Bristow Group Inc. ($VTOL)

Good day, everyone, and welcome to Bristow Group's First Quarter of 2026 Earnings Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Red Tilahun, Senior Manager of Investor Relations and Financial Reporting.

Thank you, Michael. Good morning, everyone, and welcome to Bristow Group's First Quarter of 2026 Earnings Call. I'm joined on the call today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President and Chief Financial Officer, Jennifer Whalen. Before we begin, I would like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of the investor presentation. You may access the investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such measures to GAAP is included in the earnings release and the investor presentation. I will now turn the call over to our President and CEO. Chris?

Thank you, Red. The company delivered on our goal of 0 air accidents in the first quarter, and the Bristow team remains committed to safety as our #1 core value and highest operational priority. Bristow's first quarter financial results place us on track for what is expected to be a transformational year for the company. We are pleased to affirm our financial guidance ranges for 2026, which notably reflect adjusted EBITDA growth of approximately 25% year-over-year. While geopolitical conflicts and tensions have driven turbulent and concerning global conditions thus far in 2026, these macro developments underscore the conviction we have in the outlook for Bristow's business. I'll have more comments on the strong tailwinds poised to benefit the company later in the call. But for now, I will hand it over to our CFO for a detailed discussion of Q1 results and our financial outlook. Jennifer?

Thank you, Chris, and good morning, everyone. Today, I will begin with a review of Bristow's sequential quarter financial results on a consolidated basis before covering the financial results and 2026 guidance ranges for each of our segments. While the first quarter is typically our seasonally lowest quarter, Bristow's total revenues were $11.4 million higher compared to Q4 2025, primarily due to increased activity in our Government Services business and increased rates and activity in certain of our key Offshore Energy Services or OES markets. Adjusted EBITDA was $0.9 million lower in Q1, mainly due to higher repair and maintenance costs and lease and equipment costs across our segments. We are affirming our 2026 guidance ranges of $1.6 billion to $1.7 billion for total revenues and $295 million to $325 million for adjusted EBITDA. Turning now to our segment financial results. Revenues in our OES segment were $6.9 million higher in Q1 versus Q4 2025, primarily due to increased rates and higher utilization in the U.S. and Trinidad, and higher utilization in Africa, which were partially offset by lower utilization in Europe. Adjusted operating income was $0.7 million lower, primarily due to higher operating expenses of $5.6 million and lower earnings from unconsolidated affiliates of $1.8 million, offsetting the higher revenues. Operating expenses in OES were higher primarily due to lower vendor credits recognized this quarter, coupled with additional aircraft leases, which were partially offset by lower personnel and other operating expenses. During the quarter, the company recognized additional noncash depreciation expense of $6.4 million related to S76D medium helicopters used in our OES segment as it finalizes plans to return this model and transition to newer models as part of Bristow's ongoing fleet management efforts to better meet customer needs. The company plans to complete this transition of models by early 2027 and expects to recognize approximately $24 million of additional depreciation expense through the transition period. Our 2026 OES revenue guidance range remains between $1 billion and $1.1 billion, and our 2026 adjusted operating income guidance range remains $225 million to $235 million for this segment. Moving on to Government Services. Revenues were $7.8 million higher, primarily due to the transition of the Irish Coast Guard contract, including the full quarter impact of the base in Sligo that began operations last quarter and the commencement of operations at the final base in Waterford this quarter. Adjusted operating income was $1.9 million higher in Q1, primarily due to the higher revenues, partially offset by higher operating expenses of $4.8 million as a result of higher repairs and maintenance, increased headcount in Ireland, higher leased-in equipment costs related to the ongoing transition activities in the U.K. and higher general and administrative expenses of $0.5 million, largely related to professional service fees. Our 2026 Government Services revenue guidance range remains between $440 million and $460 million, and the adjusted operating income guidance range remains $70 million to $80 million, which is roughly double that of 2025. And finally, revenues from Other Services were $3.2 million lower in Q1, primarily due to lower seasonal activity in Australia, partially offset by favorable foreign exchange rate impact. Adjusted operating income decreased by $2.9 million due to the lower seasonal revenues, partially offset by reduced operating expenses of $0.4 million related to the lower seasonal activity. Our 2026 revenues and adjusted operating income guidance for this segment remain between $130 million and $150 million and $20 million and $25 million, respectively. Turning now to cash flows and liquidity. Net cash used in operating activities was $8.3 million in the current quarter. The working capital used in the current quarter primarily resulted from an increase in accounts receivables, largely due to timing of customer payments. In comparison to the prior year, working capital changes consumed more cash flow in Q1 2025 than was the case in Q1 of this year. The company does not have material amounts of aged receivables, so we expect to see improvements in working capital in the coming quarters. As of March 2026, our unrestricted cash balance was $342 million with total available liquidity of approximately $394 million. As a reminder, in January, Bristow closed a private offering of $500 million senior secured notes due in 2033 with a coupon of 6.75%. The company used a portion of the net proceeds to redeem its existing 6.875% senior notes with the remaining net proceeds to be used for general corporate purposes. We are very pleased with the successful refinancing transaction highlighted by an upsized deal at a lower coupon rate and extended maturity. Bristow's financial flexibility, positive financial outlook and robust balance sheet represent a competitive advantage for the company and favorably position us to pursue various potential growth opportunities. Lastly, Bristow paid $3.7 million in dividends during the quarter and on April 30 declared another dividend of $0.125 per share of common stock. This dividend is payable on May 29 to shareholders of record at the close of business on May 15. At this time, I will turn the call back to Chris for further remarks. Chris?

Thank you. Looking forward, we believe Bristow is favorably positioned to benefit from three global megatrends, namely: increased defense spending; the importance of energy security; and the electrification of transportation. Taking each of these in turn, number one, Increased defense spending. Given recent hostilities and the overall geopolitical landscape, we expect defense spending to increase significantly over a multiyear period. With the expected scale of these defense expenditures and the continued budgetary pressures for most countries in the Western world, we anticipate the need for increased public-private partnerships to realize these government and military objectives. We see additional growth opportunities in our core government search and rescue business as well as a broader spectrum of aviation services to government and military customers, particularly in Europe and the Americas. In the context of a complicated geopolitical landscape and expectations for higher defense spending, we believe there will be compelling organic and inorganic growth opportunities for a specialized aviation services provider with Bristow's track record, operational expertise and financial flexibility. Number two, The importance of energy security. While oil and gas remain commodities, recent geopolitical events have placed an enduring emphasis on where hydrocarbon supplies are located and the established offshore energy basin that Bristow's services represents some of the most attractive and secure sources of supply. Deepwater projects are favorably positioned, offering attractive relative returns within the asset portfolios of oil and gas companies. And we believe offshore projects will receive an increasing share of future upstream capital investment. This positive demand outlook is paired with a tight supply dynamic. The fleet status for offshore configured heavy and super medium helicopters remains tight and the ability to bring in new capacity remains constrained with long manufacturing lead times. This constructive supply and demand balance, combined with an increased prioritization of energy security, supports a positive outlook for the offshore helicopter sector. Number three, The electrification of transportation. We have continued to advance Bristow's position as an early leader in the development of the advanced air mobility industry, which will incorporate the operation of next-generation aircraft powered by electric, hybrid electric, and other new propulsion technologies. As a leader in vertical flight solutions for over 75 years, Bristow has a unique opportunity to leverage our core competencies as an advanced proven operator to serve the needs of this new industry sector. We believe the company has created significant option value with minimal capital commitment to date in what is expected to be a large and rapidly growing addressable market for these new generation aircraft. In conclusion, we have a very positive outlook for Bristow's business in 2026 and beyond as we continue the company's evolution as a scaled multi-mission aviation services provider with complementary business lines. With that, let's open the line for questions. Michael?

[Operator Instructions] Our first question comes from Savi Syth from Raymond James.

First question may be on the fuel prices here, especially more so on the kind of the jet fuel price and availability. Just curious if that's affecting your business either directly or indirectly and your expectations as you go through the year?

Thanks for the question. Obviously, a lot of attention and rightfully so around the aviation jet fuel market globally. Fortunately, Bristow is naturally hedged as fuel is a pass-through in the vast majority of our business. For example, in all of our OES contracts, there is a pass-through of fuel cost to the end customer. There is one of our government contracts that has a slight lag in the reset mechanism, but that's more of a timing issue. So again, naturally protected through our pass-through mechanisms. The one area of the business, which is a bit different is the commercial airline that we own and operate in Northern Australia. There, our recovery mechanisms are more around increasing rates and imposing as we recently have a fuel levy on ticket sales. In terms of supply of that aviation fuel, thankfully, we've had ample supply to date, and our suppliers assure us that we should continue to do so. That's obviously something we'll continue to monitor. And in a scenario where there may be some rationing, we think as a provider of critical transportation services, and search and rescue services that we should receive priority. But again, availability has not been an issue to date, and we are naturally hedged and protected through the pass-through mechanisms in our customer contracts.

Our next question comes from Josh Sullivan from JonesTrading.

Just as we think about trends in global defense spending, you're highlighting and the opportunity for Bristow, historically, we've primarily known you as a civilian search and rescue operator. But as we think about Bristow fitting into the broader defense spending cycle perspective, can you just highlight maybe where and how that conversation is going to evolve?

Sure. We believe there are really multiple avenues of potential benefit for us. First of all, as you mentioned, in our core civilian Coast Guard search and rescue services, where we are the market leader in that segment. What we're seeing in a lot of conversations, particularly out of Europe right now is as those countries have committed to increase their defense spending, usually tied to percentages of GDP, they're looking for ways to balance their overall budgets. And one of the ways they could potentially do that is as they're spending more money on tanks and missiles, potentially outsourcing some of the civilian services like the Coast Guards. So, we're having conversations with more countries, again, particularly in Europe about potentially outsourcing their civilian services, which could be a source of growth for our core search and rescue business. In addition to that, we already provide other aviation services to militaries and government customers such as troop movements and ISR or intelligent surveillance & reconnaissance missions. We think those mission profiles will be an additional source of growth for Bristow as we look to expand our capabilities and expand our customer base that we're servicing by providing that broader spectrum of services.

And then on your side of things, the new international sandbox project in Norway with Electra Aero, how does that differ from the previous one with BETA? Is it a continuation with just a different aircraft? Are you seeking new insights, different use cases? Just curious how you guys are approaching these sandboxes.

Yes. I think we would characterize it as an evolution. It is a different aircraft that we'll be using this time. In the first test arena, there was a focus primarily on shorter routes, primarily around cargo logistics. In the new test arena, we're looking at broader regional air mobility applications, which could include both cargo and passenger transportation along really longer routes. So, more regional mobility with a different range and payload capability. So again, I would characterize it more as an evolution of the exploration of this new market for these next-generation aircraft.

And then just one last one on the operating expenses and working capital dynamics here in the first quarter or even first half. Can we just have a conversation what those are going to look like in the second half? Or what are the bigger tent poles there that are going to keep us on track with guidance here?

To start with working capital, I mean, this quarter was truly -- the draw on working capital was related to customer payments, which was similar to Q1 of 2025. Those have since been almost completely collected. So, I think on the working capital trends, it should potentially look similar to last year as far as that goes. On the rest of guidance, we give an annual guidance number, as you know, our Q4 and our Q1 are lower quarters than our Q3 and Q2. So that trend would continue.

I'd like to go back to Savi Syth from Raymond James. Did you have a follow-up question.

Yes. Just curious on the Slide 13. Could you remind us how global offshore production CapEx and OpEx translate into kinds of offshore opportunities? I'm guessing there is a lag in there, but I wonder if you could talk about how those two progress.

Sure. Happy to do that. So, with reference to that Slide 13 in the investor presentation, there is an expectation that drilling and exploration activity will pick up in the latter half of this year, and we expect overall offshore spending, both CapEx and OpEx to remain elevated at increasing levels through the end of this decade. For the two components, OpEx or operating expenditures really relate to existing established projects, primarily production support, and 85% of the revenue that Bristow generates in our OES business are related to those production activities. So that's really a direct indicator of spend that goes to services like ours. CapEx is related to new projects. So, this would be new exploration and development activities. Any increases there provide upside to us through that 15% of our OES business. So, we do have upside exposure there. And of course, any successful new discoveries on the exploration side are leading to next year's or following year's operating expenditure as production expands. So, the fact that growth of those -- both of those categories are expected to grow meaningfully over the next few years are positive tailwinds for our business.

Is there like a timeline generally that we should look forward to in terms of when these kinds of plans step up versus when it translates to Bristow's kind of P&L?

In terms of project timelines, it does have a spectrum to it. If it's a tieback to an existing platform, that will typically be faster than an entirely new greenfield project. But overall, we expect activity to increase in the latter half of this year. We'll see almost an immediate benefit from that. And then the flow-through from that into the rest of our business should pick up in 2027 and beyond. But again, on specific timelines, if it's a subsea well tieback to a platform that's already there, it may be a 9-month lead time. If it's an entirely new greenfield project in an entirely new exploration area, you might be looking at 3 years between when exploration activities begin and when you have production start to flow. So, a pretty broad spectrum depending upon the type of activity.

Our next question comes from Alex Rygiel from Texas Capital.

Nice quarter. Can you update us on the OES contract resets in the U.S.?

Alex, thank you for the question. Here in the U.S., we have now reset effective in the beginning of this year, our largest OES contract in the U.S. Gulf. There are others that will reset over the course of this year. More broadly speaking, across our global portfolio, we expect by the end of this calendar year that essentially all of our OES -- our legacy OES contracts will have reset. So, we'll have the benefit of that this year and of course, more of a full year benefit in '27 and beyond.

And then can you elaborate on the specific operational and financial considerations that led to the decision to retire the S76D helicopters earlier than expected?

Sure. This decision was primarily based on operational considerations, including repair and maintenance coverage with the OEM and our ability to procure parts and inventory needed to support the fleet. It has a small installed base, and it's been difficult to continue to keep those flying. So, to meet our customers' needs, we've had to make a change.

Our final question today comes from Steven Silver from Argus Research.

So, it's an interesting concept laying out these megatrends that Bristow might be in position to participate in over the coming years. Can you just discuss your thoughts around the timing of the opportunities and really how you're balancing them with just the continued tight equipment supply and really the ever-changing geopolitical landscape?

Steve, thanks for the question. From a timing standpoint, I'd say that these are really already tangible in many ways. For example, the progress that's being made on the projects for the advanced air mobility initiatives that are out there. In addition to that, energy security is, I think, again, very tangible for everyone in the world right now and the importance of where your sources for supply are coming from. And then around the defense spending and government opportunity, again, I think very tangible just with the way headlines and developments are occurring in the world and the conversations that we're having with potential -- both existing and potential customers about new ways to support them. So, it is already tangible, but we expect traction and momentum really to increase in the latter part of this year. And then we see this as a multiyear opportunity set. So, we see it as being quite durable in terms of opportunities to continue to grow the business. In the context of the tight supply market that you mentioned, I think we -- that will always be a challenge in how you have enough supply to meet an increased demand. Thankfully, I think we're well positioned in the sense of being the largest operator in the space, having the largest fleet globally. It does present us with both challenges as well as opportunities to optimize the portfolio and where the assets are and are they generating the best return potential for that potential asset. And then I think, again, we have a competitive advantage in the sense of the financial flexibility that we have. It's really a differentiator versus our competitors in the market. So that allows us -- we can bring in aircraft on lease. We can also purchase them when that makes more sense. And being the biggest operator for most of our key OEMs on the vertical aircraft side, I think we're as well, if not better positioned than anyone to capitalize on that.

This concludes our question-and-answer session. I'll now turn the call back over to Chris Bradshaw for closing remarks.

Thank you, Michael. Thanks, everyone, for your time. We look forward to updating you again next quarter. In the meantime, stay safe and well.

This concludes today's call. You may now disconnect at any time.