Filing Context and Reporting Period
The supplied filing is Era Group Inc.’s unaudited Form 10-Q for the three and nine months ended September 30, 2013, filed November 12, 2013. The request identifies Bristow Group Inc., but the filing text identifies the registrant as Era Group Inc. and ticker ERA. Era became an independent, publicly traded company following its January 31, 2013 spin-off from SEACOR Holdings.
Era operates helicopters primarily for offshore oil and gas transportation, with additional emergency response, air medical, firefighting, flightseeing, FBO and helicopter leasing activities. The fleet totaled 169 helicopters at September 30, 2013.
Financial Highlights
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Operating revenues | $81.0 million, versus $78.0 million | $223.0 million, versus $202.0 million |
| Operating income | $11.2 million, versus $11.1 million | $36.6 million, versus $22.3 million |
| Operating margin | 13.8%, versus 14.2% | 16.4%, versus 11.0% |
| Operating income excluding asset-disposition gains | Approximately 10.7%, versus 13.4% | Approximately 8.4%, versus 9.3% |
| Net income attributable to Era Group | $5.2 million, versus $5.2 million | $17.0 million, versus $4.2 million |
| Net income attributable to common shares | $5.2 million, versus $3.1 million | $16.2 million, versus a $2.1 million loss |
| Diluted earnings per share | $0.25, versus $0.13 | $0.79, versus a $0.09 loss |
| Cash flow from operating activities | Not separately provided | $48.4 million, versus $(7.1) million |
At September 30, 2013, cash and cash equivalents were $22.5 million, compared with $11.5 million at December 31, 2012. Total debt, including the current portion and net of discount, was $242.8 million, compared with $279.7 million at year-end. The company had $15.0 million outstanding under its revolving credit facility and $176.3 million of remaining availability, net of letters of credit.
Total assets were $927.6 million and total equity was $433.7 million at September 30, 2013. Capital expenditures were $48.2 million for the nine-month period, while proceeds from equipment dispositions were $60.0 million. Net cash used in financing activities was $40.8 million, primarily reflecting $52.1 million of debt repayments and the $5.0 million payment of Series A preferred dividends.
Material Changes Versus the Prior Comparable Period
- Revenue increased 3.9% in the quarter and 10.4% for the nine-month period. Growth was led by U.S. Gulf of Mexico and Alaska oil and gas activity, additional medium-helicopter flight hours, and a new Uruguay contract.
- Oil and gas revenue increased to $161.3 million for the nine months, or 72.4% of total revenue, from $131.7 million, or 65.2%, in the prior period.
- Contract-leasing revenue declined $3.2 million for the nine months, while air medical revenue declined $6.0 million following the conclusion of three hospital contracts and a customer insourcing services.
- Operating expenses increased $16.5 million for the nine months. Repairs and maintenance increased $11.3 million, partly because the prior-year period included $6.8 million of vendor credits. Personnel expense increased $3.1 million, and fuel expense increased $1.1 million.
- Operating income benefited from $17.8 million of net asset-disposition gains, compared with $3.5 million in the prior period. Significant items included a $5.4 million gain on an EC225 sale and a $1.2 million insurance-related gain.
- Interest expense increased $6.8 million for the nine months due primarily to the $200.0 million of 7.750% senior notes issued in December 2012. The notes refinanced borrowings under the revolving facility.
- Equity earnings improved by $7.2 million year over year because the prior period included losses and a $5.9 million after-tax impairment related to the Brazilian joint venture, Aeróleo. The Aeróleo investment had been written down to zero in 2012.
- The January 2013 recapitalization and spin-off eliminated Series A preferred stock and converted the former Class B common stock into newly issued common stock. Comparability of per-share information is therefore affected.
Outlook, Risks, Contingencies and Unusual Items
- Management reported favorable market conditions from growing offshore exploration and production activity, particularly in deepwater markets, the U.S. Gulf of Mexico, Brazil and Alaska. The filing does not provide quantitative earnings or revenue guidance.
- EC225 helicopters returned to service worldwide in July 2013 after regulatory approval of engineering and safety measures. The prior suspension reduced heavy-helicopter revenue and contributed to financial stress at Aeróleo.
- Aeróleo had $16.9 million of deferred contract-lease revenue at September 30, 2013. Revenue is recognized as cash is received or when collectability becomes reasonably assured. Aeróleo also faces customer payment risk, including risks related to Petrobras Brazil and bankrupt customer OGX, and Era is involved in an arbitration dispute with its joint-venture partner.
- Unfunded helicopter capital commitments totaled $239.7 million, including $28.0 million payable during the remainder of 2013. Approximately $177.6 million could be terminated subject to aggregate liquidated damages of $12.2 million. Subsequent to quarter-end, Era exercised an AW139 option creating an additional $13.8 million commitment.
- A one-time $2.0 million charge related to operating leases on certain air medical helicopters was recorded in the third quarter.
- Subsequent to quarter-end, an insurance settlement and manufacturer trade-in credit related to an AW139 incident were expected to produce an approximately $0.3 million gain before year-end.
- Key ongoing risks include oil and gas cyclicality, customer concentration, helicopter safety and regulatory actions, foreign operations and currency movements, debt obligations, fleet-investment requirements, adverse weather, insurance adequacy and reliance on SEACOR transition services.
- The company disclosed euro-denominated capital purchase commitments of €176.6 million. A 10% adverse currency movement would increase the U.S.-dollar equivalent of non-hedged commitments by approximately $23.9 million.
- Management concluded that disclosure controls were effective as of September 30, 2013, while continuing to enhance controls for processes transitioning from SEACOR.
Investor Verification Items
- Verify the registrant identity: the supplied filing is for Era Group Inc., not Bristow Group Inc.
- Assess recurring operating profitability excluding the $17.8 million of nine-month asset-disposition gains and the third-quarter one-time lease charge.
- Review collectability of the $16.9 million Aeróleo deferred-revenue balance and the potential for additional funding or impairment.
- Reconcile the $239.7 million of helicopter commitments with expected operating cash flow, asset sales and revolving-credit availability.
- Evaluate the effect of the 7.750% senior notes on interest expense, leverage and future liquidity.
- Monitor EC225 operating performance, Petrobras Brazil contract activity, and the expiration or renewal of Aeróleo’s AW139 contracts.
- Consider the comparability effects of the January 2013 spin-off, recapitalization, preferred-stock elimination and changes in SEACOR-related costs.