Business Context and Reporting Period
The supplied filing is Era Group Inc.’s unaudited Form 10-Q for the three months ended March 31, 2019, not a Bristow Group Inc. filing. Era Group operates a global helicopter fleet, primarily serving offshore oil and gas customers, with additional emergency response, utility, charter, and dry-leasing services. It owned and controlled 108 helicopters at March 31, 2019.
Financial Highlights
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $51.3 million | $57.3 million | Down $6.0 million |
| Operating income (loss) | $(3.9) million | $1.7 million | Decrease of $5.5 million |
| Operating margin | (8)% | 3% | Down 11 percentage points |
| Net loss attributable to Era Group | $(5.9) million | $(1.2) million | Loss increased $4.7 million |
| Loss per diluted share | $(0.28) | $(0.06) | More unfavorable |
| Cash flow from operating activities | $2.6 million | $(1.0) million | Improved $3.7 million |
| Capital expenditures | $1.3 million | $3.8 million | Down $2.5 million |
| Cash and cash equivalents | $49.6 million | $50.8 million at Dec. 31, 2018 | Down $1.1 million |
Oil and gas revenue was $46.1 million, or approximately 90% of total revenue. Dry-leasing revenue increased to $3.5 million from $2.6 million, while emergency response revenue declined to $1.7 million from $2.6 million. The company recorded a $1.6 million income tax benefit and equity losses of $1.0 million, compared with equity earnings of $0.4 million in the prior-year quarter.
Debt, Liquidity, and Balance Sheet
- Total debt principal was $164.7 million at March 31, 2019; reported debt, net of issuance costs and discounts, was $161.9 million.
- The debt included $144.8 million of 7.750% senior notes due December 2022 and $19.6 million of promissory notes. The company had no borrowings under its $125 million revolving credit facility and had $0.7 million of outstanding letters of credit.
- Total liabilities were $303.8 million and total equity was $458.9 million.
- Operating lease right-of-use assets were $8.5 million, with corresponding lease liabilities of $8.5 million, following adoption of ASC 842 on January 1, 2019.
- Unfunded capital commitments were $80.1 million, primarily for three AW189 heavy helicopters and five AW169 light twin helicopters. These commitments may generally be terminated subject to aggregate liquidated damages of $2.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined 10.5%, primarily because of lower utilization of U.S. and international oil and gas helicopters, the end of a Suriname contract, weaker Brazilian currency, and lower Colombian utilization.
- Operating expenses declined $1.0 million, but repairs and maintenance increased $1.9 million, including higher power-by-the-hour expense and repair timing effects.
- Administrative and general expense declined $3.2 million, primarily because litigation-related professional fees incurred in the prior-year period did not recur.
- The prior-year period included $4.4 million of gains from asset dispositions and $19.5 million of asset-sale proceeds; no significant asset dispositions occurred in Q1 2019.
- Interest expense declined $1.1 million because of lower debt balances and the absence of certain prior-year financing-cost write-offs.
- Operating cash flow improved to $2.6 million from negative $1.0 million, but investing activities used $3.9 million, including a $5.0 million purchase of corporate securities.
- The company and its joint-venture partner agreed to sell Dart; the transaction closed April 1, 2019. Dart contributed to the decline in equity earnings in Q1 2019.
Outlook, Risks, Contingencies, and Unusual Items
Management expected positive operating cash flow to support working capital, debt service, and capital requirements, with additional potential liquidity from cash balances, asset sales, debt or equity issuance, and the revolving credit facility. The filing provides no quantitative earnings or revenue guidance.
- Demand is exposed to cyclical offshore oil and gas activity, oil and gas prices, customer cancellations, customer concentration, government appropriations, and cost-reduction programs.
- Operations are seasonal, with U.S. Gulf of Mexico activity generally strongest from April through September and weakest from December through February.
- Key operating risks include helicopter accidents, safety or reliability issues, fleet groundings, adverse weather, regulation, fuel costs, insurance availability, foreign exchange, political conditions, and reliance on manufacturers and the secondary helicopter market.
- Brazilian tax disputes involved an aggregate $14.8 million at issue, including approximately $10.4 million of municipal tax claims. The company had deposited and fully reserved $5.4 million in court-controlled escrow accounts. Management stated that outcomes could not be determined but were not expected to have a material adverse effect.
- A 10% adverse foreign-exchange movement would increase the U.S.-dollar value of non-hedged capital commitments by approximately $8.0 million and reduce the Brazilian subsidiary’s working capital balance by approximately $0.8 million.
- The IRS was examining the company’s 2015 federal income tax return. The filing reported no material changes to previously disclosed risk factors and no material weaknesses in internal controls.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied document is for Era Group Inc., despite the request identifying Bristow Group Inc.
- Assess whether lower helicopter utilization and oil and gas exposure continued beyond the seasonal Q1 period.
- Review the timing, funding sources, and cancellation economics of the $80.1 million helicopter commitments.
- Monitor compliance with the revolving credit facility’s interest-coverage and senior-secured-leverage covenants.
- Track the Brazilian tax and civil disputes, escrowed amounts, and any changes in management’s loss assessments.
- Evaluate the effect of the Dart sale, fleet utilization, maintenance costs, and future asset dispositions on earnings and liquidity.