Filing Summary
Important identity note: The provided Form 10-Q is for Era Group Inc., not Bristow Group Inc. It covers the quarter and six months ended June 30, 2015, and was filed August 4, 2015. The financial statements are unaudited.
Business Context and Reporting Period
Era operated helicopters serving offshore oil and gas, search and rescue, air medical, utility, firefighting, flightseeing and dry-leasing markets. Its fleet totaled 152 helicopters at June 30, 2015. Operations were exposed to seasonal demand, particularly in the U.S. Gulf of Mexico and Alaska.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Operating revenue | $70.7 million, down from $86.6 million | $138.2 million, down from $166.0 million |
| Operating income | $8.5 million; 12% excluding asset-disposition gains | $14.4 million; 8% excluding asset-disposition gains |
| Net income attributable to Era | $11.3 million, or $0.55 diluted EPS | $11.3 million, or $0.55 diluted EPS |
| Cash flow from operations | Not separately provided | $20.7 million, down from $31.3 million |
| Capital expenditures | Not separately provided | $39.7 million |
At June 30, 2015, cash and cash equivalents were $17.0 million, compared with $40.9 million at December 31, 2014. Total debt, including current maturities and before debt discount, was $296.4 million; reported long-term debt, net of current maturities and discount, was $267.7 million. Revolving credit facility availability was $219.1 million, net of letters of credit.
Net cash decreased $23.9 million during the first six months, reflecting $20.7 million of operating cash flow, $27.6 million of investing cash outflows and $15.0 million of financing cash outflows, plus $2.0 million of unfavorable foreign-exchange effects.
Material Changes Versus the Prior Comparable Period
- Revenue declined 18% in the quarter and 17% year to date, principally because of lower utilization and excess medium-helicopter capacity, especially in the U.S. Gulf of Mexico and Alaska.
- Operating expenses fell $14.9 million in the quarter and $20.9 million year to date, driven by lower repairs and maintenance, fuel, personnel and other operating costs.
- Operating margin declined to 13% from 16% in the quarter and to 10% from 14% year to date. Excluding asset-disposition gains, year-to-date margin declined to 8% from 11%.
- Net income benefited from a $12.9 million pretax gain on the sale of the Anchorage fixed base operations business. The sale generated $14.3 million of cash proceeds and eliminates future FBO revenue.
- Interest expense decreased following the repurchase of $9.9 million of 7.750% senior notes. The company recognized a $0.3 million gain on extinguishment.
- The prior-year periods included a $2.5 million note-receivable impairment, while 2015 included $2.4 million of foreign-currency losses year to date.
- Era acquired a 75% interest in Hauser Investments Limited, owner of Colombian operator Sicher Helicopters, for $3.2 million in cash and an AW139 helicopter transfer. The acquisition generated $1.4 million of goodwill and $1.4 million of intangible assets.
- The company terminated its transition services agreement with SEACOR effective June 30, 2015.
Guidance, Outlook, Risks and Unusual Items
- Management reported excess medium-helicopter capacity and warned that unsuccessful efforts to secure new projects could further reduce utilization and affect results over the next several quarters.
- New contracts had been awarded in the U.S. Gulf of Mexico and Brazil, with some commencing in the second half of 2015 and most scheduled for the second half of 2015 or early 2016. No quantitative earnings guidance was provided.
- Revenue recognition related to Aeróleo remained subject to cash collection. Deferred Aeróleo revenue totaled $37.1 million at June 30, 2015 because of the joint venture’s financial difficulties.
- A proposed transfer of the company’s partner’s interests in Aeróleo remained subject to judicial approval and was expected to close in the second half of 2015. Era expected to consolidate Aeróleo upon closing, creating potential operational, liquidity and accounting impacts.
- Unfunded helicopter and related capital commitments totaled $175.0 million, including $66.4 million payable during the remainder of 2015. The company could terminate $106.7 million of commitments, subject to aggregate liquidated damages of $2.5 million.
- Major risks included dependence on offshore oil and gas activity, customer concentration, helicopter safety and grounding risks, regulatory and geopolitical exposure, foreign-currency movements, joint-venture financial difficulties, debt covenants and reliance on used-helicopter markets.
- Non-U.S.-dollar capital purchase commitments totaled €128.7 million, or $143.4 million. A 10% adverse currency movement would increase the dollar equivalent by approximately $14.3 million.
- The company utilized $2.5 million of Airbus service credits during the first six months, reducing operating expenses.
Investor Verification Priorities
- Confirm that the filing belongs to Era Group Inc., not Bristow Group Inc., before using any figures.
- Assess whether new contracts improved medium-helicopter utilization and reversed the revenue decline.
- Review the collectability and eventual accounting treatment of the $37.1 million of deferred Aeróleo revenue.
- Evaluate funding requirements and covenant capacity in light of $175.0 million of unfunded capital commitments and only $17.0 million of cash.
- Separate recurring operating performance from the $12.9 million FBO sale gain, debt-extinguishment gain, asset-disposition gains and other unusual items.
- Monitor foreign-currency exposure, helicopter delivery commitments, and the potential consolidation of Aeróleo.