me is -- it's two stories that we're trying to tell here, but I don't want anybody to leave this call with the first story being so positive for FY '17. I think we'll improve in FY '18 because we have some self-help that we can do with new contracts and reductions in CapEx. But anyway --

Daniel Burke

Okay. Look, I understand. I appreciate that. And then I guess my other follow-up would be just to probe a little bit more on the Asia-Pac side. It seems like you guys actually had -- excuse me -- two related, maybe partly related impacts, some commercial issues as well as the 225 disruption itself which maybe we see in cost tick-up in Asia-Pac. Is it possible -- I mean can you get the costs back down I guess is maybe the simplest question to ask on the Asia-Pac side sequentially moving into the next quarter. What can we expect there? Can you give me anything more?

Jonathan Baliff

Yes, I'll let Chet talk about Asia-Pac, but I would say that's the market that we see the most weakness. And we're still in discussions concerning improving the costs, frankly getting some revenue back from those costs with the contracts. We're still in the midst of pretty sensitive discussions to be able to do that. And all those discussions have been done in true partnership, whether it be with our clients or OEMs. And so to answer that specifically would be difficult other than to tell you that we have an intent and we're seeing some success in the second quarter. But, Chet, anything else?

Chet Akiri

No, I think you covered it.

Jonathan Baliff



Our next question comes from the line Brandon Dobell with William Blair. Please proceed with your question.

Brandon Dobell

Just to confirm one data point, I think, if I compare the two presentations this quarter versus last quarter and the guidance for the comments for UK SAR EBITDAR contribution, it looks like there's -- you talked about half of the impact from currency hitting the UK SAR, but it still feels like there's something else going on there that needs to bridge versus the comments in the presentation from last quarter. Is there a similar operational issue?

Don Miller

The answer is, no, there's not. Basically Jonathan alluded to it. We've guided $15 million to $20 million from FX from Brexit and about $10 million of that is what he was alluding to earlier into UK SAR. So we're still in that mid -- we've always guided to that mid-40% EBITDAR margin. And so whether it moved by 100 bps or so in there, that was -- it was more just kind of the math rather than anything. So nothing going on there from an operating performance.

Brandon Dobell

And then just to confirm, it appears that the covenant calculation for leverage gives you guys some add-back or some flexibility around the FX movements, but I want to make sure I understand that that's the case. So you are not going to get tripped up on leverage covenants by what's happening or what could happen with the UK pound?

Jonathan Baliff

So let me just step back. You've raised the whole covenant issue and clearly our max is 4.25%. We finished up the quarter at 2.79%, so we've got a lot of room there, a lot of EBITDAR room. Around the FX, to be specific around your question, it's more related to the balance sheet impact, but we've quantified on the call today we think the view of the impact from Brexit.

Brandon Dobell

And then final one for me. As you guys think about the forward change in the expense structure, because you mentioned that there should be I guess some self-help from the expenses going forward. Order of magnitude, how do we think about that relative to the cost cut estimates you've provided, I guess provided mostly middle of last year around the expense structure? How do we think those things play out the next couple of quarters cost-wise?

Chet Akiri

So, I don't think we're giving specific guidance around the numbers, but I can tell you we're aggressively going after our cost structure, particularly in regions where we need to right size it to meet the current environment from a revenue perspective. And so we're doing things like eliminating layers of managements.

We're right-sizing our operations from a piloting and crewing standpoint. And by the way, we're also growing significantly deep into both our corporate costs as well as our business unit G&A. So this is really a broad-based and aggressive look at our cost structure to make sure we're aligned with the market realities today.


There are no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Jonathan Baliff

No remarks, ma'am. I think we're ready to get going for the rest of FY '17. Thank you very much for your support of Bristow and be safe.


This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!