Era Group reports FY2014 Q2 Results

13-Aug-2014 Source: Era Group

Era Group Inc. (NYSE: ERA) today reported net income for its second quarter ended June 30, 2014 of $5.2 million, or $0.26 per diluted share, on operating revenues of $86.6 million compared to net income of $5.1 million, or $0.25 per diluted share, on operating revenues of $74.2 million in the prior year second quarter. Excluding a pre-tax impairment charge of $2.5 million representing a reserve against a note receivable, current quarter net income would have been $6.7 million, or $0.33 per diluted share.

Operating income for the current quarter was $13.6 million, inclusive of $3.1 million in gains on asset dispositions (“Gains”), compared to $10.8 million in the prior year quarter, which included $4.5 million in Gains. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $23.1 million in the current quarter, inclusive of the aforementioned Gains. Excluding the impairment charge noted above, Adjusted EBITDA was $25.5 million in the current quarter. This compares to EBITDA of $23.2 million, inclusive of $4.5 million in Gains noted above, in the prior year quarter, during which there were no special charges warranting adjustment.

Excluding the impact of Gains, current quarter Adjusted EBITDA, as adjusted for the pre-tax impairment charge of $2.5 million, was $22.4 million, representing a 19% improvement over $18.8 million of Adjusted EBITDA excluding Gains in the prior year quarter.

Second Quarter Results

Operating revenues in the quarter ended June 30, 2014 increased $12.3 million, a 17% improvement over the prior year quarter, primarily due to strong results from our U.S. Gulf of Mexico operations resulting from the resumption of operations of the EC225 heavy helicopters, higher rates for medium helicopters, and increased activity for single-engine helicopters. These increases were partially offset by a decrease in international revenues due to fewer helicopters on dry-leases compared to the prior year quarter and the conclusion of an operating contract in Uruguay in March 2014.

Operating expenses were $7.7 million higher in the current quarter primarily due to increased operating personnel costs resulting from pay scale and benefit adjustments related to a competitive labor market, increased repairs and maintenance expenses related to the resumption of the EC225 helicopter operations, as well as increased fuel and other expenses that are reimbursed by customers.

Administrative and general expenses were $0.5 million higher in the current quarter due to increased compensation costs.

Gains on asset dispositions were $1.3 million less than in the prior year quarter. During the current quarter, we sold one helicopter for a gain of $3.1 million. In the prior year quarter, we sold two helicopters and related equipment for a gain of $4.5 million.

Interest expense decreased $0.8 million primarily due to increased capitalized interest related to additional deposits on helicopter orders.

The Company recorded a $2.5 million pre-tax impairment charge in the current quarter on a note receivable from a foreign company with whom we participated in bids for contracts.

Six Months Results

The Company reported net income for the six months ended June 30, 2014 of $9.7 million, or $0.48 per diluted share, on operating revenues of $166.0 million compared to net income of $11.7 million, or $0.53 per diluted share, on operating revenues of $142.0 million in the same period a year ago. Net income for the current six months included a $2.5 million pre-tax impairment charge on a note receivable. Operating income for the current six months was $23.6 million, inclusive of $6.0 million in Gains, compared to $25.4 million in the same period a year ago, which included $15.3 million in Gains. EBITDA was $44.8 million in the current six months, inclusive of the aforementioned Gains. Excluding the aforementioned impairment charge, Adjusted EBITDA would have been $47.3 million in the current six months. This is compared to Adjusted EBITDA of $49.8 million, inclusive of Gains, in the prior six months. The decline in operating income and Adjusted EBITDA was due to $9.2 million less in gains from sales of helicopters and related equipment realized in the current six months compared to the prior year period.

Operating revenues increased $24.1 million due to strong results from our U.S. Gulf of Mexico operations. Operating expenses were $14.3 million higher due to increased operating personnel costs, increased repairs and maintenance expenses, and increased fuel and other expenses that are reimbursed by customers. Administrative and general expenses were $2.7 million higher due to increased compensation costs, including severance costs related to changes in senior management.

Sequential Quarter Results

Operating revenues in the second quarter increased $7.1 million compared to the first quarter of 2014 primarily due to normal seasonal factors, such as the start of flightseeing and firefighting activities in Alaska and longer daylight hours for oil and gas operations in Alaska and the Gulf of Mexico. The improvement in revenues from these factors was partially offset by lower international revenues and fewer SAR missions. Net income, notwithstanding the aforementioned pre-tax impairment charge of $2.5 million, improved by $0.8 million. Operating income increased $3.5 million during the second quarter, with little variance in Gains recognized in the two periods. Second quarter Adjusted EBITDA, excluding the aforementioned impairment charge, increased $3.8 million over first quarter EBITDA.

Equipment Acquisitions

During the quarter ended June 30, 2014, the Company’s capital expenditures were $33.4 million, which consisted primarily of deposits on future helicopter deliveries and the final payment made on an AW139 medium helicopter. The Company records helicopter acquisitions in property and equipment and places helicopters in service once all completion work has been finalized and the helicopters are ready for use. The Company placed one new AW139 helicopter into service in June 2014 that had been delivered in the first quarter of 2014. In addition, the Company accepted delivery of one new AW139 helicopter in May 2014, which was placed into service in July 2014.

Capital Commitments

The Company’s unfunded capital commitments as of June 30, 2014 consisted primarily of orders for helicopters and totaled $299.8 million, of which $66.4 million is payable during 2014 with the balance payable through 2017. The Company also had $2.3 million of deposits paid on options not yet exercised. The Company may terminate $146.3 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than liquidated damages of $9.6 million in the aggregate.

Included in these capital commitments are agreements to purchase ten AW189 heavy helicopters, four S92 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered beginning in late 2014 through 2017. The S92 helicopters are scheduled to be delivered in 2015 through 2017. Delivery dates for the AW169 helicopters have yet to be determined. In addition, the Company had outstanding options to purchase up to an additional ten AW189 helicopters, five S92 helicopters and four AW139 helicopters. If these options are exercised, the helicopters would be scheduled for delivery beginning in 2015 through 2018.

Liquidity

As of June 30, 2014, the Company had $14.9 million in cash balances and remaining availability under its senior secured revolving credit facility of $244.3 million.

Lake Palma Sale

Effective July 24, 2014, the Company sold its 51% interest in Lake Palma, S.L. (“Lake Palma”) for $9.2 million to its joint venture partner, Fumicacion Aerea Andaluza S.A (“FAASA”). Lake Palma is a joint venture that dry-leases helicopters to FAASA for firefighting operations. In connection with the transaction, the Company assigned certain debt obligations of approximately $2.9 million to Lake Palma, and the balance of the purchase price was funded in cash. The Company expects to record a gain of approximately $2.3 million in the third quarter of 2014

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