Era Group Inc. 2019 Form 10-K Summary
Filing and reporting period: The provided filing is Era Group Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed March 5, 2020. The request metadata identifies Bristow Group Inc., but the filing itself is for Era Group Inc. and discusses a subsequently announced combination with Bristow.
Business context
Era operates a 103-helicopter fleet providing offshore oil and gas transportation, dry-leasing, emergency response and utility services. Approximately 91% of 2019 revenue was tied to offshore oil and gas activities or related government agencies. The U.S. generated 66% of revenue, while international markets generated 34%. The company had 707 employees and operated as a single reportable segment.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $226.1 million | $221.7 million | Up $4.4 million |
| Operating income (loss) | $(3.3) million | $28.1 million | Declined $31.3 million |
| Net income (loss) attributable to Era | $(3.6) million | $13.9 million | Declined $17.5 million |
| Basic and diluted EPS | $(0.17) | $0.64 | Lower |
| Cash flow from operations | $27.6 million | $54.4 million | Down $26.8 million |
| Capital expenditures | $6.6 million | $9.2 million | Down $2.7 million |
| Cash and cash equivalents | $117.4 million | $50.8 million | Up $66.6 million |
| Total equity | $456.7 million | $463.4 million | Down $6.7 million |
Operating margin was approximately (1.4%) in 2019 versus approximately 12.7% in 2018. Net margin attributable to Era was approximately (1.6%) versus approximately 6.3%. Management reported Adjusted EBITDA of $37.0 million, including $3.3 million of special items.
At December 31, 2019, principal debt totaled $162.4 million, comprising $144.1 million of 7.750% senior unsecured notes due December 2022 and $18.3 million of promissory notes due December 2020. The company had no revolver borrowings and $124.3 million of borrowing availability, subject to covenant compliance. Total debt, net of discounts and issuance costs, was $160.1 million. Management reported compliance with all debt covenants and approximately $241.7 million of total available liquidity, including cash.
Revenue mix and material changes
- Oil and gas revenue declined to $195.8 million from $200.5 million, representing 87% of total revenue versus 90% in 2018.
- Dry-leasing revenue increased to $16.0 million from $11.5 million, primarily from new contracts.
- Emergency response revenue increased to $14.2 million from $9.7 million, also driven by new contracts.
- U.S. revenue declined to $149.5 million from $157.3 million, while foreign revenue increased to $76.5 million from $64.4 million.
- Operating expenses increased $3.0 million, primarily from higher repairs and maintenance and personnel costs.
- Administrative and general expenses declined $6.8 million, primarily because 2018 included professional fees related to litigation.
- 2018 operating income benefited from $42.0 million of litigation settlement proceeds; no comparable proceeds were recorded in 2019.
- 2019 included $2.6 million of non-cash impairment charges, including $1.6 million for the final H225 helicopter and $1.0 million for a Colombian intangible asset.
- Era sold its Dart joint venture in 2019 and recognized a $10.9 million gain. The transaction generated $34.7 million of net cash proceeds from equity investee sales.
- In the fourth quarter of 2019, Era acquired the remaining interests in Aeróleo, making the Brazilian subsidiary wholly owned; the purchase price was not material.
Fourth-quarter information
| Three months ended December 31, 2019 | Amount |
|---|---|
| Revenue | $60.4 million |
| Operating income | $0.7 million |
| Net loss | $(0.8) million |
| Net loss attributable to common shares | $(0.7) million |
| Basic and diluted loss per share | $(0.03) |
Outlook, transactions and unusual items
- Management described offshore oil and gas activity as cyclical and said customer spending remained depressed despite improved crude oil prices. Contract cancellations, reduced helicopter counts and lower utilization continued to affect results.
- Management believed liquidity, operational efficiency initiatives and a flexible order book provided a stable foundation for addressing market challenges.
- Era entered into an all-stock merger agreement with Bristow on January 23, 2020. The transaction was expected to close in the second half of 2020, subject to stockholder, antitrust and other customary approvals. Former Bristow stockholders were expected to own approximately 77% of the combined company and Era stockholders approximately 23%.
- Era had $80.5 million of unfunded helicopter purchase commitments, including $69.5 million payable in 2020. The company could terminate the commitments, including $1.3 million of option deposits, subject to aggregate liquidated damages of $2.1 million.
- The company operated 103 helicopters and had commitments for eight additional helicopters, consisting of three AW189 heavy helicopters and five AW169 light-twin helicopters. It also held options for up to ten additional AW189 helicopters.
- Brazilian tax and civil disputes had an aggregate amount at issue of $13.8 million. Era had deposited and fully reserved $5.0 million in court-controlled escrow accounts. Management could not determine the outcomes but did not expect a material adverse effect.
- The company adopted the new lease accounting standard effective January 1, 2019. The filing states that adoption did not materially affect the consolidated financial statements and resulted in recognition of operating lease right-of-use assets and liabilities.
- The filing identifies the novel coronavirus outbreak in early 2020 as a potential risk to global economic activity, oil prices and demand for services.
Principal risks
- High dependence on offshore oil and gas activity, oil and gas prices and the mature U.S. Gulf of Mexico market.
- Customer concentration: Anadarko, Petrobras and the U.S. government represented approximately 28%, 21% and 14% of 2019 revenue, respectively; the top ten customers represented approximately 92%.
- Customer contracts may generally be canceled or reduced with limited notice and little or no penalty.
- Aircraft accidents, fleet groundings, adverse weather, hurricanes, maintenance requirements and insurance limitations could disrupt operations.
- Helicopter valuation and impairment risk, particularly because the AW139 represented approximately 50% of the fleet’s net book value.
- Debt refinancing and covenant risk, including the $18.3 million of promissory notes due in December 2020 and $144.1 million of senior notes due in December 2022.
- Foreign currency, political, regulatory, tax, labor and counterparty risks in international operations.
- Merger execution risks, including regulatory or stockholder approval, possible divestitures, integration costs, failure to achieve synergies and disruption to customers or employees.
Investor verification checklist
- Verify the filing entity and transaction status because the provided filing is Era Group’s 10-K, not a Bristow Group 10-K.
- Reconcile reported liquidity with debt maturities, helicopter purchase commitments and revolver covenant availability.
- Assess recurring earnings excluding the $42.0 million 2018 litigation settlement and the 2019 Dart disposal gain.
- Monitor fleet utilization, customer contract reductions and exposure to Anadarko, Petrobras and the U.S. government.
- Review the terms, approvals, closing conditions and integration risks of the Bristow merger.
- Track H225 and other fleet impairments, residual values and the concentration of the AW139 fleet.
- Review the resolution and cash requirements of the Brazilian tax and civil disputes.
- Confirm the timing and funding plan for the $80.5 million of unfunded capital commitments and debt maturities.