Era Group Inc. (NYSE: ERA) today reported break-even net earnings for its first quarter ended March 31, 2015 (“current quarter”) on operating revenues of $67.4 million. Net income for the quarter ended March 31, 2014 (“prior year quarter”) was $4.4 million, or $0.22 per diluted share, on operating revenues of $79.4 million. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $14.6 million in the current quarter compared to $21.8 million in the prior year quarter.
Foreign exchange losses of $3.0 million in the current quarter were primarily due to the strengthening of the U.S. dollar resulting in losses on our euro denominated cash balances. Excluding the impact of foreign exchange losses, net income in the current year quarter would have been $1.8 million, or $0.09 per share, and EBITDA would have been $17.6 million.
“As previewed in our last two earnings releases, the current excess capacity in our medium helicopter fleet is higher than it has been in recent years,” said Chris Bradshaw, Chief Executive Officer of Era Group. “The first quarter, which is typically our weakest quarter due to seasonal factors, also reflected the first full period impact of the lower utilization for our medium helicopters. Our cost-cutting and operational efficiency initiatives contributed to a reduction in expenses of almost $8.0 million, but this was not enough to keep pace with the decline in revenues.”
“Our first quarter results were also adversely impacted by foreign exchange losses. These losses resulted from a buildup in euro denominated cash balances related to the delivery and acceptance of the new AW189 heavy helicopters, which were postponed due to the delayed FAA certification of this new helicopter model. We now expect to take delivery and make final payment for these new helicopters in the second quarter. Our day-to-day operations do not have significant currency exposure.”
“We typically experience a seasonal increase in activity in the second and third quarters of the year as daylight hours increase and weather conditions improve in the U.S. Gulf of Mexico and Alaska and as our seasonal firefighting and flightseeing operations resume in Alaska. In addition to the delivery of four new AW189 helicopters referenced above, we also expect to take delivery of two new S92 heavy helicopters during 2015. We expect all six of these new heavy helicopters to work on contracts in the U.S. Gulf of Mexico. In Brazil, of the seven contracts awarded in 2013 for AW139 medium helicopters with Petrobras, three began operations in December 2014, one began in March 2015, two began in April 2015, and we expect the last one to begin in early June 2015. We currently expect the January 2015 contract awards for additional medium and heavy helicopters with Petrobras to begin in the second half of 2015 and early 2016.”
First Quarter Results
Operating revenues in the current quarter were $12.0 million lower than the prior year quarter primarily due to lower utilization of our medium helicopters.
Operating expenses were $6.0 million lower in the current quarter primarily due to decreased repairs and maintenance expense related to the timing of repairs and receipt of credits and decreased fuel expense related to fewer flight hours and lower fuel prices.
Administrative and general expenses were $1.6 million lower primarily due to reduced headcount in the current quarter and accelerated share-based compensation expenses related to changes in senior management in the prior year quarter.
Gains on asset dispositions were $0.5 million higher in the current quarter. In the current quarter, we sold two helicopters for proceeds of $5.4 million and recognized gains of $2.2 million. In addition, a leasing customer exercised a purchase option for three helicopters from which we recognized a gain of $1.2 million. During the prior year quarter, we sold two helicopters for total proceeds of $3.6 million resulting in gains of $2.9 million.
Equity earnings were $0.6 million lower in the current quarter primarily due to losses from our Dart Holding Company Ltd. joint venture.
Sequential Quarter Results
Operating revenues in the current quarter were $7.3 million lower compared to the fourth quarter of 2014 (“preceding quarter”) primarily due to lower utilization of helicopters in our oil and gas operations.
Operating expenses were $2.2 million lower compared to the preceding quarter primarily due to decreases in fuel, repairs and maintenance, and personnel expenses.
Gains on asset dispositions were $3.4 million higher compared to the preceding quarter.
Foreign currency losses and derivative losses adversely impacted sequential quarter results by $1.1 million and $0.8 million, respectively.
EBITDA and net income attributable to Era Group were $4.0 million and $3.2 million lower, respectively, compared to the preceding quarter.
During the current quarter, the Company’s capital expenditures were $8.9 million, which consisted primarily of a base expansion project and capitalized interest.
The current excess capacity in our medium helicopter fleet is higher than in recent periods. Excess helicopters include our helicopters other than those under customer contracts, undergoing maintenance or dedicated for charter activity. We are participating in several competitive bids to place some or all of the excess medium helicopters on contract. If we are not successful in securing sufficient new projects, our financial results will be negatively impacted. In addition, we may sell certain helicopters on an opportunistic basis consistent with our stated strategy.
The Company entered into an agreement to sell its fixed base operations (“FBO”) business at Ted Stevens Anchorage International Airport to Piedmont Hawthorne Aviation, LLC, part of the of Landmark Aviation network consisting of 68 FBOs in the U.S., Canada and Western Europe on April 8, 2015. Pursuant to the agreement, Piedmont Hawthorne Aviation, LLC acquired 100% of Era Group’s wholly-owned subsidiary, Era FBO LLC. The transaction closed on May 1, 2015.
The Company’s unfunded capital commitments as of March 31, 2015 consisted primarily of orders for helicopters and totaled $195.2 million, of which $90.2 million is payable during 2015 with the balance payable through 2017. The Company also had $1.8 million of deposits paid on options not yet exercised. The Company may terminate $102.9 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than aggregate liquidated damages of $2.5 million.
Included in these capital commitments are agreements to purchase nine AW189 heavy helicopters, four S92 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered beginning in Q2 2015 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 and five S92 helicopters. If these options are exercised, the helicopters would be scheduled for delivery beginning in 2016 through 2018.
As of March 31, 2015, the Company had $33.7 million in cash balances and remaining availability under its senior secured revolving credit facility of $209.2 million. The Company also had $2.8 million of escrow deposits.
Management will conduct a conference call starting at 10:00 a.m. ET (9:00 a.m. CT) on Wednesday, May 6, 2015, to review the results for the first quarter ended March 31, 2015. The conference call can be accessed as follows:
All callers will need to reference the access code 21928964
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 20, 2015 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, and the United Kingdom. Era Group’s helicopters are primarily used to transport personnel to, from and between offshore installations, drilling rigs and platforms.
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