Filing Overview
Filing and period: Unaudited Form 10-Q for the three months ended March 31, 2016, filed May 3, 2016. The provided filing is for Era Group Inc., not Bristow Group Inc.; investors should verify the company and filing identifier before relying on this summary.
Era operates helicopters primarily for offshore oil and gas transportation, with additional search and rescue, air medical, utility, flightseeing, dry-leasing and related services. Results are seasonal, with generally higher activity in the U.S. Gulf of Mexico and Alaska during spring and summer.
Financial Results and Key Metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Operating revenue | $62.6 million | $67.4 million | Down $4.8 million, or 7.2% |
| Operating income (loss) | $(0.8) million | $5.9 million | Down $6.7 million |
| Operating margin | (1%) | 9% | Down 10 percentage points |
| Net loss attributable to Era | $(3.8) million | $(0.04) million | Greater loss |
| Basic and diluted loss per share | $(0.19) | Nominal loss | Unfavorable change |
| Cash flow from operations | $14.8 million | $6.8 million | Up $8.0 million |
- Operating expenses increased to $44.3 million from $43.6 million. Repairs and maintenance increased by $1.1 million, while fuel and insurance costs declined.
- Administrative and general expense declined to $9.2 million from $9.7 million, partly due to termination of the SEACOR transition services agreement and cost controls.
- Depreciation and amortization increased to $12.8 million from $11.6 million, reflecting new helicopters, a completed base expansion and information-technology infrastructure.
- Gains on asset dispositions were $2.9 million versus $3.4 million. The company sold a hangar, two helicopters and related equipment for $4.0 million of proceeds.
- Revenue mix shifted materially: U.S. revenue declined to $44.7 million from $55.5 million, while foreign revenue increased to $17.9 million from $12.0 million, principally because Aeróleo was consolidated beginning October 1, 2015.
- By service line, oil and gas revenue increased to $51.8 million from $45.7 million because of Aeróleo consolidation, but U.S. Gulf of Mexico revenue fell to $36.8 million from $41.9 million. Dry-leasing revenue fell to $4.0 million from $12.0 million, and FBO revenue declined to zero following the sale of the FBO in May 2015.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $30.8 million at March 31, 2016, up from $14.4 million at December 31, 2015.
- Total assets were $997.5 million, compared with $1.004 billion at year-end 2015. Property and equipment, net, was $845.9 million.
- Total debt, including current maturities, had a carrying amount of approximately $265.9 million, compared with $267.0 million at December 31, 2015. Debt included $149.8 million of 7.75% senior notes, $90.0 million drawn on the revolving facility and other borrowings.
- The revolving credit facility matures in March 2019, provides commitments of up to $300 million, and had $208.9 million of remaining availability after letters of credit at quarter-end, subject to collateral and covenant limitations.
- Operating cash flow was supported by a $11.6 million decrease in receivables and other working-capital changes. Investing cash flow was positive $2.6 million, primarily from asset-sale proceeds exceeding capital expenditures of $2.1 million.
- Financing cash flow was negative $1.3 million, reflecting $8.7 million of debt repayments, $7.0 million of revolving-facility borrowings, $0.5 million from share plans and $0.2 million of treasury-share purchases.
- Unfunded capital commitments were $156.1 million, primarily for seven AW189, two S92 and five AW169 helicopters. Approximately $40.1 million was payable during the remainder of 2016, and approximately $129.4 million could be terminated subject to $3.2 million of aggregate liquidated damages.
Material Changes and Management Commentary
- Management attributed weaker results to higher excess capacity of medium and heavy helicopters, fewer aircraft under contract, lower average rates and reduced offshore oil and gas activity following the decline in oil and natural-gas prices.
- The company is pursuing fleet-management initiatives, competitive bids and additional projects to improve utilization. Management warned that failure to secure sufficient new projects could reduce utilization and affect 2016 and later results.
- Aeróleo contributed $7.6 million of Q1 2016 revenue and a $0.7 million net loss. Its consolidation increased reported international revenue but also added operating costs and losses.
- Following an April 29, 2016 fatal accident involving an H225 operated by another company, Norwegian and U.K. authorities suspended certain H225 commercial operations. Era owns nine H225 helicopters. Management expected to use other aircraft where possible, continue revenue from the Norwegian search-and-rescue dry lease and stated that the near-term financial impact was not expected to be material, although the duration and ultimate impact were uncertain.
- Management stated that it expects positive operating cash flow to meet working-capital requirements and intends to fund helicopter commitments through cash, operating cash flow, asset sales and revolving-facility borrowings as needed.
- No formal earnings or revenue guidance was provided in the filing.
Risks, Contingencies and Unusual Items
- Brazilian tax and related disputes involving Aeróleo included municipal assessments of approximately $6.4 million, additional tax claims of $1.9 million, social-security claims of $3.5 million and proposed penalties of $1.8 million. Outcomes were uncertain; management did not expect material effects, and $5.8 million had been deposited in court-controlled escrow and fully reserved.
- The company remains exposed to offshore oil and gas cyclicality, customer concentration and contract cancellations, excess aircraft capacity, helicopter grounding or safety events, competition, foreign exchange, aircraft resale values, regulatory changes and joint-venture operating difficulties.
- Non-U.S.-dollar helicopter purchase commitments totaled €112.3 million, or $127.9 million. A 10% adverse currency movement would increase the dollar equivalent by approximately $12.8 million.
- Era used $1.2 million of Airbus service and product credits during the quarter, reducing operating expenses. The filing states that additional credits were expected to be used in the following quarter.
- Interest expense increased by $1.2 million year over year, principally because less interest was capitalized and previously capitalized interest was expensed.
Most Important Facts to Verify
- Confirm that the intended issuer is Era Group Inc.; the request identifies Bristow Group Inc., while the supplied filing consistently identifies Era Group Inc.
- Assess the sustainability of operating cash flow, given the reported operating loss and reliance on working-capital releases, asset sales and revolving debt.
- Review helicopter utilization, excess capacity, contract renewals and rate trends, particularly in the U.S. Gulf of Mexico and other offshore oil and gas markets.
- Evaluate the $156.1 million helicopter commitment program against fleet demand, available credit and covenant requirements.
- Monitor the H225 suspension, regulatory findings and potential effects on fleet utilization, aircraft values, insurance and customer contracts.
- Review Aeróleo’s disputed tax matters, escrowed funds, reserves and the effect of consolidation on reported revenue, expenses and cash generation.