Bristow Group Inc. Form 10-Q Summary
Reporting period: Three months ended June 30, 2020. The filing is unaudited and reports the post-bankruptcy “Successor” period against the June 30, 2019 “Predecessor” period. Comparability is limited because Old Bristow adopted fresh-start accounting after emerging from Chapter 11 on October 31, 2019, and the Era merger closed on June 11, 2020. The company changed its fiscal year-end from December 31 to March 31.
Business Context
Bristow provides global aviation services, including offshore oil-and-gas helicopter transportation, public and commercial search-and-rescue services, and fixed-wing transportation. It operated 307 consolidated aircraft at June 30, 2020, including 237 owned and 55 leased aircraft, with 15 aircraft held for sale.
The Era Group merger was completed on June 11, 2020 in an all-stock transaction. Old Bristow was the accounting acquirer, while Era was the legal acquirer and continuing parent. Era contributed $120.2 million of cash and $8.9 million of revenue from June 12 through June 30, 2020.
Financial Performance
| Metric | Q1 2021 / June 30, 2020 | Comparable period | Change |
|---|---|---|---|
| Total revenue | $270.2 million | $333.2 million | Down $63.0 million, or 18.9% |
| Operating revenue | $261.5 million | $316.6 million | Down 17.4% |
| Operating loss | $13.9 million | $21.7 million | Loss narrowed by $7.9 million |
| Operating margin | (5.3%) | (6.9%) | Improved 1.6 percentage points |
| Net income attributable to Bristow | $71.5 million | $(169.2) million | Improved $240.7 million |
| Interest expense | $12.5 million | $26.7 million | Down $14.2 million |
| Depreciation and amortization | $16.4 million | $31.3 million | Down $15.0 million |
Reported earnings were heavily affected by unusual items, including a $75.4 million bargain-purchase gain from the Era merger, a $15.4 million favorable change in the preferred-stock derivative liability, and an $18.7 million impairment of the Líder investment. The company also recorded a $0.5 million inventory impairment and a $5.5 million gain on asset dispositions. Excluding these items, the filing does not provide a single clearly defined adjusted earnings measure.
Revenue by Service Line
- Oil-and-gas revenue was $196.6 million, down 12.6%, primarily because of lower utilization and weaker activity in Africa and Asia Pacific.
- U.K. search-and-rescue revenue was $52.6 million, down 6.2%, mainly due to foreign-exchange effects and fewer flight hours.
- Fixed-wing revenue was $11.6 million, down 67.3%, reflecting COVID-19-related reductions in Australia and Africa and the prior-year sale of Eastern Airways.
Cash Flow, Balance Sheet and Liquidity
| Metric | June 30, 2020 | March 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $259.9 million | $196.7 million |
| Cash, cash equivalents and restricted cash | $263.4 million | $199.1 million |
| Total debt | $645.8 million | $561.1 million |
| Long-term debt | $582.3 million | $515.4 million |
| Total assets | $2.252 billion | $1.945 billion |
| Stockholders’ investment | $1.029 billion | $426.2 million |
- Operating cash flow was negative $6.9 million, compared with negative $36.8 million in the prior-year period.
- Investing activities provided $149.1 million, primarily from $120.2 million of cash acquired in the merger, $20.0 million of deposits on assets held for sale, and $11.7 million of asset-sale proceeds.
- Financing activities used $78.2 million, including $73.4 million of debt repayments and redemption premiums and $4.8 million of share repurchases.
- Management reported total liquidity of approximately $298.7 million, consisting of $259.9 million of unrestricted cash and $38.8 million of remaining ABL availability. The ABL had no borrowings outstanding, but $10.0 million of letters of credit were outstanding.
Material Changes and Unusual Items
- The company completed the Era merger and recognized a provisional $75.4 million bargain-purchase gain. The purchase-price allocation remained subject to adjustment, including for certain legal contingencies and aircraft and contract assets.
- Old Bristow’s preferred stock was converted into common stock in connection with the merger; no preferred stock remained outstanding at June 30, 2020.
- The company repaid the $61.5 million term loan at merger closing and had total debt of $645.8 million at quarter-end. Promissory notes totaling approximately $17.5 million were due in December 2020.
- Operating expenses declined by $67.3 million, mainly due to lower lease, personnel, fuel and maintenance costs, while general and administrative expense increased by $18.2 million because of merger-related professional fees and severance.
- The company recognized an $18.7 million non-cash impairment of its Líder investment and initiated a process to exit that investment, expected to be completed August 30, 2020.
- Unfunded helicopter capital commitments totaled $81.2 million, and non-cancelable power-by-the-hour maintenance commitments totaled $15.0 million. Operating lease liabilities totaled $296.1 million.
Outlook, Management Commentary and Risks
Management stated that COVID-19 and depressed oil and gas prices had not materially affected results or liquidity as of June 30, 2020, but expected reduced flight hours and fewer aircraft on contract in future periods. The company said it expected positive operating cash flow and believed available liquidity was sufficient to meet debt obligations and withstand the current COVID-19 environment.
- Key risks include continued oil-price weakness, reduced customer capital spending, lower offshore activity, COVID-19 operating disruptions, foreign-exchange volatility and customer concentration.
- Management identified integration, synergy realization, systems consolidation and potential customer or employee disruption as significant merger risks.
- The company had unremediated material weaknesses in internal control over financial reporting relating to the control environment, risk assessment, debt-covenant monitoring and manual journal-entry review at Airnorth. Disclosure controls were therefore considered ineffective as of June 30, 2020.
- Management continued to monitor impairment indicators for Airnorth, Humberside Airport and oil-and-gas assets. Its analyses concluded those asset groups were recoverable at quarter-end, but results remain sensitive to demand, utilization and pricing assumptions.
- Remaining performance obligations totaled $967.1 million, primarily helicopter contracts; however, many contracts contain customer termination rights and variable flight-service revenue is excluded.
Investor Verification Priorities
- Verify the final purchase-price allocation for the Era merger and whether subsequent filings revise the $75.4 million bargain-purchase gain.
- Track oil prices, customer utilization, aircraft-on-contract levels and fixed-wing activity, particularly in Australia, Africa and the U.S. Gulf of Mexico.
- Assess liquidity against the December 2020 promissory-note maturities, scheduled debt amortization, helicopter commitments and lease obligations.
- Monitor remediation of the material weaknesses and the company’s compliance with debt and lease covenants.
- Evaluate whether COVID-19, lower oil prices or foreign-exchange movements trigger additional fleet, investment or goodwill impairments.
- Reconcile reported net income to operating performance because merger accounting, bargain-purchase gains, derivative remeasurement and impairment charges materially affected the quarter.