Filing Overview
Registrant: Era Group Inc., not Bristow Group Inc. The filing is an unaudited Form 10-Q for the three months ended March 31, 2020, filed May 5, 2020. Era had entered into an agreement to merge with Bristow Group on January 23, 2020; the transaction remained pending at quarter-end.
Business Context and Reporting Period
Era operates a helicopter fleet serving offshore oil and gas, emergency response, utility and related markets in the United States and internationally. It owned and controlled 102 helicopters at March 31, 2020. The business is seasonal, with U.S. Gulf of Mexico activity typically strongest from April through September.
Financial Results and Key Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $57.1 million | $51.3 million | 11.2% increase |
| Operating revenue | $54.0 million | $47.8 million | 12.9% increase |
| Operating loss | $(3.7) million | $(3.9) million | Improved by $0.1 million |
| Net loss attributable to Era | $(7.2) million | $(5.9) million | Loss increased by $1.3 million |
| Loss per diluted share | $(0.35) | $(0.28) | Loss increased |
| Operating margin | (6.6%) | (7.5%) | Improved |
| Net margin attributable to Era | (12.7%) | (11.6%) | Declined |
| Operating cash flow | $(2.1) million | $2.6 million | Declined by $4.8 million |
| Capital expenditures | $0.4 million | $1.3 million | Declined by $0.9 million |
Revenue growth was led by U.S. oil and gas operations, higher helicopter utilization and a new emergency-response contract. Emergency-response revenue increased to $3.6 million from $1.7 million, while oil and gas revenue increased to $50.3 million from $46.1 million. Dry-leasing revenue declined to $3.1 million from $3.5 million.
Operating expenses increased to $38.5 million from $36.7 million. Administrative and general expense increased 44% to $12.7 million, primarily due to professional fees and other costs associated with the pending Bristow merger. Foreign-currency losses increased to $1.7 million from $0.1 million, principally because of the weaker Brazilian real. The filing reports operating income before depreciation and gains on asset dispositions of $5.8 million, compared with $5.7 million in the prior-year quarter.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $113.5 million at March 31, 2020, down from $117.4 million at December 31, 2019.
- Total debt principal was $162.0 million, consisting primarily of $144.1 million of 7.75% senior notes due December 2022 and $17.9 million of promissory notes due in December 2020. Carrying value of total debt was $159.9 million.
- The company had no borrowings under its $125.0 million revolving credit facility and had $0.7 million of letters of credit outstanding. Management reported $124.3 million of remaining facility availability.
- At quarter-end, the senior secured leverage ratio was 0.3x versus a covenant maximum of 3.25x, and the interest coverage ratio was 3.2x versus a covenant minimum of 1.75x.
- Total assets were $752.5 million and total liabilities were $300.1 million. Stockholders’ equity was $449.7 million.
- Unfunded capital commitments were $79.6 million, primarily for three AW189 helicopters and five AW169 helicopters, payable beginning in 2020 through 2021. The commitments may generally be terminated subject to aggregate liquidated damages of $2.1 million.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 11.2%, principally due to higher U.S. utilization and the new emergency-response contract.
- Operating margin improved modestly despite higher personnel, insurance and other operating costs.
- Administrative and general expenses rose $3.9 million because of merger-related professional fees and costs.
- Foreign-currency losses increased $1.6 million, primarily from Brazil.
- Net loss attributable to Era increased 22% despite the improved operating loss, primarily because of higher foreign-currency losses and a lower income-tax benefit.
- Operating cash flow shifted from $2.6 million provided to $2.1 million used, reflecting working-capital uses, including higher receivables and lower payables, and $2.3 million of income taxes paid.
- The prior-year quarter included a $1.0 million equity loss from the Dart joint venture; no such loss was recognized in Q1 2020 following the sale of that investment.
- Era adopted the current expected credit loss standard on January 1, 2020, with no material financial statement impact.
Guidance, Outlook, Risks and Unusual Items
Management did not provide quantitative full-year guidance. It stated that COVID-19 and depressed oil and natural gas prices had not materially affected results or liquidity through March 31, 2020, but warned that a sustained downturn could materially reduce offshore activity, demand for helicopter services, operating results and liquidity. Management believed available cash and revolver capacity were sufficient to weather the immediate COVID-19 crisis and continue meeting debt obligations.
- The COVID-19 pandemic, oil-market oversupply and production decisions by Saudi Arabia and Russia created substantial demand, operational and workforce risks. The duration and severity of the financial impact could not be reasonably estimated.
- The pending Bristow merger was subject to shareholder, regulatory and other closing conditions, with risks involving approval, integration, anticipated synergies, transaction costs and management distraction. The HSR waiting period had expired in April 2020, after quarter-end.
- Brazilian tax and civil disputes involved approximately $10.9 million, including approximately $8.3 million of municipal tax matters. Era had deposited and fully reserved $3.9 million in court-controlled escrow accounts; management could not determine the ultimate outcomes but did not expect a material adverse effect.
- Non-U.S.-dollar capital purchase commitments totaled €72.3 million, or approximately $79.6 million. A 10% adverse currency movement would increase their dollar equivalent by approximately $8.0 million.
- In April 2020, after quarter-end, Era repurchased 230,889 shares for $1.0 million under a special repurchase program established in connection with the merger.
Investor Verification Checklist
- Confirm that the source filing is Era Group Inc.’s 2020 Q1 Form 10-Q, despite the requested company name being Bristow Group Inc.
- Verify the status, consideration, closing conditions and financing implications of the Era-Bristow merger.
- Assess sensitivity to oil prices, offshore customer spending, contract cancellations and COVID-19-related operating restrictions.
- Review the December 2020 promissory-note maturity and the company’s ability to fund $79.6 million of capital commitments.
- Reconcile reported cash, revolver availability, covenant headroom and operating cash flow under prolonged weak market conditions.
- Monitor Brazilian tax and civil disputes, escrowed cash and any changes to recorded reserves.
- Evaluate the impact of merger-related administrative costs and foreign-currency exposure on future earnings and cash flow.