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CHC Group reported fiscal 2016 third quarter (ended Jan. 31, 2016) consolidated revenue of $333 million, a decline of 20 percent year-over-year, driven by continued challenges in the global oil and gas market and unfavorable currency translation effects. On a constant currency basis, revenue decreased 14 percent versus the prior year quarter.
The company reported a net loss of $76 million, or $33.33 per ordinary share, for the fiscal 2016 third quarter. Excluding special items, Adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization and helicopter lease and other costs) of $112 million declined $3 million or three percent year-over-year part of which was due to foreign exchange.
After excluding a $4 million adjusted EBITDAR benefit recorded in the prior year quarter due to the sale of the company’s interest in Helideck Certification Agency, adjusted EBITDAR was mostly unchanged year-over-year, reflecting the company’s continued execution of its cost control initiatives.
Adjusted EBITDAR margin, excluding special items, was 36 percent, an increase of 590 basis points year-over-year, resulting from continued execution of cost control initiatives as well as the impact of foreign currency exchange. On a year-to-date basis, Adjusted EBITDAR margin, excluding special items, of 35.3 percent reflected an improvement of 640 basis points year-over-year.
The company reported a fiscal 2016 third quarter adjusted net loss of $32 million. Quarterly adjustments included, but were not limited to, a $25 million asset impairment charge for certain older aircraft types and a $12 million restructuring charge, the majority of which was related to further employee severance costs.
Karl Fessenden, president and chief executive officer:
“The oil and gas sector remains under intense pressure as pricing and overall activity levels remain at record lows, and offshore activity continues to be negatively impacted. With low visibility and ongoing uncertainty regarding a market improvement, we are planning for the difficult conditions to continue for some time and are managing our business accordingly.
“We are maintaining our relentless focus on our three key priorities: leveraging our customer and OEM relationships, executing rigorous cost control, and improving capital efficiency. As of the end of the third quarter in fiscal 2016, excluding special items and the impact of foreign exchange, year-to-date we had reduced operating expenses at the Adjusted EBITDAR level by approximately $175 million year-over-year.
“By quarter end, we had completed approximately 90 percent of our previously announced 12 percent workforce reduction and we are taking actions to further reduce our headcount and make other adjustments to our cost base to match the requirements of our business going forward. We are focused on continuing to make constructive changes to reduce costs without compromising on safety and reliability and we remain fully committed to delivering safe and superior services to our customers. We maintain our belief that long term market fundamentals remain in place and we continue to take proactive steps to improve our long-term position.”
Lee Eckert, chief financial officer:
“As we continue to navigate the market downturn, we remain focused on our strategic goal of improving capital efficiency. This has resulted in an improvement in cash flow, where we reported a $122 million reduction in outflow during the first nine months of fiscal 2016 as compared to the prior year mainly due to a decrease in aircraft related capital expenditures as we continue to focus on controlling spend.
“In addition, our cost control initiatives are critical to managing EBITDAR and operating cash flow. These initiatives are progressing according to plan and we continue to identify additional savings. We exited the fiscal 2016 third quarter with liquidity of $377 million and we are focused on strengthening and increasing the quality of our liquidity.”
Helicopter Services (flying)
Helicopter Services revenue for the fiscal 2016 third quarter was $294 million, a decline of 22 percent versus prior year. On a constant currency basis, the decline was 17 percent, driven by lower flying activity and a decline in reimbursable revenue. Adjusted EBITDAR for the segment totalled $119 million, a reduction of seven percent mostly due to lower flying activity, and to a lesser extent, the impact of foreign exchange. Adjusted EBITDAR margin for the segment was 44 percent, an increase of approximately 670 basis points compared to the prior year quarter reflecting cost control and efficiency initiatives and the positive impact of foreign exchange.
Heli-One’s third-party revenue for the fiscal 2016 third quarter was $40 million, a decline of $0.2 million, or less than one percent compared to the prior year quarter, primarily due to the impact of foreign exchange. On a constant currency basis, revenue increased seven percent year-over-year. Adjusted EBITDAR totalled $8 million, an increase of $3 million and Adjusted EBITDAR margin was 12.7 percent, an increase of 380 basis points compared to the prior year quarter.
Free cash flow, leverage, liquidity and commitments
Free cash flow in the fiscal 2016 third quarter year-to-date was a use of $188 million, an improvement of $122 million over the prior year period, driven by a reduction in aircraft related capital expenditures.
No further bond repurchases were made during the third quarter. Year-to-date, the company made $41 million of bond repurchases, resulting in annualized interest savings of approximately $4 million.
The company ended the fiscal 2016 third quarter with an adjusted leverage ratio of 5.2x, which was up from 5.1x at the end of the fiscal 2016 second quarter.
The company exited the quarter ended January 31, 2016 with $377 million in liquidity as defined under “Non-GAAP Measures” below. This includes $233 million of availability on the revolving credit facility which was drawn subsequent to the end of the third quarter.
The liquidity figure at the end of the quarter also includes $34 million in undrawn capacity under the asset-based revolving credit facility as the company exited the fiscal 2016 third quarter with $111 million drawn on the facility. Subsequent to January 31, 2016, funding requests for approximately $19 million of the remaining capacity on the asset-based revolving credit facility (ABL) have been submitted for three additional aircraft to be financed under the facility.
The company expects the amount to be funded in the coming days. Once the ABL fundings have occurred, in total the company will have converted $251 million of facility availability to cash to date in the fourth quarter. Operating cash flow for the first nine months of fiscal 2016 was a use of $38 million, which compared to a use of $45 million in the same period in the prior year.
Aircraft purchase commitments at Jan. 31, 2016 were $237 million, $30 million of which are for the remainder of fiscal 2016. Discussions with the OEMs on the remaining commitments are ongoing as the company continues to right-size its fleet in response to current market conditions.
Another aspect of right-sizing the fleet is removing unnecessary aircraft by returning them to lessors. At quarter end, 16 aircraft had been identified to return to lessors at the end of the lease term and included in the restructuring accrual.
Retention of advisors
The company has retained financial advisors Seabury Advisors, PJT Partners and CDG Group and legal advisor Weil, Gotshal & Manges LLP, to advise its board of directors and management team on strategic alternatives with respect to the company’s capital structure. This includes, but is not limited to, exploring options to reduce aircraft lease and interest costs as well as the company’s purchase commitments.
As previously announced, on Feb. 2, 2016, the company began trading on the OTCQX Best Market (OTCQX), operated by OTC Markets Group Inc., under the trading symbol HELIF.
The listing of the company’s ordinary shares on the OTCQX market offers continued visibility and liquidity in trading of its shares for investors. The transition to the OTCQX market does not directly affect the company’s commercial operations.