SEC Form 10-Q Summary
Filing-period note: The request identifies Bristow Group Inc., but the supplied filing is for Era Group Inc., for the quarter ended June 30, 2017. Investors should verify the issuer before relying on this summary.
Business Context and Reporting Period
Era Group operated a helicopter fleet serving offshore oil and gas, emergency response, utility, dry-leasing and Alaska flightseeing markets in the U.S. and internationally. The filing presents unaudited results for the three and six months ended June 30, 2017, compared with the same periods in 2016.
As of June 30, 2017, the fleet consisted of 133 helicopters, including 129 owned and four leased-in aircraft. Operations were seasonal, with higher activity generally expected in the U.S. Gulf of Mexico from April through September and in Alaska from May through September.
Financial Metrics
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Operating revenue | $57.9 million | $63.4 million | $112.4 million | $125.9 million |
| Operating loss | $0.3 million | $3.5 million | $5.3 million | $4.3 million |
| Net loss | $3.1 million | $4.5 million | $8.9 million | $8.5 million |
| Net income (loss) attributable to Era Group | $(2.8) million | $1.9 million | $(8.4) million | $(1.9) million |
| Diluted loss per share | $(0.13) | $0.09 | $(0.41) | $(0.09) |
| Operating cash flow | Not separately provided | Not separately provided | $13.4 million | $28.6 million |
Reported operating margin was approximately zero in the second quarter and negative 5% for the six-month period. Excluding gains on asset dispositions, operating loss was approximately 9% of revenue in both the second quarter and six-month period in 2017, compared with approximately 8% and 7%, respectively, in the comparable 2016 periods.
At June 30, 2017, cash and cash equivalents were $28.9 million, total assets were $941.5 million, total debt including the current portion was $223.5 million, and equity was $463.0 million. The company had $57.0 million outstanding under its $200.0 million revolving credit facility, plus $1.3 million of letters of credit. Management stated that approximately $134.0 million of additional borrowing capacity was available based on operating results and applicable restrictions.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined $5.5 million, or approximately 9%, while six-month revenue declined $13.5 million, or approximately 11%.
- U.S. oil and gas revenue declined, reflecting lower utilization of light twin and single-engine helicopters. International oil and gas revenue also declined in the quarter, particularly in Suriname and Brazil.
- Emergency response revenue decreased $3.8 million in the quarter and $6.9 million for the six-month period because of fewer search-and-rescue subscribers and flight hours and the expiration of air medical contracts.
- Dry-leasing revenue increased $3.8 million in the quarter and $3.1 million for the six-month period, primarily due to $3.7 million of lease-return charges on helicopters returned to the company.
- Operating expenses fell $6.1 million in the quarter and $12.6 million for the six-month period, primarily from lower personnel, maintenance, fuel and other operating costs. Administrative and general expense increased $1.8 million in the quarter and $2.9 million year to date, driven principally by professional services and severance costs.
- Gains on asset dispositions increased to $5.1 million in the quarter and $5.2 million year to date, compared with $1.4 million and $4.3 million, respectively, in 2016. These gains materially reduced the reported operating loss.
- Operating cash flow decreased $15.2 million year to date, primarily because of lower operating performance and less favorable working-capital movements.
- Debt declined from $232.3 million at December 31, 2016 to $223.5 million at June 30, 2017. The company borrowed $9.0 million under the revolver but made $18.2 million of principal payments.
Outlook, Risks, Contingencies and Unusual Items
- Management expected to generate positive operating cash flow and stated that it expected operating cash flow to meet working-capital requirements, but no quantitative earnings or revenue guidance was provided.
- Unfunded capital commitments totaled $114.8 million, primarily for five AW189, one S92 and five AW169 helicopters. Of this amount, $7.2 million was expected to become payable during the remainder of 2017; $110.6 million could be terminated subject to aggregate liquidated damages of $2.6 million.
- The company owned nine H225 helicopters with a net book value of $156.5 million, but operations of the model remained suspended following the 2016 accident involving another operator. Management would not return the helicopters to service until it could develop an acceptable safety case. A prolonged suspension could affect utilization, residual values and future results.
- The company remained exposed to offshore oil and gas cycles, customer cancellations and consolidation, helicopter safety and grounding risks, regulatory changes, adverse weather, foreign currency movements, supplier concentration, debt covenants, joint-venture difficulties and litigation.
- Brazilian disputes included approximately $7.2 million of municipal tax assessments, $2.3 million of tax-credit claims, $2.9 million of social-security claims, additional penalties and customs-related matters. Outcomes could not be determined, although management did not expect material adverse effects. The company had deposited $9.3 million into court-controlled escrow accounts and fully reserved those deposits.
- The company was pursuing litigation against Airbus related to the purchase of H225 helicopters and could not predict the outcome or the resources required.
- Disclosure controls were deemed ineffective because of a material weakness in internal control over financial reporting involving classification and reconciliation of property and equipment. Management expected remediation and testing to be completed by the end of 2017.
- The company planned to adopt the new revenue-recognition standard in 2018 using the modified retrospective method and was evaluating the potential impact.
Important Facts for Investors to Verify
- Confirm whether the intended issuer is Era Group Inc. or Bristow Group Inc.; the supplied filing is not a Bristow filing.
- Assess whether the company can fund its $114.8 million capital commitment program while operating cash flow is declining and the company remains loss-making.
- Monitor H225 regulatory developments, return-to-service prospects and potential impairment or residual-value effects on the $156.5 million net book value.
- Review revolver availability, covenant compliance, the 2022 senior notes and refinancing requirements through 2019 and 2020.
- Track revenue recovery in U.S. and international oil and gas operations and the effect of expired emergency-response contracts.
- Follow the remediation of the material weakness and the status of Brazilian tax disputes, escrowed funds and Airbus litigation.