Filing Scope and Business Context
The supplied filing is Era Group Inc.’s unaudited Form 10-Q for the three months ended March 31, 2013, not a Bristow Group Inc. filing. Era operates a global helicopter fleet supporting offshore oil and gas, contract-leasing, air medical, flightseeing and fixed-base operations. Approximately 56% of trailing twelve-month revenue came from the U.S. Gulf of Mexico and 17% from Alaska.
The quarter followed Era’s January 31, 2013 recapitalization and spin-off from SEACOR Holdings. Era became an independent NYSE-listed company, while SEACOR continued providing certain transition services for up to two years.
Financial Highlights
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Operating revenue | $67.7 million | $61.1 million | +$6.7 million |
| Operating income | $14.6 million | $3.8 million | +$10.8 million |
| Operating margin | 21.6% | 6.3% | +15.3 percentage points |
| Net income attributable to Era | $6.7 million | $(4.6) million | Improved $11.3 million |
| Net income attributable to common shares | $6.0 million | $(6.7) million | Improved $12.7 million |
| Basic and diluted EPS | $0.28 | $(0.27) | +$0.55 |
| Cash flow from operations | $17.9 million | $(39.7) million | +$57.6 million |
Revenue growth was led by U.S. Gulf of Mexico oil-and-gas operations, Alaska activity and a new Uruguay contract. Revenue mix shifted toward oil and gas: $48.4 million, or 71% of revenue, versus $37.5 million, or 61%, in the prior-year quarter.
Reported operating income included $10.8 million of net gains on asset dispositions. Excluding those gains, operating margin was approximately 5.6% in 2013 versus approximately 3.4% in 2012. The filing does not provide EBITDA as a reported metric.
- Cash and cash equivalents increased to $25.0 million from $11.5 million at December 31, 2012.
- Total assets were $943.1 million; total equity was $421.9 million.
- Total debt, including the current portion, was $279.1 million. Debt consisted primarily of $200.0 million of 7.750% senior notes due 2022, $50.0 million drawn on the revolving facility and $32.4 million of promissory notes.
- Revolving credit availability was $149.3 million, net of $0.7 million of letters of credit.
- Capital expenditures were $19.4 million, substantially offset by $19.1 million of cash proceeds from equipment dispositions.
Material Changes Versus the Prior Comparable Period
- Revenue increased 11%, primarily from newly delivered medium helicopters, higher Gulf of Mexico and Alaska activity, and the Uruguay contract.
- Contract-leasing revenue declined $1.1 million because of collectability issues involving Aeróleo in Brazil and a customer in India.
- Air medical revenue declined $3.2 million following the conclusion of two hospital contracts in 2012.
- Operating expenses increased $3.4 million, including higher personnel, repairs and maintenance, fuel and depreciation costs.
- Administrative and general expense decreased $0.5 million; the prior-year period included $2.5 million of costs related to an abandoned IPO.
- Interest expense increased $2.8 million because the company issued $200.0 million of 7.750% senior notes in December 2012.
- Q1 2012 included a $5.9 million, net-of-tax impairment related to the Brazilian joint venture; Q1 2013 recorded $0.6 million of equity earnings from investments.
- The fleet totaled 173 helicopters at March 31, 2013, compared with 178 at March 31, 2012, including fewer managed aircraft but more owned medium and heavy helicopters.
Outlook, Risks and Unusual Items
Management expected positive operating cash flow to fund working capital and indicated that future capital needs could be financed with cash, operating cash flow, asset-sale proceeds and revolver borrowings. Unfunded helicopter purchase commitments totaled $131.1 million, of which $13.4 million was payable during the remainder of 2013. The company also held options to purchase up to eight AW139 and five AW189 helicopters.
- Multiple EC225 helicopter ditchings led to suspensions by major operators. Era continued earning contract-lease revenue on affected aircraft but was not collecting revenue on EC225 aircraft it operated because they were not flying.
- Petrobras Brazil indicated it might suspend or reduce payments on EC225 contracts. Era had deferred $10.1 million of related contract-lease revenue and had contributed, with its partner, $9.2 million of shareholder debt to Aeróleo.
- An Indian customer’s operating certificate had been revoked temporarily and its short-term liquidity created uncertainty over $2.6 million of deferred revenue.
- Key risks include cyclicality of offshore oil and gas activity, customer concentration, helicopter safety and grounding events, adverse weather, regulation, foreign currency exposure, insurance adequacy, debt obligations and dependence on SEACOR transition services.
- At March 31, 2013, a 10% adverse foreign-exchange movement was estimated to reduce net income by $1.5 million on euro cash balances and $1.3 million on euro receivables.
- Management stated that disclosure controls were effective and that no material change had occurred in internal control over financial reporting, while continuing to enhance controls transferred from SEACOR.
Investor Verification Items
- Verify the issuer: the supplied document identifies Era Group Inc., whereas the request identifies Bristow Group Inc.
- Assess recurring operating profitability separately from the $10.8 million of asset-disposition gains.
- Monitor collectability of the $10.1 million Aeróleo-related and $2.6 million India-related deferred revenue balances.
- Review the potential effect of prolonged EC225 suspensions and any Petrobras Brazil payment reductions.
- Reconcile the $131.1 million helicopter commitment schedule with cash flow, revolver availability and future debt capacity.
- Evaluate the impact of higher interest expense from the senior notes and the company’s $279.1 million total debt.
- Consider the comparability limitations created by the January 2013 spin-off and recapitalization when analyzing per-share results.