Era Group Inc. Form 10-Q Summary — Quarter Ended March 31, 2018
Filing identity: The supplied filing is for Era Group Inc., not Bristow Group Inc. Investors should verify the company and filing metadata before relying on this summary. The financial statements are unaudited and cover the three months ended March 31, 2018, compared with the three months ended March 31, 2017.
Business Context and Reporting Period
Era Group operates a helicopter fleet primarily serving offshore oil and gas customers, with additional emergency response, utility, charter and dry-leasing activities. Operations span the United States, Argentina, Brazil, Colombia, the Dominican Republic and India. The company reported a fleet of 121 helicopters as of March 31, 2018, including 117 owned and four leased-in helicopters.
The company sold its Alaska flightseeing assets on February 23, 2018, including eight single-engine helicopters, two facilities and related equipment, for $10.0 million. It stated that it would not conduct flightseeing operations in 2018.
Financial Results and Key Metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $57.3 million | $54.5 million | +$2.8 million, approximately 5% |
| Operating revenue | $54.8 million | $51.1 million | +$3.6 million, approximately 7% |
| Operating income (loss) | $1.7 million | $(5.1) million | Improved by $6.7 million |
| Operating margin | 3% | (9)% | Improved by approximately 12 percentage points |
| Net loss | $(1.4) million | $(5.8) million | Loss narrowed by $4.4 million |
| Net loss attributable to Era Group | $(1.2) million | $(5.6) million | Loss narrowed by $4.4 million |
| Loss per diluted share | $(0.06) | $(0.27) | Improved by $0.21 |
| Cash flow from operating activities | $(1.0) million | $4.3 million | Declined by $5.3 million |
| Capital expenditures | $3.8 million | $1.0 million | Increased by $2.8 million |
| Cash proceeds from asset dispositions | $19.5 million | $0.1 million | Increased by $19.4 million |
Revenue growth was driven primarily by higher utilization in U.S. oil and gas operations, particularly heavy and medium helicopters. This was partly offset by lower international oil and gas revenue, lower emergency response revenue and lower dry-leasing revenue.
Operating income benefited substantially from $4.4 million of net gains on asset dispositions, compared with $0.1 million in the prior-year quarter. Excluding this unusual gain, underlying operating performance remained pressured by administrative expenses, maintenance costs and fuel costs. Administrative and general expense increased $1.7 million, primarily because of a $2.9 million increase in professional services fees.
Interest expense increased to $4.6 million from $3.6 million, primarily due to the write-off of $0.4 million of deferred debt issuance costs related to the revolving-credit-facility amendment and lower capitalization of interest. The company recorded a $0.7 million income-tax benefit, compared with a $2.1 million benefit in the prior-year quarter.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $16.6 million at March 31, 2018, compared with $13.6 million at December 31, 2017.
- Total assets were $774.6 million, down from $792.1 million at year-end 2017, primarily reflecting fleet dispositions and depreciation.
- Total debt, including current and long-term portions, had a principal balance of $194.2 million, compared with $208.4 million at December 31, 2017.
- Debt consisted principally of $144.8 million of 7.750% senior notes due December 2022, $27.0 million drawn on the revolving credit facility, $21.1 million of promissory notes and $1.2 million of other debt.
- The amended revolving credit facility has $125.0 million of commitments, matures in March 2021 and includes a potential $50.0 million accordion feature. The company reported $27.0 million drawn, $1.3 million of letters of credit and estimated additional borrowing capacity of $96.7 million, subject to covenants.
- Operating cash flow was negative $1.0 million, while investing activities provided $15.8 million, primarily from helicopter and facility dispositions. Financing activities used $15.1 million, principally for debt repayment and debt issuance costs. Cash, cash equivalents and restricted cash decreased by $0.3 million during the quarter.
- Unfunded capital commitments totaled $87.1 million, primarily for helicopters; $11.5 million was payable in 2018 and the balance was payable through 2019. The company stated that $88.4 million of commitments, including deposits on options, could be terminated subject to aggregate liquidated damages of $2.2 million.
Material Changes Versus the Prior Comparable Period
- Total revenue increased approximately 5%, with U.S. revenue increasing and foreign revenue declining.
- U.S. oil and gas revenue increased $6.2 million, primarily from higher heavy- and medium-helicopter utilization.
- International oil and gas revenue decreased $1.6 million, mainly because of lower utilization in Brazil and Suriname.
- Emergency response revenue decreased $1.1 million following the end of air medical contracts; dry-leasing revenue decreased $0.8 million as contracts ended.
- Operating expenses were broadly stable, but personnel costs declined $1.3 million while fuel costs increased $0.8 million and repairs and maintenance increased $0.7 million.
- Depreciation and amortization declined $1.2 million, primarily because of lower depreciation on H225 helicopters following prior impairment.
- Debt principal declined by $14.3 million during the quarter, including a $12.0 million reduction in revolving-facility borrowings.
- Operating cash flow changed from $4.3 million provided to $1.0 million used, mainly because working-capital changes used $9.2 million in the current quarter.
- The company adopted ASC 606 revenue recognition and several other accounting standards effective January 1, 2018; management reported no material impact from adoption.
Guidance, Outlook, Risks and Unusual Items
Management expects to generate positive operating cash flow over time and believes available cash, asset-sale proceeds, operating cash flow and borrowing capacity can support working capital, debt service and capital commitments. No quantitative earnings or revenue guidance was provided.
- The business is exposed to cyclical offshore oil and gas activity, oil and natural gas prices, customer cancellations and concentration, government contract appropriations, helicopter safety and grounding risks, weather and seasonality, fuel costs, foreign exchange and regulatory changes.
- The company is pursuing litigation against Airbus related to H225 helicopters and seeks monetary damages, but cannot predict the outcome.
- Brazilian tax and customs disputes include approximately $7.2 million of municipal assessments, $3.0 million of disputed employer social-security contributions, and other fines and claims. The company had deposited $9.8 million into court-controlled escrow accounts and fully reserved those amounts.
- Two helicopter purchase agreements were canceled during the quarter, resulting in $0.5 million of penalties.
- The company reported a material weakness related to controls over tax-provision calculations. Remediation was ongoing as of March 31, 2018. A separate weakness concerning interest accruals on Brazilian tax installment agreements was reported as remediated during the quarter.
- Seasonality is significant: U.S. Gulf of Mexico activity typically strengthens from April through September, while Alaskan firefighting activity generally increases from May through September. The company will not conduct Alaska flightseeing operations in 2018.
Investor Verification Items
- Confirm that the filing belongs to Era Group Inc.; the request metadata identifies Bristow Group Inc.
- Separate the $4.4 million asset-disposition gain from recurring operating performance when assessing profitability.
- Monitor whether operating cash flow becomes positive and whether the company can fund $87.1 million of helicopter-related commitments without excessive additional borrowing or asset sales.
- Review revolving-credit-facility covenant compliance, borrowing capacity and the impact of higher interest expense.
- Assess utilization trends in U.S. versus international markets, particularly Brazil and Suriname, and the effects of ended emergency-response and dry-lease contracts.
- Track the H225 fleet, related Airbus litigation and any further impairment, grounding or operational consequences.
- Follow the Brazilian tax disputes, escrowed funds and potential additional liabilities.
- Verify remediation of the remaining material weakness in tax-provision controls.