Era Group Inc. (NYSE: ERA) today reported net income for its first quarter ended March 31, 2014 of $4.4 million on operating revenues of $79.4 million compared to net income of $6.7 million on operating revenues of $67.7 million in the prior year first quarter. The decline in net income is due to a $7.9 million decrease in gains on asset dispositions compared to the prior year quarter.
Operating income for the current quarter was $10.1 million compared to $14.6 million in the prior year quarter. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $21.8 million in the current quarter compared to $26.4 million in the prior year quarter. The current quarter results included $2.9 million in gains on asset dispositions compared to $10.8 million of gains in the first quarter of 2013.
“Operating revenues increased 17% to set a new record for the first quarter thanks to strong performance from our U.S. Gulf of Mexico operations,” said Sten Gustafson, Chief Executive Officer of Era Group Inc. “Our customers continue to be very active in the deepwater Gulf of Mexico, adding new drilling rigs for exploration activities and transitioning successful drilling projects into their longer-term development and production phases.”
“EBITDA excluding gains on asset dispositions outpaced revenue growth, increasing 21% over the prior year quarter as we benefited from margin expansion.”
First Quarter Results
Operating revenues in the first quarter ended March 31, 2014 increased $11.7 million over the prior year quarter primarily due to strong results from our U.S. Gulf of Mexico operations related to an increase in fleet count, higher rates and the resumption of operations of the EC225 heavy helicopters. These increases were partially offset by a decrease in dry-leasing revenues due to fewer helicopters on dry-leases compared to the prior year quarter and a decrease in revenues in Alaska as the prior year quarter benefited from short-term work related to a drillship running aground.
Operating expenses were $6.5 million higher in the current quarter. Repairs and maintenance expenses were $4.2 million higher primarily due to the timing of repairs and an increase in power-by-hour expense related to the resumption of the EC225 helicopter operations. Personnel costs increased $1.0 million due to higher headcount related to increased activity and pay scale and benefit adjustments related to a competitive labor market. Fuel expense increased due to the EC225 helicopters returning to service and increased fuel sales at the FBO, and other expenses increased due to placing a third search and rescue (“SAR”) helicopter in service.
Administrative and general expenses were $2.2 million higher in the current quarter. Compensation and employee costs were $1.8 million higher primarily due to an increase in personnel, annual pay adjustments and share-based compensation related to changes in senior management and annual incentive equity awards. Professional services fees increased $0.3 million due to audit and tax advisory fees.
Depreciation expense decreased $0.4 million primarily due to helicopters and related equipment sold since the prior year quarter.
Gains on asset dispositions were $7.9 million less than in the prior year quarter. During the current quarter, we sold two helicopters for a gain of $2.9 million. In the prior year quarter, we sold or otherwise disposed of six helicopters and related equipment for a gain of $10.8 million.
Interest expense decreased $1.0 million primarily due to increased capitalized interest related to additional deposits on helicopter orders.
Income tax expense decreased $1.1 million due to lower pre-tax income in the current year quarter resulting from the decrease in gains on asset dispositions.
Sequential Quarter Results
First quarter 2014 operating revenues increased $3.4 million compared to the fourth quarter of 2013, primarily due to strong results from our U.S. Gulf of Mexico operations partially offset by lower revenues from dry-leasing activities and from oil and gas operations in Alaska. First quarter net income increased $2.7 million. Operating income and EBITDA for the first quarter increased by $0.5 million and $1.8 million, respectively. The improvements in operating income and EBITDA were due to a $2.4 million increase in gains on asset dispositions compared to the fourth quarter of 2013. In addition to the increased gains on asset dispositions, net income also benefited from a $0.6 million decrease in interest expense, a $0.5 million decrease in income tax expense, and a $1.4 million increase in earnings from equity investments.
During the quarter ended March 31, 2014, the Company’s capital expenditures were $18.8 million, which consisted primarily of deposits on future helicopter deliveries. 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 accepted delivery of two new AW139 medium helicopters in January 2014, and placed both of them into service in late February. In addition, the Company accepted delivery of one new AW139 helicopter in March 2014, which will be placed into service in the second quarter of 2014.
The Company’s unfunded capital commitments as of March 31, 2014 consisted primarily of orders for helicopters and totaled $326.3 million, of which $83.4 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 $147.4 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than liquidated damages of $9.7 million in the aggregate.
Included in these capital commitments are agreements to purchase ten AW189 heavy helicopters, four S92 heavy helicopters, one AW139 medium helicopter, 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 2016 and 2017. The AW139 helicopter is scheduled to be delivered in mid-year 2014. Delivery dates for the AW169 helicopters have yet to be determined. In addition, we 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.
As of March 31, 2014, the Company had $25.3 million in cash balances and escrow deposits and remaining availability under its senior secured revolving credit facility of $244.3 million.
In April 2014, the Company entered into a settlement agreement with Airbus Helicopters (formerly Eurocopter), a division of Airbus Group (formerly European Aeronautic Defense and Space Company), with respect to the extended suspension of operations of the EC225 heavy helicopters in 2012 and 2013. The settlement agreement provides for certain service and product credit discounts, including credits that will be available to the Company for a period of four years to be applied against support services available from Airbus Helicopters covering spare parts, repair and overhaul, service bulletins, technical assistance or any other services available from Airbus Helicopters. The Company expects to be able to apply such service credits over the following six to ten quarters and such application will impact the Company’s statements of operations as a reduction in operating expenses if and as the credits are utilized.
Management will conduct a conference call starting at 10:00 a.m. ET (9:00 a.m. CT) on Wednesday, May 7, 2014, to review the results for the first quarter ended March 31, 2014. The conference call can be accessed as follows:
All callers will need to reference the access code 34597766
Within the U.S.:
Operator Assisted Toll-Free Dial-In Number: (866) 607-0535
Outside the U.S.:
Operator Assisted International Dial-In Number: (832) 445-1827
A telephone replay will be available through May 21, 2014 and may be accessed by calling (855) 859-2056 for domestic callers or (404) 537-3406 for international callers. An audio replay will also be available on the Company’s website at www.eragroupinc.comshortly after the call and will be accessible for approximately 90 days.
About Era Group
Era Group is one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the U.S. In addition to servicing its U.S. customers, Era Group also provides helicopters and related services to third-party helicopter operators and customers in other countries, including Brazil, India, Norway, Spain, Sweden, the United Kingdom and Uruguay. Era Group’s helicopters are primarily used to transport personnel to, from and between offshore installations, drilling rigs and platforms.
Full financial statements are here
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