Era Group Inc. 2018 Form 10-K Summary
Filing identity and period: The supplied filing is Era Group Inc.’s Form 10-K for the fiscal year ended December 31, 2018, not a Bristow Group Inc. filing. The filing includes unaudited fourth-quarter information but reports primarily on the full fiscal year.
Business context
Era Group operates helicopter transportation, leasing, emergency response and utility services, primarily supporting offshore oil and gas activities. Approximately 95% of 2018 revenue was tied to offshore oil and gas customers or related government agencies. The company owned 108 helicopters at year-end, with 82 located in the U.S. and 26 internationally.
2018 financial performance
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $221.7 million | $231.3 million | Down $9.6 million, or 4.2% |
| Operating income (loss) | $28.1 million | $(136.5) million | Improved materially |
| Operating margin | 12.7% | (59.0)% | Improved materially |
| Net income (loss) attributable to Era Group | $13.9 million | $(28.2) million | Returned to profitability |
| Diluted EPS | $0.64 | $(1.36) | Improved |
| Cash flow from operations | $54.4 million | $20.1 million | Up $34.3 million |
| Capital expenditures | $9.2 million | $16.8 million | Down $7.6 million |
The 2018 results included $42.0 million of Airbus litigation settlement proceeds and a $1.0 million H225 impairment charge. Excluding the settlement, reported profitability and operating margin would have been substantially lower.
Revenue, margins and operating trends
- U.S. revenue increased to $157.3 million from $152.2 million, while international revenue declined to $64.4 million from $79.1 million.
- Oil and gas revenue increased to $200.5 million from $198.4 million, but dry-leasing revenue declined to $11.5 million from $16.4 million.
- Emergency response revenue declined to $9.7 million from $11.5 million, and flightseeing revenue fell to zero following the sale of the Alaska flightseeing assets.
- Operating expenses declined to $151.5 million from $167.4 million, primarily due to lower personnel, repair and maintenance, and other costs. Fuel expense increased by $2.3 million.
- Administrative and general expense increased by $3.0 million, primarily due to litigation-related professional fees.
- The company’s top ten customers represented approximately 91% of revenue. Anadarko, Petrobras and the U.S. government represented approximately 31%, 23% and 15%, respectively.
Cash flow, liquidity and debt
- Cash, cash equivalents and restricted cash increased by $33.9 million to $50.8 million at year-end; no restricted cash remained in escrow for like-kind exchanges.
- Investing activities provided $22.8 million, including $29.6 million of asset-disposition proceeds and $9.2 million of capital expenditures.
- Financing activities used $43.5 million, principally from $41.9 million of debt repayments.
- Total debt principal was $165.2 million, including $144.8 million of 7.750% senior notes due 2022, $20.0 million of promissory notes and $0.4 million of other obligations.
- The company had no outstanding borrowings under its revolving credit facility and reported $124.1 million of availability, subject to covenant compliance. The facility matures in March 2021.
- Debt covenants were satisfied at December 31, 2018. The facility requires, among other conditions, minimum interest coverage of 1.75:1.00 and maximum senior secured leverage of 3.25:1.00.
Material changes versus prior comparable period
- Revenue declined 4.2%, but operating income improved by $164.5 million, primarily because 2017 included a $117.0 million H225 impairment and 2018 included the $42.0 million Airbus settlement.
- The company reduced its fleet exposure to H225 helicopters through impairment and dispositions. A further $1.0 million H225 impairment was recorded in 2018.
- Capital spending and debt declined significantly, while operating cash flow improved.
- In March 2018, the revolving facility was amended: commitments were reduced from $200.0 million to $125.0 million, maturity was extended to 2021, and covenant terms were revised.
- Previously reported material weaknesses related to Brazilian tax accounting and the tax provision process were reported as remediated during 2018.
Outlook, unusual items and risks
Management stated that offshore oil and gas spending remained depressed despite improved crude oil prices. Future demand, utilization and pricing remain highly dependent on offshore exploration, development and production activity, oil and gas prices, customer cost reductions and government spending.
- The company had $81.1 million of unfunded helicopter purchase commitments, with approximately $70.2 million payable in 2019. Most commitments may be terminated subject to aggregate liquidated damages of $2.1 million.
- On March 7, 2019, Era and its Dart joint-venture partner agreed to sell Dart for $75 million. Era expected to receive approximately $40 million, including repayment of a related-party note, subject to closing conditions.
- Brazilian tax and civil disputes had $14.5 million at issue; $5.4 million had been deposited in court-controlled escrow accounts and fully reserved. Management did not expect a material adverse outcome, but the ultimate results were indeterminate.
- Key risks include customer concentration, contract cancellation rights, helicopter accidents or groundings, aircraft residual-value declines, supplier and maintenance constraints, foreign currency exposure, adverse weather, regulatory changes, labor disputes and covenant or refinancing risk.
- The company does not expect to pay cash dividends in the foreseeable future.
Investor verification points
- Verify that the intended issuer is Era Group Inc.; the supplied metadata names Bristow Group Inc., but the filing identifies Era Group Inc. as the registrant.
- Separate recurring operating performance from the $42.0 million Airbus settlement and other asset-sale gains.
- Assess utilization, pricing and contract renewals in the U.S. Gulf of Mexico and international markets.
- Review the timing, financing and cancellability of the $81.1 million helicopter commitments.
- Monitor the $144.8 million senior notes due 2022, revolving-facility availability and covenant headroom.
- Evaluate customer concentration and exposure to Anadarko, Petrobras and U.S. government contracts.
- Confirm completion and proceeds of the proposed Dart sale and the resolution of Brazilian tax and civil disputes.