Era Group Inc. Form 10-Q Summary
Filing-period note: The provided filing is for Era Group Inc., not Bristow Group Inc. It covers the quarter and six months ended June 30, 2018, with unaudited interim financial statements. The filing was signed August 7, 2018.
Business Context and Reporting Period
Era Group operated a helicopter fleet serving offshore oil and gas, emergency response, utility, flightseeing and dry-leasing markets in the United States and internationally. At June 30, 2018, the fleet comprised 113 helicopters, including 109 owned and four leased-in. Operations were seasonal, with higher activity generally occurring in the U.S. Gulf of Mexico and Alaska during the spring and summer.
Revenue recognition under ASC 606 was adopted January 1, 2018 and did not materially affect the financial statements. The company generally recognizes flight and emergency-response revenue over time using the right-to-invoice practical expedient.
Key Financial Metrics
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Six months ended June 30, 2018 | Six months ended June 30, 2017 |
|---|---|---|---|---|
| Total revenue | $57.7 million | $57.9 million | $115.1 million | $112.4 million |
| Operating loss | $(9.5) million | $(0.3) million | $(7.9) million | $(5.3) million |
| Net loss attributable to Era | $(10.4) million | $(2.8) million | $(11.6) million | $(8.4) million |
| Loss per diluted share | $(0.49) | $(0.13) | $(0.55) | $(0.41) |
| Cash flow from operations | Not provided for quarter | Not provided for quarter | $5.1 million | $13.4 million |
Operating margin was approximately (16.5%) in the quarter and (6.8%) for the six-month period, compared with approximately (0.5%) and (4.7%), respectively, in the comparable periods. Net loss attributable to Era represented approximately (18.0%) of quarterly revenue and (10.1%) of six-month revenue.
- Operating revenue increased 6.4% for the quarter and 6.7% for the six months, but total revenue was essentially flat for the quarter because dry-leasing revenue declined.
- Oil and gas revenue increased to $51.9 million in the quarter and $104.1 million for the six months, driven primarily by higher U.S. utilization.
- Dry-leasing revenue declined to $3.3 million in the quarter and $5.8 million for the six months, partly reflecting prior-year lease-return charges and ended contracts.
- Administrative and general expense increased $4.9 million in the quarter and $6.6 million for the six months, primarily because of higher professional-services fees.
- Interest expense was $3.5 million in the quarter and $8.1 million for the six months. Foreign-currency losses were $1.1 million and $1.0 million, respectively, primarily from the weakening Brazilian real.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $15.1 million at June 30, 2018, compared with $13.6 million at December 31, 2017. Cash, cash equivalents and restricted cash declined by $1.8 million during the six months.
- Total assets were $750.7 million and total liabilities were $311.2 million. Stockholders’ equity was $436.0 million, compared with $445.7 million at year-end.
- Total principal borrowings were $178.3 million, with carrying-value debt, including the current portion, of $175.0 million. This compared with $208.4 million of principal borrowings at December 31, 2017.
- The 7.750% senior notes had $144.8 million outstanding and mature December 15, 2022. The revolving credit facility had $12.0 million outstanding, $1.4 million of letters of credit, and total commitments of $125.0 million through March 2021.
- Management stated that, based on results through June 30, 2018, the company could borrow an additional $111.6 million under the revolving facility, subject to covenant availability.
- Six-month investing cash flow was positive $24.3 million, largely because of $29.5 million of asset-sale proceeds. Financing cash flow was negative $30.8 million, including $30.0 million of debt repayments and $1.3 million of debt-issuance costs.
Material Changes Versus Prior Comparable Period
- Quarterly total revenue decreased $0.2 million, while six-month revenue increased $2.6 million.
- Quarterly operating loss widened from $0.3 million to $9.5 million. The deterioration reflected higher professional-services expense and a $2.0 million net loss on asset dispositions, compared with a $5.1 million gain in the prior-year quarter.
- Six-month operating loss widened from $5.3 million to $7.9 million, although operating loss excluding asset-disposition gains was approximately 9% of revenue in both periods.
- The company sold or disposed of 20 helicopters, two operating facilities and related equipment during the six months, generating $29.5 million of proceeds, $14.3 million of receivables payable over two years and a $2.4 million net gain.
- During the quarter, the company sold seven of nine H225 helicopters, including five under sales-type leases. Two H225 helicopters remained at June 30, 2018.
- The company amended its revolving facility in March 2018, reducing commitments from $200.0 million to $125.0 million, extending maturity to March 2021 and revising covenant provisions.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management expected positive operating cash flow to support working capital, debt service and capital requirements, supplemented as needed by cash balances, asset sales and revolver borrowings.
- On July 3, 2018, after the reporting date, Airbus agreed to pay Era $42.0 million in cash and provide trade-account credits usable for up to five years in settlement of claims relating to 11 H225 helicopters. The settlement was not reflected in the June 30 financial statements.
- Unfunded capital commitments totaled $82.4 million, primarily for helicopters; $10.9 million was payable in 2018 and the balance through 2019. The company could terminate $83.7 million of commitments, including option deposits, subject generally to $2.1 million of liquidated damages.
- Brazilian tax and regulatory disputes included approximately $8.8 million of municipal assessments, $2.6 million of social-security claims and other penalties and claims. The company had deposited $7.6 million into court-controlled escrow accounts and fully reserved those amounts.
- Management identified a material weakness relating to controls over tax-provision calculations. A separate weakness involving Brazilian tax-installment interest accruals was remediated by March 31, 2018, but the tax-provision remediation remained ongoing at June 30.
- Key operating risks included dependence on offshore oil and gas activity, customer concentration, helicopter safety and grounding risk, government contracts, foreign-currency exposure, fuel costs, regulatory and political conditions, debt covenants, litigation and reliance on a limited number of manufacturers and suppliers.
- The company estimated that a 10% adverse currency movement would increase the dollar value of non-U.S.-dollar capital commitments by approximately $8.2 million.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Era Group Inc., despite the request identifying Bristow Group Inc.
- Assess whether the $42.0 million Airbus settlement was subsequently received, how it was recognized and how trade credits were used.
- Review liquidity after considering the $82.4 million of capital commitments, debt maturities, covenant availability and the company’s continuing operating losses.
- Investigate the drivers, nature and persistence of the $9.0 million increase in six-month professional-services expense.
- Monitor the Brazilian tax disputes, escrow balances and any changes to recorded reserves.
- Determine whether the remaining material weakness in tax-provision controls was remediated in later filings.
- Evaluate the effect of H225 disposals, reduced fleet size, utilization trends and offshore oil and gas market conditions on future revenue and margins.