Bristow Group Inc. (VTOL) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Bristow Group's Second 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, Amy. Good morning, everyone, and welcome to Bristow Group's Second Quarter of 2026 Earnings Call. I am joined on the call today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President and Chief Financial Officer, Jennifer Whalen. Before we begin, I'd like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of our investor presentation. You may access 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. I'll begin with a brief note on safety, which remains Bristow's #1 core value and highest operational priority. The company has delivered on our goal of 0 air accidents year-to-date 2026. With regard to occupational safety, we are pleased that the number of lost workdays is down from this time last year, and we are on track to achieve our third consecutive year of fewer lost workdays. I would like to thank everyone on the Bristow team for their continued commitment to place safety first every day. We closed on the acquisition of Berry Aviation on July 13, and we are excited to welcome the Berry team to Bristow. Headquartered in San Marcos, Texas, Berry Aviation operates a fleet of more than 20 aircraft, primarily providing military and defense aviation services across multiple countries. Through its government services offering, Berry provides a broad range of services such as special missions, ISR operations, MRO services, training and mission support and unmanned aerial systems design and development capabilities. Berry's other services consist of on-demand cargo logistics for blue-chip end customers and aftermarket supply chain aviation solutions. Berry has extensive experience supporting all branches of the U.S. military and a record of excellence in completing missions that demand precision, safety and strict compliance. Bristow and Berry share a cultural emphasis on safety, reliability and rapid response in complex environments. And through this transaction, customers will benefit from Bristow's scale, operational expertise and global platform. We now have a presence on 6 continents across 20 different countries. Berry's specialized capabilities across a range of mission-critical operations and strong customer relationships are complementary to our existing government services operations, better positioning Bristow to compete for long-duration government programs. The acquisition is expected to enhance the quality of Bristow's earnings through increased exposure to contracted government services and multi-mission aviation activities, supporting a more durable and balanced business profile. The acquisition is also expected to be immediately accretive to Bristow's earnings and free cash flow while bolstering the company's EBITDA margin profile. In a separate initiative, we announced that Bristow is pursuing the sale of our Norway Offshore Energy Services business as part of our long-standing portfolio optimization strategy. The exit is consistent with Bristow's ongoing strategy to deploy assets and resources in markets with attractive margin profiles and value-accretive returns on capital. Bristow remains focused on growing our global offshore energy services business in markets that meet our financial return parameters. We also expect to continue pursuing other opportunities in Norway, such as those in the advanced air mobility space. We should note that the timing and structure of any sale transaction remains subject to market conditions and other considerations. I would further note that the planned exit of the Norway OES business and the addition of Berry Aviation would have been neutral to Bristow's 2025 EBITDA on a pro forma basis. Turning now to our financial outlook. Bristow's second quarter financial results keep us on track for what is expected to be a transformational year for the company. We are pleased to affirm our adjusted EBITDA guidance range for full year 2026 of $295 million to $325 million, which reflects year-over-year growth of approximately 25%. The ability to confirm this outlook despite macro uncertainties and continued supply chain challenges that are adversely impacting our government search and rescue contract transitions is a testament to the complementary nature of Bristow's business segments and the benefits provided by the significant geographic and customer diversity in our business model. 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 Q2 results and our financial outlook. Jennifer?

Thank you, Chris, and good morning, everyone. Before we begin, I would like to echo Chris's comments on the acquisition of Berry Aviation. We are pleased to have successfully closed the deal and welcome the Berry Aviation team to Bristow. As we begin consolidating Berry Aviation's financials, we plan to include their special missions, MRO, CRO and UAS business as part of our Government Services segment and their on-demand cargo and remaining services as part of our Other segment. Today, I will begin with a review of Bristow's sequential quarter financial results on a consolidated basis before covering the financial results and the 2026 guidance ranges for each of our segments. In Q2, Bristow's total revenues were $23.1 million higher compared to Q1, primarily due to higher utilization in our Other Services segment and higher fuel revenues and rates in our Offshore Energy Services or OES business. Adjusted EBITDA was $20.5 million higher in Q2, largely attributable to the increased revenues across our segments and lower repairs and maintenance costs. 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 $7.3 million higher in Q2, primarily due to higher rates and fuel revenues in Europe and across several key markets in the Americas, while revenues in Africa remained consistent with the preceding quarter. Adjusted operating income in OES was $16.4 million higher this quarter due to higher revenues, coupled with lower operating expenses of $4.3 million and higher earnings from unconsolidated affiliates of $2.2 million. In Q2, repairs and maintenance costs were $7.8 million lower, primarily due to higher vendor credits. Personnel costs were $6.3 million lower due to seasonal personnel cost variations in Norway, while increases in activity and global commodity prices contributed to higher fuel, freight and other operating costs of $9.9 million. Depreciation and amortization expense was $4 million higher as a result of accelerated depreciation of assets related to a lease facility in the U.S. and capital spare parts associated with the S-76D medium helicopter model that is in the process of being phased out, as I mentioned last quarter. Given the continued performance of our OES business, we are tightening our 2026 revenues guidance and increasing the adjusted operating income guidance range to $235 million to $245 million for this segment. Moving on to Government Services. Revenues were $4.4 million higher, largely attributable to the commencement of operations at two UKSAR2G seasonal bases and increased rates from annual rate escalations. Irish Coast Guard revenues were $1.5 million higher due to the full quarter impact of the Waterford base that commenced operations last quarter. And revenues in the U.S. were $1 million higher due to higher utilization. Penalties related to aircraft availability, which has been adversely impacted by continued supply chain challenges, have remained elevated in the current quarter, but were consistent with the preceding quarter, While fuel revenues were consistent with the preceding quarter despite increases in global fuel prices due to contractual lags in the -- in rebilling fuel costs under UKSAR2G. Adjusted operating income was $2.3 million lower, primarily due to higher operating expenses of $6.1 million, offsetting the higher revenues. The commencement of operations at certain UKSAR2G and Irish Coast Guard bases, including full quarter impact of costs that were previously deferred, increased overtime costs to support the ongoing transition and onetime salary adjustments related to a labor agreement in the U.K. resulted in personnel costs being $3.3 million higher this quarter. Additionally, increased training, travel between bases and higher base and facilities costs related to transitions were $1.8 million higher this quarter. Lastly, fuel costs were $1.5 million higher due to higher global fuel prices. While fuel is typically a pass-through, there is a delay between when the company incurs the cost of fuel at prevailing market prices and is then able to recoup the fuel expense under UKSAR2G. In summary, the lower margins in this segment are expected to be largely confined to calendar year 2026. The unprecedented pace and severity of increases in global jet fuel prices in Q2 adversely impacted profitability in our Government Services segment by $1.5 million, primarily due to a deferred price adjustment mechanism in the UKSAR2G contract. We have since tightened the adjustment mechanism via contractual amendment, and this impact should not recur in Q3 and beyond. In addition and more materially, continued supply chain challenges have resulted in delayed aircraft deliveries and modification schedules, which adversely impacted 2026 adjusted operating income by approximately $8 million. This is a function of elevated KPI penalties adversely impacting revenues as well as transition costs persisting longer than anticipated due to retained headcount and other transition costs. The net impact of these factors is included in our revised Government Services segment adjusted operating income range for 2026. While some of these transition costs will roll into early 2027, the 2027 Government Services results should track closer to the original guidance range plus the additional benefit of the incremental EBITDA from the Berry acquisition. As a reminder, these are typically 10-year base contract periods plus option years, and we still expect to generate attractive long-term cash flow yields on these important government services mandates. At this time, we are updating our 2026 Government Services segment guidance ranges to include the addition of Berry Aviation government contracts and take into the effect the transition impact I noted a moment ago. As such, our 2026 revenue guidance range is updated to $475 million to $495 million, and the adjusted operating income guidance range is updated to $55 million to $65 million for this segment, which is roughly 60% higher when compared to the midpoint to the 2025 results. And finally, revenues from Other Services were $11.4 million higher in Q2, primarily due to higher seasonal activity and higher fuel revenues. Adjusted operating income was $4.2 million higher due to the higher seasonal revenues, partially offset by higher operating expenses of $7.7 million related to the higher activity and fuel prices. We are updating our 2026 Other Services guidance ranges based on the performance to date and to include the addition of Berry's ODC and other offerings. The updated 2026 revenues and adjusted operating income guidance for this segment is between $155 million and $175 million and $25 million to $30 million, respectively. Turning now to cash flows and liquidity. As of June 2026, our unrestricted cash balance was $312 million with total available liquidity of approximately $372 million. Net cash provided by operating activities was $41.4 million this quarter compared to net cash used in operating activities of $8.3 million in Q1. The increase in operating cash flows is primarily due to higher earnings, coupled with a decrease in working capital uses during the current quarter. On a year-to-date basis, working capital uses remain elevated as a result of increases in accounts receivable due to higher activity, increases in other assets related to start-up costs for new government services contracts as the costs are incurred prior to the full commencement of revenues, and a decrease in accounts payable and accrued liabilities related to the timing of tax and OEM vendor payments at the end of the current quarter. As noted in previous calls, the company does not have material amounts of aged receivables in any of our segments and new contract transitions are set to conclude in the coming quarters. So we expect to see continued improvements in working capital as activity and timing-related items normalize. During the current quarter, Bristow paid $3.7 million in dividends. And on July 30, declared another dividend of $0.125 per share of common stock. This dividend will be paid on August 28, 2026, to shareholders of record at the close of business on August 14. We consistently evaluate the best uses of our cash flow and aim to yield the highest value and return on capital. Additionally, we will continue to execute on our capital allocation strategy, which prioritize maintaining a strong balance sheet, the conclusion of investments and other transition costs tied to growth in our various regions and a return of capital to shareholders. We believe the company will continue to generate strong free cash flow and accelerate in earnest as we near the completion of this transformative year. At this time, I'll turn the call back to Chris for further remarks. Chris?

Thank you. Looking forward, we continue to believe Bristow is favorably positioned to benefit from three global mega trends, namely increased defense spending, the importance of energy security and the electrification of transportation. Taking each of these in turn, number one, 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. The recent addition of Berry Aviation significantly increases our exposure and addressable opportunities in this segment. The transaction will enable cross-selling of services to government customers by leveraging the combined company's expertise, diversified fleet and global footprint. Number two, the importance of energy security. Recent geopolitical events have placed an enduring emphasis on where hydrocarbon supplies are located. And the established offshore energy basins that Bristow services represent 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. The leading indicators for offshore activity from subsea equipment orders to rig contracting activity to expected FID approvals are positive and poised to further benefit Bristow's OES business. 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. Bristow has a unique opportunity to leverage our core competencies as an advanced proven operator to serve the needs of this new industry sector. Most recently, the Scottish Electric Aviation Network, or Project SEAN, was launched by a Bristow-led Consortium in partnership with BETA Technologies and supported by GBP 1.5 million of funding from the U.K. Department of Transport to advance electric aviation services across Scotland's Highlands and Islands. We believe Bristow has created significant option value with minimal capital commitment to date and what is expected to be a large and rapidly growing addressable market to these new generation aircraft. In conclusion, we have a very positive outlook for Bristow's business as we continue the company's evolution as a global leader in mission-critical aviation services for government entities, offshore energy companies and other customers around the world. With that, let's open the line for questions. Amy?

[Operator Instructions] The first question is from Jason Bandel from Evercore ISI.

I have a couple of questions this morning on OES. Can we unpack your updated guidance in OES there a little more? Can you discuss what were the primary drivers that led to the increase in the adjusted operating income while narrowing the range for revenue?

Sure. We had -- we did have better performance in the first half of the year. This is both in rate and in activity, more aircraft being put on contracts and contracts that went longer than we had originally expected. And we expect that to continue through the rest of the year, which really informed our increase in the guidance, and we just have more certainty around the revenue. So we were able to tighten the revenue guidance.

Got it. Understood. And then on the effective utilization side of things, has that changed for a portion of your fleet in recent months? And can you kind of discuss, I guess, well, first of all, what idle capacity looks like right now and your expectations for flight hours for the rest of the year? And if you can give us some color regionally as well, that would be helpful, too.

Yes. Happy to address that. So there has not been a material change in the effective utilization. It remains -- if we're talking about the relevant heavy super medium and medium offshore helicopter models, effective utilization remains very tight. And as we know, it's also a constrained supply picture with limited new capacity that could come into the market. In terms of flight hour activity, we would expect second half '26 to be slightly higher, but not a huge increase. We see 2027 as being a more significant inflection point for new incremental offshore projects moving forward. Regionally, I would say that the North Sea remains a more mature market. So stable, but not a lot of growth that we're seeing. We're seeing more growth and higher activity in areas like Africa as well as in South America. So Brazil, Suriname and even in the Caribbean with Trinidad, we've seen more activity regionally in those locations.

Great. That's helpful color, Chris. And my last one, just around the planned Norwegian exit. I guess, first, have you experienced any impact to that business after you made that announcement? And then I guess, secondly, any sense for timing about a potential exit there would be helpful as well.

Sure. So take those in order. No, we have not seen a material impact on the business since the announcement. We're continuing to focus on delivering safe and reliable service to our long-term customers there. It is a very well-established business that's been around for more than 30 years, strong customer relationships, good operating footprint, a strong, very capable management team continuing to manage the business there in Norway. In terms of timing, we are at the beginning of the process. So we're still in the process of reaching out to potential buyers to gauge who has an interest. And for those that are interested, we would then move forward in earnest with a more detailed part of that sale process. So still at the early stages of that.

The next question is from Savi Syth from Raymond James.

Maybe, Jennifer, you noted that most of the transition costs related to your kind of government SAR contracts in the U.K. and Ireland should subside in 2026, but maybe some continuing into early 2027. Could you provide a little bit more color on kind of which costs are expected to flow into 2027?

Sure. There will be some additional costs related to aircraft and people as we prepare the last of the aircraft for the UKSAR2G to modifications, et cetera, on to that. So there will be people costs and some other lease costs, et cetera. And those people will roll off, and this is really very early in the part of '27. Those people would then roll off and all the rest of those costs would roll off as well.

That's helpful. And maybe, Chris, you mentioned the Project SEAN announcement with kind of advanced mobility kind of taking a lot of attention at Farnborough, particular around these kind of tactical commercial deployments, kind of what milestones should investors watch to kind of evaluate Bristow's progress in converting this segment from an investment into like true commercial opportunities?

I would note a couple of things there. First would be aircraft certification time lines. So in the Western world, we're still waiting on the first of these aircraft to be certified. Those companies are making progress with the relevant regulatory authorities, whether that be the FAA here in the U.S., EASA in Europe or the CAA in the U.K. And within that certification journey, another milestone that we would point to are their flight test programs. So for the relevant aircraft, have they made the transition in flight on a manned basis to vertical flight and then back again. So those are some important milestones on that journey. And then to Bristow specifically and when there might be a translation into commercial opportunities, one of the milestones I would follow is our order status. So right now, we have positions with our partners. Those are largely contingent upon things like the certification time line, also the aircraft's actual performance meeting the design specifications. So as you see some of those positions move into firm orders and start to show up in our CapEx schedule, that would be an indicator that we believe, we reached a point where there is an underwritable business case to put the aircraft to work.

That makes sense. That's helpful. And if I might, just -- following up on kind of Jason's question earlier, he asked on the OES side. Just on the government services side, just what are your kind of flight hour expectations there and how that should progress given some of the challenges that you're having with the transition?

I would expect flight hours to be relatively stable, should be consistent. Our variations in flight hours tend to be more seasonal. So in the summer months, when it's warmer and people are out being more active, we tend to have more call-outs for rescue missions, whereas in the months where maybe the weather is such, that people aren't as outdoors or doing more things, we tend to have less call-outs for those rescue missions. But should be noting those seasonal differences relatively stable from a flight hour standpoint otherwise.

Our next question comes from Alex Rygiel with Texas Capital.

What percentage of Berry revenues are under long-term contracts? And how does that recompete schedule look over the next few years?