Era Group Inc. Form 10-Q Summary
Filing identity: The supplied filing is for Era Group Inc., not Bristow Group Inc. It covers the quarter and six months ended June 30, 2013. The financial statements are unaudited. Era completed its separation from SEACOR on January 31, 2013 and began trading independently on the NYSE under “ERA.”
Business Context and Reporting Period
Era operates a global helicopter fleet serving offshore oil and gas transportation, contract-leasing, air medical services, flightseeing and fixed-base operations. Approximately 55% of trailing twelve-month revenue was generated in the U.S. Gulf of Mexico and 17% in Alaska. The fleet totaled 171 helicopters at June 30, 2013, compared with 180 at June 30, 2012.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2013 | Three Months Ended June 30, 2012 | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 |
|---|---|---|---|---|
| Operating revenue | $74.2 million | $63.0 million | $142.0 million | $124.0 million |
| Operating income | $10.8 million | $7.4 million | $25.4 million | $11.2 million |
| Operating margin | 14.5% | 11.8% | 17.9% | 9.1% |
| Net income attributable to Era | $5.1 million | $3.6 million | $11.7 million | $(1.0) million |
| Net income attributable to common shares | $5.1 million | $1.5 million | $11.0 million | $(5.2) million |
| Basic and diluted EPS | $0.25 | $0.06 | $0.53 | $(0.21) |
Revenue increased 17.9% in both the quarter and year-to-date periods. Excluding gains on asset dispositions, operating margin was approximately 8.5% in the quarter and 7.1% year to date; management reported that these adjusted margins were broadly comparable with the prior-year periods.
- Cash flow: Operating cash flow was $27.8 million in the first six months, compared with cash used in operations of $25.0 million in the prior-year period.
- Investing: Capital expenditures were $30.6 million; proceeds from equipment dispositions were $38.5 million; net investing cash use was $6.9 million.
- Financing: Net financing cash use was $5.1 million, including $5.0 million of preferred-stock dividends and $16.4 million of debt repayments offset by $15.0 million of new borrowings.
- Cash and liquidity: Cash increased to $27.3 million at June 30, 2013 from $11.5 million at December 31, 2012. Revolver availability was $149.3 million at June 30 and $164.3 million after a $15.0 million repayment in July.
- Debt: Total debt, including current maturities and net discount, was $278.5 million. It included $200.0 million of 7.750% senior notes due 2022, $50.0 million outstanding under the revolving facility and promissory notes.
- Balance sheet: Total assets were $945.6 million and total equity was $427.9 million at June 30, 2013.
Material Changes Versus the Prior Comparable Period
- U.S. Gulf of Mexico revenue rose $4.1 million in the quarter and $9.3 million year to date, driven by increased deepwater activity and additional medium-helicopter utilization.
- Alaska revenue increased $3.3 million in the quarter and $8.0 million year to date, primarily following the resumption of services with a major customer and additional short-term work.
- International oil and gas revenue increased because of a new Uruguay contract that began in January 2013.
- Contract-leasing revenue increased, but amounts from Brazilian and Indian customers were recognized on a cash-receipts basis because of collectability concerns.
- Air medical revenue declined $1.7 million in the quarter and $4.9 million year to date following the conclusion of hospital contracts and one customer bringing services in-house.
- Operating expenses increased $7.9 million in the quarter and $11.4 million year to date. Repairs and maintenance increased substantially because of repair timing and the absence of prior-year vendor credits.
- Administrative expense increased because Era became an independent public company, including higher legal, professional, compensation, share-based compensation and transition-services costs.
- Gains on asset dispositions increased to $4.5 million in the quarter and $15.3 million year to date, compared with $1.1 million and $2.8 million, respectively, in the prior periods. These gains materially supported reported operating income.
- Interest expense increased $2.2 million in the quarter and $5.0 million year to date because the 7.750% senior notes replaced lower-cost revolver borrowings.
- The prior-year six-month results included a $5.9 million after-tax impairment related to the Brazilian Aeróleo investment; no comparable impairment was recorded in 2013.
Outlook, Commentary, Risks and Unusual Items
Management cited continued global offshore exploration, production and development activity, particularly in deepwater markets, as supportive of demand for medium and heavy helicopters. Management also identified opportunities to expand internationally, grow contract-leasing and upgrade the fleet. No quantitative earnings or revenue guidance was provided in the filing.
- EC225 suspension: Petrobras Brazil suspended EC225 contracts beginning April 1, 2013, and Aeróleo had not received related payments through the filing date. Regulatory approvals in July 2013 allowed EC225 helicopters to begin returning to service; two Era aircraft in the U.S. Gulf of Mexico had returned to service and two more were expected to resume operations by the end of August.
- Aeróleo exposure: Era had deferred $12.2 million of revenue related to Aeróleo. Aeróleo faced operating and financial difficulties, including Petrobras contract suspensions, potential customer credit problems and a dispute with Era’s joint-venture partner. Era’s investment had previously been written down to nil.
- India customer: $3.4 million of contract-lease revenue remained deferred because of customer liquidity issues, although the customer’s operating certificate had been reinstated.
- Capital commitments: Unfunded helicopter commitments totaled $205.6 million, with $10.6 million payable during the remainder of 2013 and the balance due through 2017. Approximately $174.6 million could be terminated subject to aggregate liquidated damages of $11.8 million.
- Fleet expansion: In July 2013, Era exercised options for three AW139 helicopters, creating $35.9 million of additional commitments and paying approximately $8.9 million toward options and deposits.
- Escrow: $16.0 million from helicopter sales was held in escrow for a tax-free like-kind exchange; because replacement properties were not identified within the applicable period, the amount was classified as a current asset.
- Industry risks: Results depend heavily on offshore oil and gas activity, commodity prices, customer concentration, safety and regulatory developments, helicopter availability, weather, foreign markets, insurance coverage and access to credit.
- Controls: Management concluded that disclosure controls were effective as of June 30, 2013, while continuing to enhance internal controls for processes previously handled by SEACOR.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Era Group Inc., not Bristow Group Inc.
- Assess the sustainability of reported earnings excluding the $15.3 million year-to-date asset-disposition gains.
- Monitor EC225 return-to-service progress and the effect on Gulf of Mexico revenue and Brazilian operations.
- Track collectability of the $12.2 million Aeróleo and $3.4 million Indian deferred-revenue balances.
- Reconcile the $205.6 million helicopter commitment portfolio with projected operating cash flow, revolver capacity and debt-service requirements.
- Evaluate the impact of higher interest expense from the 7.750% senior notes and the company’s post-spin-off standalone costs.
- Review customer concentration, offshore oil and gas exposure, safety records and regulatory developments before relying on management’s growth outlook.