Bristow Group Inc. (VTOL) Q1 2014 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Bristow Group’s First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, August 6, 2013. I would now like to turn the conference over to Linda McNeill, Director of Investor Relations. Please go ahead.

Thank you, Doug. And good morning, everyone. Welcome to Bristow Group’s first quarter fiscal 2014 earnings call. I am Linda McNeill, Director of Investor Relations. And with me on the call today are Bill Chiles, President and CEO, Jonathan Baliff, Senior Vice President and Chief Financial Officer, Mark Duncan, Senior Vice President Commercial, Brian Allman, Vice President and Chief Accounting Officer and John Cloggie, Vice President and Chief Technical 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. Additional information concerning these forward-looking statements is contained in the Form 10-Q filed with the SEC for the period ended June 30, 2013. 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 calculation of these measures and GAAP reconciliation. With that, I would like to turn the call over to Bill. Bill?

Okay. Thank you, Linda. Good morning to all of you. And thank you for joining us on our earnings call for the quarter ended June 30 first quarter of our fiscal 2014. As you know we always start off talking about safety and our commitment to target zero safety, which is our primary core value. And the first quarter was a very good quarter from the standpoint of our Air Accident Rate as you can see from this chart on Slide 5. And please look at Slide 5, we’ve had no Class A accidents, no Class B accidents and just a few Class Cs during the first quarter. This is action performance, we’re very happy about that. However, our ground safety is not been so good. Our total recordable incident rate is actually from last year during the first quarter of this year where we’ve had 4 Lost Work Cases already and one Medical Treatment Case which cost to total recordable incident rate to increase. Obviously we’re examining these incidents looking for common causes in doubling our efforts to increase our moves around the world to improve our culture and as you hear about Safety Management System. Just a couple of points about our Safety Management System, our system includes world-class Pilot and Engineering Training for an industry like this. We actually invest over $38 million annually in pilot training alone. We create our own training material internally in the content, we got 90 plus training captains and Check Airmen who conduct a significant portion in the annual 13000 aero simulator training and 8 Bristow-owned full flight simulators and flight training devices around the world. This investment underpins a consistent group wide approach to safety ensuring that the safety benefits and training are maximized and delivered to all of our clients. Our safety team is led by Tim Rolfe he is the Director of Bristow Quality Safety and Standards. Tim has been with Bristow for 24 years, flown over 8500 hours as a pilot in Bristow helicopters and most recently served as manager for Global Flying Training Standards a role and employed his extensive company and industry insights into quality assurance, safety and training. Turning to Slide 6 and let me talk about some of the highlights for the quarter. From a financial point of view the first quarter of fiscal 2014 was a record at Bristow with revenue and adjusted earnings per share at levels never seen before during any of our first quarters. Our first quarter GAAP earning per share of $0.74 increased 13.8% over the last year’s first quarter and our adjusted earnings per share of $1 increased 23.5% over the like quarter in fiscal 2013. In parallel with the adjusted earnings per share adjusted first quarter fiscal 2014 EBITDAR improved 21.6% compared to the first quarter of our last fiscal year and was driven by top-line revenue growth with new and existing clients in Europe, West Africa combined with the addition of our Cougar acquisition in Canada an investment we made last October. And an improvement in earnings in our other international business unit which was primarily driven by equity earnings from our unconsolidated affiliate Lider in Brazil, excellent performance from Lider in Brazil and I’d like to highlight that. We’re investing in our future, we’ve already spend a $180 million in CapEx on organic growth during this first quarter alone while still preserving our industry leading liquidity and credit metrics. We have reaffirmed the adjusted earnings per share guidance range of $4.20 to $4.50 for the full fiscal 2014 at the high end of our 10% to 15% long-term adjusted annual earnings growth rate. We generally say that the second half of the fiscal year is better than the first and this year will be no different as we anticipate strong results for the remainder of fiscal 2014. Please turn to Slide 7, and let me give you a little macro overview as the way we see the market. Oil demand is steadily increasing driven by slow but not spectacular global economic improvement. Although the economic picture is mixed out of China and Europe there are enough pockets of strength the U.S. and Japan for example to keep oil prices above the $100 per barrel level through fiscal 2014. New calendar year 2014 cap expenditures are forecasted to increase by more than 10% where the major focus on development of deep-water fields in Brazil, the Gulf of Mexico and West Africa. In the North Sea where Bristow generates 40% of our revenue and cash flow oil and gas activity is at its highest level in over 30 years driven by both new exploration and exploitation of mature basins. It’s very interesting to note as we said before our clients are recognizing the critical importance of safe, efficient and reliable helicopter services for their offshore operations particularly given the EC225 situation. That is now extending to other parts of the globe for their 5 year forward demand for our services including approximately 250 realistic opportunities out of the total opportunities at 472, if you recall those numbers are higher than we reported you in the last quarter totaling an estimated $16.3 billion in potential revenue. Please turn to Slide 8, let me give you a update on the 225 situation. In the past 3 months Eurocopters indicated that the definitive solution the EC225 gear shaft failure will be a gear shaft redesign with the earliest availability of the new shafts expected in the mid calendar year 2014 so about a year from now. Interim solutions are being implemented in accordance with the regulatory authorities which includes the EASA, the UK CAA and Norway. And these interim solutions will involve minor aircraft modifications and new maintenance and operating procedures which will allow us to fly these aircraft safely during this interim period. We cannot -- we can’t begin flying operations until we complete all the modifications and do the training necessary, we work with our clients and our flying public to ensure all of them that we can fly these aircraft with the absolute safety. And at Bristow, when we say we put safety ahead of commercial pressure we really mean it, we never put commercial pressure in front of safety and we will -- our timeline for return to service with the flying public will not be affected by commercial pressure. No, client contracts have been cancelled so far and we have aircraft in position to serve our clients. We’ve been able to pretty much keep up with the demand in Aberdeen where we are most affected and this we believe this demand will continue as clients seek different ways to mitigate or protect themselves from potential situations like this in the future. In certain instances we’ve also agreed to reduce monthly standing charge for the affected aircraft, typically this happens when we have mitigated or reduced the cost associated with the monthly standing charge. In summary, in consistent with our previous disclosure Bristow estimates that our return to revenue service for the EC225 aircraft will be on the third quarter of our fiscal year 2014 which means sometime this fall or early winter. Please turn to Slide 9, and I’ll focus on Europe. Our European business units which is the largest business unit continue to perform well in the first quarter of fiscal 2014 with the addition of 9 new large aircraft over the course of the last 12 months, 4 of which were -- the S-92 to service our GAP SAR contract in Sumburgh and Stornoway. Operating revenue increased an impressive 11.3% over the prior year’s quarter and adjusted EBITDAR increased 4.6% over the same period. EBITDAR margin of 30.3% decreased from 32.2% in the first quarter of fiscal 2013 compared with fiscal -- first quarter of fiscal 2013 primarily due to increase in maintenance and salary cost. These costs were mainly associated with the reintroduction of the AS332 which we’re serving as replacements for the 225s and keep in mind that we expense heavy maintenance rather than capitalize heavy maintenance so this hits our bottom-line immediately. These costs are expected -- were expected, we plan for these costs and the non-recurring with adjusted EBITDAR margins expected to recover to the mid-30s level for the entire fiscal 2014. As always management reiterates that we focus on our annual performance for the very reason these quarter-to-quarter costs can and do occur. Another recent positive is the recent sale of our 50% interest in FBH and the FBH -- the FB Entities for GBP 74 million or approximately USD $112 million. A pre-tax gain on the sale of this investment of approximately USD $104 million is expected to be recorded during the current quarter ending September 30th. In our oil and gas business Bristow continues to -- continues to see excellent exploration prospects particularly in the area west of the Shetland Islands and Norway however we continue to see robust growth in the -- exploitation of mature basins elsewhere in the North Sea. As mentioned previously adjusted EBITDAR margin is expected to be in the mid-30s for full fiscal 2014. Turn to Slide 10 and I’ll focus on our UK SAR business. You could see from the Slide 10 I -- I think I said 14, turn to Slide 10, just a correction where it shows Cardiff that is St. Athan so it’s the same location different name. Four out of the 9 aircraft that were delivered in the Europe business unit that I mentioned earlier over the last 12 months are for the GAP SAR contract these are S-92 aircraft, 2 of them started operations in June from Sumburgh in the Sheldon Islands, and 2 in July from Stornoway. And during the period since our start up from June 1 to July 31 we’ve actually conducted over 50 SAR missions from those 2 bases. We recently signed contracts with 7 additional S-92s and 11 AW189s to serve the UK SAR contract. The aircraft have delivery dates in fiscal 2015 and fiscal 2016 and the terms of our purchase contracts are very much in line with our bid to the Maritime Coastguard Agency. So as you can see we’ll have 22 aircrafts serving SAR once the contracts is full up. Bristow now includes additional disclosure for the SAR configured commitments in our 10-Q, so for more details, you can refer to the 10-Q. We believe this will continue to be relevant growth area for Bristow with a tender for the Falklands SAR due for 3 aircraft in fiscal 2014. We’re very focused on execution and making sure we move through the start-up phase with this contract with quite a bit of care. Please turn to Slide 11, focused on West Africa. In Nigeria, the first quarter operating revenue increased a notable 14.2% year-over-year due to increased pricing, ad hoc flying and new contracts. Adjusted EBITDAR increased 12.1% year-over-year due to the increase in revenue which is partially offset by an increase in maintenance expense. Adjusted EBITDAR margin slightly decreased due to these increased major maintenance cost similar to what WASBU experienced in the second quarter of the last fiscal year. Now the outlook is that WASBU will continue to work hard to be successful maintaining its premium brand and generating good strong margins. Currently Bristow is working on the renewal at several existing contracts and the replacement of older technology aircraft with new technology aircraft, while the ad hoc market continues to be strong even with new competition in the region, hats off to Captain [indiscernible] and his team for great performance. We expect fiscal 2014 adjusted EBITDAR margins to remain in the low 30s. Please turn to Slide 12. I’ll now focus on North America. Operating revenue increased 10.7% year-over-year with most of the revenue increase coming from our investment in Cougar and our leases of aircraft and equipment from Cougar our affiliate in Canada which continues to perform exceptionally well. Cougar contributed $16.1 million in operating revenue for Bristow in total, $8.2 million in our North American business unit and $7.9 million in our corporate and other. Adjusted EBITDAR increased 39.5% to $17 million in the first quarter of fiscal 2014 from $12.2 million in the first quarter of fiscal 2013. And adjusted EBITDAR margin increased with 23.2% in this quarter compared to 29.2% in quarter one -- excuse me EBITDAR margin increased from 23.2% in the December quarter in 2013 to 29.2% this quarter in fiscal 2014. Our focus in North America is going to increase our movement toward large and medium aircraft targeting the deepwater market and Cougar could also add some additional capacity in the near future. In the Gulf of Mexico specifically the new S-92 aircraft went on contract in June with more large aircraft we expected to follow in the coming quarters. And as I mentioned well we are pushing further and further to skew our fleet away from the smaller aircraft to the mediums and larger aircraft. We expect adjusted EBITDAR margins to improve to the low 30s during the full fiscal 2014. Please turn to Slide 13, and I’ll focus on Australia. Operating revenue for Australia remain flat at $38.2 million in the first quarter. Our focus is growing the scale and getting ready for the INPEX contract that begins in our quarter 4 of this fiscal year meaning next spring. As we spoke about last quarter when we gave early guidance our Australia’s margins would be down this year as they prepare for the introduction of the S-92 and the initiation of the large INPEX contract at the end of this fiscal year. Fiscal 2013 adjusted EBITDAR decreased to $6.8 million in the quarter 1 fiscal 2014 compared to quarter 1 fiscal 2013 of $10.3 million primarily due to the -- of short-term work in the new increasing cost for the INPEX contract. The INPEX contract will start as I said in the -- at the end of this fiscal year in quarter 4 and some of the cost connected with that contract project will be incurred now that we cannot capitalize as part of the contract startup. Additional large aircraft will be delivered in 2014 as well as when the contract ramps up. Opportunities with new clients are being discussed with more fiscal 2015 where we also can report one large aircraft started a one year contract on August 1 with improved terms and 2 more large aircraft will be commenced before the calendar year end. Adjusted EBITDAR margins are expected to be in the low 20s during the full fiscal 2014. Turn to Slide 14, and I’ll focus on our other international business unit. The other international business units first quarter operating revenue proved they’re not as relevant as other business due to the large percentage of lease cash flow slightly decreased by 1% due to the end of short-term contracts in Guyana and the Baltic Sea, that were partially offset by increased activity in Russia and Brazil. Adjusted EBITDAR increased 84.7% to $22.2 million in the first quarter from $12 million in the first quarter of fiscal 2013 and adjusted EBITDAR margin increased from 36.2% in quarter 1 of 2013 to 67.4% in this quarter due to an increased earnings from unconsolidated affiliates, primarily from Lider as I mentioned earlier. The outlook for this business unit is as Brazil continues to improve and we continue to report clients in new markets like East Africa. I’m proud to say that Bristow has won a three-year contract in Tanzania for 3 new technology medium aircraft to start in January of 2014. This establishes us in East Africa with a major client and we see further potential contracts in East and North Africa. In Brazil, Petrobras is expected to release new tenders from multiple, medium and large aircraft needed to start at second half of calendar 2014 and early calendar 2015. In addition, recent new licensing rounds have been very well attended and several IOCs have gained new blocks which will result in additional aircraft demand beyond the Petrobras requirements. Lider also secured a new position as the exclusive dealer from Bombardier jet aircraft sales in Brazil. This will bring added growth in Lider’s aircraft sales business and will supplement the Beechcraft turbo prop position Lider has enjoyed for many years. For the full fiscal year 2014, we expect adjusted EBITDAR margins in the low to mid 40s. With that I’ll turn the call over to Jonathan for review of our financial performance.

Thank you Bill. So let’s review some of the financial highlights from this quarter. Please turn to Slide 16. As Bill said earlier our strong financial performance from the fourth quarter of fiscal 2013 as continued into the first quarter of 2014. Our first quarter FY 2014 adjusted EPS was $1 excluding special items and as to disposition effects. Special items include a one-time charge associated with the cancellation of a potential financing in connection with our successful UK SAR bid that we spoke about over the last 6 months. The first quarter fiscal 2014 adjusted earnings is at 23.5% increase over last year’s $0.81 and it’s consistent with the adjusted EBITDAR improvement of $18.2 million or 21.6% from the first quarter of fiscal 2013. The increase as we spoke about before in EPS and EBITDAR were primarily driven by strong top-line growth in Europe and West Africa. The addition of our large aircraft operating in Atlantic Canada that began last October higher earnings from our other international business unit including Lider in Brazil. And also net cost improvement at corporate. This was partially offset by the weaker margins in certain business units that Bill talked about but these are expected the non-recurring with adjusted EBITDAR margins expected to recover during the rest of the fiscal year 2014. In Brazil, excluding foreign exchange impacts our equity earnings from our investment in Lider improved $5.9 million primarily due to the additional aircraft among contract and better cost management which contributed $0.13 of improvement from Bristow’s first quarter. As you may recall we closed on our Cougar investment during the second half of fiscal 2013 so you’ll see large year-over-year additions in the first half of fiscal 2014. This quarter Cougar contributed $0.09 of the improvement to our North American business unit and also contributed $0.07 at corporate and other through our centralized major maintenance efforts with them. Please turn to Slide 17, our top-line growth is driven by LACE and LACE rate. And during the quarter 1 of fiscal 2014, 3large and 3medium aircraft were added to our fleet and this increased our large aircraft equivalent by 2% to a 161 aircraft. For the remaining 9 months of fiscal 2014 we have 9 medium and a 11 large aircraft on order which will bring our LACE count to between 173 to a 177 depending on the timing of aircraft investments during the year. Speaking of the investments, during this quarter 4 small aircraft were sold a loss on disposal was recorded at $1.7 million which compares favorably to the loss of $5.3 million in the June 2012 quarter. So as these items are excluded from our adjusted EPS on really for small aircraft sales. As of August 6th we now have 12 aircraft held for sale, 8 small aircraft and 4 medium. The overall LACE rate increased 2.7% from $8.55 million in Q1 fiscal 2013 to $8.78 million in Q1 fiscal 2014. Our LACE rate increased 5.1% from the $8.35 million at the end of Q4 fiscal 2013 also. Steady growth in the LACE rate for the past 5years shows our ability to achieve better terms on contracts especially with our large aircraft fleet, improved aircraft utilization especially in West Africa and our North American business unit. We are currently maintaining LACE rate guidance for fiscal 2014 of $8.3 to $8.6 million per LACE with a potential to revise upward as this fiscal year progresses since we’re currently above the guidance range for the year. Please turn to Slide 18. Bristow’s continued focus on cash flow generation and working capital management has led to another positive quarter for BVA. The first quarter of FY 2014 Bristow value added was a positive $1.5 million which is slightly lower than the $1.9 million in Q1 of fiscal 2013. But this result is in line with expected annual BVA cyclicality as you can see above in the chart and we expect a positive net change for the full year performance of BVA year-over-year from fiscal 2013 to fiscal 2014. We delivered consistent positive BVA over the last 7 quarters which is an outstanding accomplishment for every employee in operational, commercial and support functions especially considering the cost to maintain fleet availability through the EC225 suspension of operations. Bristow is also going through an exceptional period of growth in capital expenditures in fiscal 2014 and that has been offset by the efficient use sale and leaseback financings, continued excellent receivable and payable management without the use of expensive short-term factoring debt arrangements and inventory controls. Specifically this quarter other international business unit and our West African business units were key performers behind the positive BVA result for first quarter FY 2014. Please turn to Slide 19. As we say Bristow’s focus on BVA leads to improved cash flow. Operating cash flow totaled $36.4 million during Q1 FY 2014 compared to $55.4 million during Q1 FY 2013 but much of this decline is attributable to a year-over-year timing differential on the semi-annual interest payments for our 6 in a quarter senior notes. This will be normalized for the FY 14 year as we have no payment scheduled in the second quarter. As well as non-recurring cash payments we made related to the successful UK SAR bid. As you can see on the right hand side of this page we still maintained our industry leading liquidity above the $400 million level even with the record $180 million organic CapEx for growth during this quarter. We expect to get much of this cash back during the next 3quarters as we finalize over $250 million of sale leaseback financings. The sale of our FBH interest will also fund a lot of this growth. To this point as of August 5 last night our liquidity stood at $489 million with a revolver capacity at $249 million and cash built up to $239 million in total. Management will continue to focus on liquidity and whole liquidity balance is greater than $400 million until the UK SAR financings are finalized. Please turn to Slide 20. Our proven industry leading capital efficiency and superior cash flow is a result of our commitment to financial safety and prudency. But another benefit of this prudency is the financial flexibility to provide a balanced and growing return to our shareholders. Last quarter our Board of Directors approved a 25% increase to our quarterly dividend bringing the total increase to 67% from initiation 2 years ago. Today we are pleased to disclose that Bristow’s dividend policy is changed to be based on a 20% to 30% payout ratio of forward adjusted earnings per share. There are 3 reasons for us doing this, first this policy is more in line with our energy peers who pay a high growth dividend. Two, the policy provides more predictability to the growth and the dividend especially when creating financial projections for the company. And finally three, a payout ratio range provides more flexibility in various economic and interest rate environments to provide an exceptional return for our shareholders. This policy is possible because of the unique characteristics of our business model and reflects confidence in our global position, the secular demand for our services and our cash flow stability even in down side scenarios. Please turn to Slide 21. Today we are reaffirming our annual adjusted EPS guidance range for FY 2014 up $4.20 to $4.50 per share which excludes the impact of aircraft sales and special items. Similar to our new dividend policy this guidance is based on our commercial and operational teams, proven ability to capitalize on overall market strength and excel in the pace of number of the challenges that we faced at the end of FY 2013 and right now in FY 2014. We also reaffirm guidance for the other parameters that will help market participants easily model the financial projections of our company. Please note that the interest expense guidance shown above in the chart of $30 to $35 million does not include the special item charge of $12.7 million associated with the cancellation of the UK SAR [indiscernible] financing. We're also reaffirming Bristow’s long term adjusted EPS growth of 10% to 15%. It is important to note that this 10% to 15% adjusted earnings growth does not include any benefits from our operational excellence initiatives that we talked about last quarter. This includes transformation of our global fleet management function, monetization of our IT systems and improved standardization and simplification of our centralized maintenance functions. In the coming quarters of fiscal 2014 management will disclose information concerning these efforts many of which are well underway. Combined with our organic growth, UK SAR execution and the new dividend policy management is very upbeat about our prospects no matter what economic, commodity, competitive or interest rate environment we face. And now I will turn the call back to Bill for final comments.

All right, please turn to Slide 22. I want to emphasize one more time with safety. I think our number one core value Target Zero we will achieve Target Zero is not a matter of if it’s a matter of when. Our commitment continues and will always be our number one commitment. Another point, clients are turning to Bristow as their provider of choice recognizing the size of the company the global reach in financial and operational safety which are becoming more and more important to them, they are now focusing on financial safety as well as operational safety. For example -- an example is the new contract win in East Africa. We continue to see growth in revenue from our very stable and growing oil and gas production and exploration business plus growth in the civilian SAR world. This anticipated lower business risk cash flow stream is allowing Bristow to implement a new dividend policy that creates a unique investment for existing shareholders and those of you out there that want to become new shareholders. So thank you again for joining the call. And now I’ll turn it over to the operator for questions.

[Operator Instructions] Our first question is from the line of Ryan Fitzgibbon with Global Hunter Securities.

Can I start off with the EC225 the modification inspection process, can you kind of walk us through the timing on maybe per aircraft basis that requires, one. And then two, will you be expensing to capitalizing those costs and make those upgrades and train the crews to be ready to get back to work by for fiscal Q3 of this year?

I’m going to let Jon -- John Cloggie is here. He is now formerly Head of our business unit of Central Operations is now overseeing global Transformation but he is directly involved in the 225 project matter of fact he leads our return to service team. So I’m going to let John answer the questions. I didn’t hear what was the first part of your question first part?

Yes, Bill I’m just trying to get better understanding of the process that goes into the modifications and the instructions, kind of the timing on a per aircraft basis take?

Yes, okay. And then whether we capitalize our expense, okay.

Yes, I just want to figure out in the process.

Process, the timing and whether we capitalize our expense. So John, over to you.

Okay. The -- what we were doing on the 225 is a number of simple modifications which involve changes to the inside of the transmission, some inspections that we carry out on current basis. And also indications in the cockpit for the crew whilst they operate the aircraft. We’ve stocked some of these modifications already and we’re working our way through the fleet, we have most of the kits delivered now from Eurocopter. And we’re embarking upon an extensive training program for our pilots and engineers so that they know how to manage the systems and operation. As we have stated previously we are still looking to return the aircraft to service in the last quarter of this calendar year. But regard to the cost, the labor cost is relatively insignificant but there may be an ongoing cost associated with the nondestructive inspections that we’re carrying out and these cost will be expensed in a way through. The…

The components, the components.

Sorry, I missed the last part. The time, the modifications and the timing.

Ryan was asking the labor costs are insignificant, with components.

Sorry, yes.

The hardware and software of company.

The modifications associated with the hardware and software are been provided by Eurocopter free of charge.

Okay, that’s helpful. And then in terms of the order of magnitude for the number of helicopters, that can go back to work in fiscal Q3, can you disclose what’s embedded in guidance?

Let me take that one and I’m going to turn it over to Mark because I think there is a commercial interaction so that’s important if you to understand Ryan. But we have given guidance with the explicit expectation of return to revenue service for the third quarter of our fiscal year. However I think we’re also being fairly conservative even with that timing as part of our guidance.

Yes, Ryan, it’s Mark Duncan here. A couple of interesting points to note on the 225 return to service, the physical work to be done and the training to be done on the crews is part of the challenge. We're also in significant dialogue with our customers and with the customers the passengers who fly in the aircraft. So they feel confident and we’re going to go through that entire process and make sure everyone is on board before we go back flying and that’s our focus on safety. On the ongoing cost of the 225 because there are additional procedures additional inspections required, we will be -- we tend to recover that from our clients when the aircraft back in service.

Okay, got it. And then second question, Jonathan you teased us little bit up there about the operational excellence initiative you have in place right now. Can you give us a little bit more of a tease as to what kind of magnitude that could have on your cost basis and how is that going to impact margins as we go through the year?

Ryan, I appreciate your question. And because we want you on the calls in the second, third and fourth quarter, we’re going to leave you little bit hanging there. One, we want to make sure that people understand how we're bringing the 225s back to revenue service and lot of our operational excellence niches are actually helping in that regard. So you already starting to see some of that but as far as the explicit because you’re really asking for explicit numbers associated with that, stay tuned.

Your next question is from the line of Jon Donnel with Howard Weil.

I was wondering if you might go on to a little bit more detail on the other international segment and the really good results we saw this quarter. I know that it was always a lot of moving pieces with the way that the Lider numbers end up hitting your income statement here but you mentioned a number of the benefits that they’ve been seeing from the increased aircraft. Why don’t if you just maybe give us a feel for how much of that number this quarter was more reflective of currently the ongoing operations or maybe just operations for this quarter specifically as supposed to maybe some catch up payments or foreign currency translations et cetera.

Yes, Jon, I’m going to divide this into 2 pieces. I’m going to let Mark Duncan talk about the commercial side and Jonathan talk more about the details of how this flows through our income statement.

Okay, Jon. Just in Brazil with Lider, Petrobras awarded several contracts over the last 12 to 18 months all of which were reported by us. You will recall that Lider’s margins took a dip as they were ramping up for those new contracts so they were incurring a lot of pilot training, aircraft acquisition cost et cetera. And the real change that’s happened as those costs are all sunk and the contracts are now all up in running and Lider are performing well. The S-92 is now there is significant fleet of S-92s there is large aircraft up to 10 aircraft in Brazil now with Lider, in the past it was all mediums and those higher margin large aircraft are driving forward now on a long-term contracts. So, we expect this to be a run rate given that there could be FX fluctuations, I don’t think the FX fluctuations in this quarter’s numbers were that significant but I’ll let Jonathan talk about that.

Yes, I mean we talked about -- we alluded to you in a little bit on Slide 16, when we talked about the contribution from Lider at $5.9 million. We didn’t include that there was a positive it’s in the 10-Q it will be in the 10-Q $2.7 million of benefit due to foreign exchange but really if you look at it 2/3 of the benefit is because of the excellent commercial and operational benefits that Lider is deriving has been really the provider of choice for Petrobras and the IOCs that are there. And again it’s important to note Lider is a business that on this been around a long time, the growth in fixed wing and helicopter services and we expect them to continue to get the lion's share of business in oil field flight services as we move forward with their exploration and then production in Brazil.

Okay, that’s helpful. And then regarding the Europe segment when you’d mentioned that some of the standing charges have been waived for the EC225, clearly that must had a negative impact under the EBITDAR margins that we saw in the quarter. Could you give us maybe a feel for the magnitude of how those may be continuing here as you ramp up in expectation of getting those helicopters back into the full service for the fleet in the third quarter.

Yes, Jon it’s Mark Duncan again. I just like to clarify for you that the 225 production and charges we actually report about 4. We have our position with our clients where we’ve reduced the charges based on being able to take costs out. So as an example our pilot costs are included in our monthly charges. When we’re able to use those pilots on alternative aircraft it would able to take that cost though and benefit the client who is suffering through this because they’re not flying the aircraft. And then we are using those pilots deploy additional aircraft which is backfilling. The real dilution in margins was due to heavy maintenance which was bringing a 3C2 aircraft that was previously held for sale or planned to be sold bringing it back into service and undergoing a major check and we expense that cost. So that expense is coming in this quarter. That aircraft will then go to work and the expense cost it’s taken so it won’t recur. So that is a temporary blip in those margins, there is no -- it’s not a market factor of lower margins at all.

That was one aircraft that had that big of an impact?

And there were some other costs too, we don’t get into the specifics of which costs but it was derived from bringing that last aircraft. We’ve been since you know and having those type of parts incurred in previous quarters the difference is that we took a lot of those and didn’t have to take those in third, second and fourth quarter of FY 2014 and that’s why you’re seeing a lot of it pile on into this quarter. The last thing I would mention really reiterating from a number standpoint Mark’s point, on Page 30 we give the LACE rates for EBU and you see that in first quarter were at $9.63 million LACE rate in the first quarter compared to $9.13 in the fourth quarter and this just again reiterates what Mark is getting at which is we’re not waving any of the MFCs we’re enjoying the revenue and it was really is major maintenance cost.

Our next question is from the line of Jim Crandell with Cowen and Company.

It seems you had a lot of one-time costs in the quarter first for the AS332 the [indiscernible] to get ready for new contracts. Can you try to quantify the amount of one-time cost of the quarter and how they impacted it?

Yes, Jim this is -- I’m going let Jonathan take that but I’ll emphasize this as one reason we try to get you guys to look at the full year rather than quarter-to-quarter performance. Because this typically happens in the first quarter but Jonathan go ahead.

Yes, I mean Jim I think we have to delineate between what we call one-time special items which are associated and not included in our adjusted earnings and those items were consisted over the past number of years and this quarter it included an item associated with a financing that we cancelled associated with the successful bid for UK SAR that was predominantly the difference between the $0.74 and $1. And then within that dollar I think the primary cost that we’ve been talking about is really just associated with the maintenance in Europe. And so it’s really those 2 I don’t think we really have talked in the press release and you’ll see in the 10-Q a whole lot of other one-off cost and again reiterating what Bill says we look at these cost as part of an annual and even multi-year management of our fleet.

Okay maybe it’s just the quarter-to-quarter volatility in the numbers which surprises me but I am little surprised on the revenue side the Gulf of Mexico is running down year-to-year now, is that -- am I reading it right?

You’re correct and I have to address the previous comment you just made Jim. If you look at the year-over-year and we’ve done a lot of metrics. When you look at the year-over-year measurements we’re at the top of our industry we have less than the 3% volatility in our yearly and actually we didn’t look at the quarterly in our volatility on quarter-to-quarter results were roughly 3quarters less than the Universal Oil Field Services. So I don’t like this agreeing with anybody on a call but again we don’t see at least in our analysis the same type of volatility you’re talking about and again we run the business on a year-to-year basis. As far as your other comment I’m going to turn it over to Mark.

Yes, Jim, it’s Mark. On our Gulf of Mexico business you are seeing a decline in the small aircraft utilization as the Shelf continues to decline and an increase in deepwater activity with a number of rigs still to come in. As we mentioned we have had an S-92 started in June that’s going to start driving significant revenue and remember our S-92 delivers a whole bunch more revenue than several small aircraft. And we’re also able to advice that we secured an additional contract for an S-92 starting in the first quarter of FY 2014 and that award was received yesterday -and that’s a 3to 5year contract. So again good sings for the Gulf of Mexico moving forward as we get larger aircraft and they’re going to generate higher margins.

Jim, I do want to make one point, I don’t want to sound like the lady that protest too much. But Jim I’m going to address this volatility issues that Jonathan talked about. You may recall 3, 4 years ago we had huge volatility quarter-over-quarter due to maintenance cost because Bristow was maintaining these over types of doing the major checks out of our own pocket on a month-to-month basis. So when we had a bunch of major checks pile up at one time in one quarter we had a horrible result you remember that very well. So the volatility has come off dramatically since those days. Primarily due to the fact that one the new types we buy powered by the aeros from the manufacturer. So when the major checks come up they’re done really primarily I mean -- they’re embedded into monthly standing charge and the flight hour rate that we charge our customer and they’re already accounted for in our accounting so when we actually, that money is paid out over a long period of time to the manufacturer so when we do those major checks now we don’t have to pay these big we don’t have to write these big checks on a monthly or quarter basis. So the 332s that caused the problem this quarter are the ones that we are pulling out of service that we had to bring back into service to back up the 225s that’s why this happened.

Okay.

Consistent with our guidance.

Our next question is from the line of Gregory Lewis with Credit Suisse.

Could you talk a little bit about the decision to sell FBH, that’s really my only question, just looking for some more clarity on the decision to sort of get out of that of [indiscernible].

We’ve been in that investment for about 14 years when I arrived here 10 years ago we formalized the investment signed a formal agreement with our -- from the former Cobham set up an office and got FBH up and running fully up and running. It’s done extremely well as you can see we’ve developed, we generate a lot of value in that company. We believe it’s not really core to Bristow its training military pilots in the UK primarily and it was -- in some cases standing in the way of Bristow doing other things around the world that we want to do directly. We saw an ability to get out of it the opportunity to get out of it take some money off the table and let Cobham run it 100% in the future just it’s just not, what we’re trying to focus on and what do we do well and what is core to Bristow, what’s not core to us is what we don’t do well we’re trying to get out of it.

Okay. Could you may be provide us some sort of thoughts around what were -- what Bristow’s plans are with that I guess that windfall of money is it -- should we just expect it to be redeployed in the order book in terms of building out existing, the existing footprint or could be may be see that money go into sort of developing another new business opportunity?

Well, I think the answer is yes and yes. I mean we have not made a very big deal of it because we usually don’t highlight such specific contract wins but that money will nearly almost dollar-for-dollar directly go into East Africa and so we’ve won a long term contract with a major client with new technology aircraft and higher BVA than we’ve seen out of FBH better earnings potential than FBH and better from a strategic standpoint even though we don’t like to use that word on these calls but the stars are going to line up very nicely because of the secular demand in our industry. So that money is going to go to East Africa and grow that business significantly.

Next question is from the line of David Smith with Johnson Rice.

Wanted to circle back to the U.S. Gulf deepwater market just with the contract announced this morning that looks like 20 incremental deepwater rigs scheduled to join the U.S. Gulf of Mexico fleet 3Q 2013 and 1Q 2013. And given the most of these units have term contracts 3 years plus just wanted to ask how far in advance your clients are looking to secure their aviation needs on these new rigs before they start drilling I didn’t quite catch that I think you mentioned one that was a new contract that you just picked up?

Yes, we just picked up a contract that will start in April of 2014 and that’s a 3year plus contract and there are several other customers who are bringing rigs in towards the end of next year who are already in dialogue in the market looking for additional heavy aircraft so we’re fairly confident that demand there is returning to be very robust and we look forward to deploying more of our heavy aircraft into the Gulf of Mexico.

Sounds great. I guess the follow up question is that this doesn’t gone right there is about 17 deepwater rigs in the U.S. Gulf that have been working down the term contracts and become available between December 2013 and December 2014, that leaving a lot of right now open availability in that timeframe that we’ve got 18 rigs are being added. I’m just wondering if you’re having any conversations regarding the service on these existing rigs that might lack official contracts or do you think the market could evolve over short-term call out market and would that make any difference?

Is that in the Gulf of Mexico, you’re talking about or else…

No, that’s the Gulf of Mexico. So through December 2014 I count 18 new rigs being added or we’ve got 17 existing deepwater rigs in the Gulf where the contracts expired before that.

Yes, there is a little bit of a bifurcation of the market in the Gulf of Mexico regarding the clients. The major companies tend to contract especially in the deepwater they take these big deepwater rigs and they contract for a number of years because the wells takes 6 months’ time to drill. Some of the other companies who use floating rigs they tend to go well to well and then they share the rig around and they found the rig over someone else. We actively monitor that on a day to day basis and follow that. So we’re looking our utilization in the Gulf of Mexico against rigs and remember that lot of our work is production based as well. One advantage we have and we’ve demonstrated this in the past is that when rigs stop and the aircraft become available we have multiple opportunities around the world where we can redeploy aircraft and we’ve done that in the Gulf of Mexico. At the moment we’re probably looking at aircraft coming into the Gulf of Mexico overall but opportunistically we will look at redeploying and we’ll do that.

Next question is from the line of Brandon Dobell with William Blair & Company.

One, we could focus I guess on maybe your thoughts on the sustainability of the LACE rate improvements in the Western Africa region and maybe you kind of tied into that your outlook for I guess sustainability of the improvements out of Cougar recently?

Okay, on Western Africa primarily Nigeria for us as we look forward what’s happening there is there are number of aircraft have been in there for on long-term contacts. The customers are looking to renew those aircraft and they want newer aircraft types. That will keep the rate levels up in that market so even if there is no growth by aircraft numbers there is growth by aircraft type.

Okay.

As we deploy in newer aircraft into that market. At the moment things are stagnated in Nigeria due to the petroleum bills are not being announced and we are actively looking at our contracts extending contracts waiting for bids to come, and I think most of the companies are waiting on their new projects in that region until they get clarity and what’s going to happen in the country.

Okay.

When that happens there will then be growth in that market as well as a just replacement.

Yes, I mean if you just take it down to on the finance side of it we expect the LACE numbers there to start really improving, we’ve been as you know kind of around low 20s of LACE I mean we expect that to start moving up because of the insertion of larger aircraft. And I think you’re alluding to we have employed for the first time in a business unit a greater than a $14 million LACE rate in an overall business unit but again what we have to emphasize in West Africa is it’s mostly a medium market and we enjoy good pricing there because of the great service we provide in a safe service. But we can continue to move that LACE rate because of the insertion of larger and new helicopters.

Okay. And any comments on Cougar, how this was nice run you’re having or maybe the magnitude of the opportunity for add new aircraft there looking up for this fiscal year?

Okay. Cougar passed a number of contracts that are in the process of being extended for several years tendering some future tendering that’s going to come for about existing work. Those fields are in place and producing and will be there for the long-term. In addition, there are 2 additional new projects happening in Eastern Canada and there will be additional tenders for that probably coming out in the next quarter for starting in calendar 2016 and that will provide additional growth for Cougar. The additional activity that’s happening then in [indiscernible] is utterly seismic that will count into drilling programs in the future and there are 2 majors going there next summer and Cougar already contracted for some of that work.

Let me add to that Mark. Brandon, there will be competition for those 2 tenders.

Okay. That makes sense. And then final one from me, it doesn’t seem like there is any other kind of global fallout from the 225 issues but is there been anything up note to talk about there in some of the different regions as you guys work close to resolution in this issue.

One note I would -- one thing I would say that we -- I believe we talked about last quarter was the introduction of the S-92 into Australia for INPEX as a result of the 225 issue.

[Operator Instructions] Our next question is from the line of David Anderson with JPMorgan. Please go ahead.

David, you’re there?

One moment please. Mr. Anderson has disconnected.

Okay.

Okay. We have no further questions operator?

At this time, there are no further questions in the queue.

Okay. Thanks to all of you for joining the call in this quarter. And we look forward to talking to you again next quarter and obviously in the interim we’d be like to give us a call. Thanks again.

Thank you. Ladies and gentlemen, this concludes the Bristow Group’s first quarter earnings conference call. You may now disconnect. Thank you for using ACT conferencing.