Portland Aug 27, 2015 (Thomson StreetEvents) -- Edited Transcript of Erickson Inc earnings conference call or presentation Thursday, August 6, 2015 at 8:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Zachary Cotner Erickson Incorporated - IR * Jeff Roberts Erickson Incorporated - CEO & President * Eric Struik Erickson Incorporated - CFO ================================================================================ Conference Call Participants ================================================================================ * Ken Herbert Canaccord Genuity - Analyst * Andrew Casella Imperial Capital - Analyst * Hamed Khorsand BWS Financial - Analyst * Bill Mastoris Robert W. Baird - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen and welcome to the Erickson Incorporated second-quarter 2015 earnings conference call. (Operator Instructions). Please note the conference is being recorded and now I'd like to turn the conference over to Mr. Zachary Cotner. Please go ahead, sir. -------------------------------------------------------------------------------- Zachary Cotner, Erickson Incorporated - IR [2] -------------------------------------------------------------------------------- Thank you, operator and good afternoon, everyone. Before we begin prepared remarks today, I'd just like to remind you of the Company's Safe Harbor language. Information discussed during this conference call might be forward-looking in nature and is subject to risks and uncertainties that may cause actual results to differ materially from current expectations. To understand the factors that could cause (inaudible) to differ materially from those in the forward-looking statements, please refer to our latest Annual Report on Form 10-K and reports subsequently filed with the Securities and Exchange Commission. In addition to financial results presented on a GAAP basis today, the Company will be discussing non-GAAP information that we believe is useful in evaluating the Company's operating performance. For reconciliations of these non-GAAP financial measures to the closest GAAP equivalent, they can be found in the Company's earnings press release that was released this afternoon and is also filed with the SEC under Form 8-K. A replay of this call can be accessed telephonically or through the webcast on the Company's website and the replay instructions are included in the Company's earnings press release. Thank you for your attention to those items. At this time, I'd now like to turn the call over to Jeff Roberts, President and Chief Executive Officer of Erickson. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [3] -------------------------------------------------------------------------------- Thank you, Zach. Good afternoon, everyone and thank you for joining Erickson's second-quarter 2015 earnings call. During the call today, we will discuss the current state of the business, Q2 financial results and the past [quarter]. I joined Erickson in April of this year. My immediate goals have been focused on our liquidity, improving efficiency, increasing accountability and growing our sales pipeline. I'm pleased to report that we have made progress on all of these areas, but we still have a significant amount of work ahead of us. Our business is experiencing headwinds in a couple of areas. Operational descopes in some of our government segments like those experienced in Afghanistan have reduced the demand for our aerial services. The decline in energy prices, coupled with reductions in exploration and production spending, has placed pressure on our oil and gas segment. While our Q2 results continue to reflect these factors, we are taking aggressive action to mitigate the short-term pressure, but more importantly to create a more capable business with a stronger front end and a more efficient infrastructure. In the second quarter, we generated just over $69 million of revenue and slightly more than $10 million of adjusted EBITDA. While are not satisfied with these results, we did improve our quarter two adjusted EBITDA by $8 million sequentially from Q1 of this year on only $3 million of additional revenue. The increased conversion reflects some traction on our cost-savings initiatives. Additionally, we improved free cash flow by over $35 million on a year-over-year basis. Reductions in operating expenses, aggressive working capital management and disciplined capital investing all contributed to this improvement. It's important to note that while we are achieving these reductions as we improve our operating abilities and prospects for growth, we continue to have excellent relationships with our customers and our operational readiness rate remains high. I'd now like to address the current state of our business unit in a little more detail. The commercial aviation services segment encompasses the end markets of firefighting, oil and gas, infrastructure construction and timber harvesting. In the second quarter, we had some good traction in our construction segment as we expanded our international presence. However, the firefighting season did start slowly. Oil and gas was down only slightly year-over-year, but we see significant pressure as we look forward. The sustained drop in oil prices is putting extended pressure on our customers and we are also generally seeing reduced requests for proposal activity. That being said, we are getting some good traction in Alaska. This June, we were pleased to announce a contract award with Repsol, where we will support their operations on the North Slope. Although the near-term oil and gas market will be challenging, we are confident of the long-term prospects. We believe we can add value for onshore operations were customers need self-sustaining support in remote and rugged environments. We are increasingly less focused on the offshore market, which, while large, is crowded and has unique aircraft requirements. Government aviation services encompasses our work for the US Department of Defense, international governments and other global organizations. We are seeing opportunities for spot work in 2015, but this business unit is facing challenges due to the operational descopes in Afghanistan. We believe we have significant opportunities as we look beyond 2015 and are particularly excited about some of our long-term prospects in Africa. Despite the short-term pressure in the market, there is a large and persistent need for highly capable operators. Outside of the current situation in Afghanistan, we are pursuing a number of opportunities in existing and adjacent markets where our assets and expertise should prove particularly valuable. Our work with the Uruguayan Air Force helicopter pilots is a recent example of how we can monetize our unique assets and capability. Our final segment is manufacturing MRO, which performed well during the quarter. We continue to diversify into a variety of work for external customers and are now starting to see revenue from our Bell 214 program. Over time, we believe there are significant opportunities to grow this business and demonstrate our value and expertise on a number of different platforms. I'll now turn the call over to Eric. -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [4] -------------------------------------------------------------------------------- Thank you, Jeff. Good afternoon, everyone. I'd like to provide a review of our second-quarter financial results. We reported second-quarter 2015 revenue of $69.3 million compared to revenue of $80.9 million in the second quarter of last year. Our government aviation services segment reported revenues of $28.4 million for the quarter compared to revenues of $41.9 million in the prior year period, primarily driven by the continued reduction of operational tempo in Afghanistan and the end of some other contracts. Our commercial aviation services segment reported revenues of $34.3 million compared to $35.6 million the prior year. The decline was the result of a slow start to the North American and Greek firefighting season, as well as the impact of a stronger US dollar. Our manufacturing and MRO segment reported revenues of $6.6 million compared to $3.4 million in the prior year. This increase reflects the contribution from the Bell 214 deal, increased S-64 parts, as well as revenue realized by our trade group. During the quarter, the trade group sold and idled B1900 and an AS350B2. Second-quarter operating expenses were $7.6 million compared to $30.8 million in the prior year. The prior year's total included $21.3 million in one-time impairment expenses and $0.3 million in acquisitions, integration and restructuring expenses. Adjusted operating expenses, excluding one-time items, were $7.5 million or 10.8% of sales in this year's second quarter compared to $9.2 million or 11.4% of sales in last year's second quarter. The 16% decline is attributable to structural cost initiatives put in place earlier this year. We continue to meaningfully reduce our expenses in a number of categories while investing in sales and business development resources. Adjusted operating income in the quarter was $0.2 million compared to an adjusted operating income of $4.6 million in the prior year. The decline was largely the result of the lower contribution from our government business, unfavorable foreign exchange, offset by the growth in our MRO business and disciplined cost control. As Jeff mentioned, we are driving more accountability in our operating team by focusing them on operating income, return on invested capital and free cash flow to drive value for our investors. Other expenses in the quarter were $9.7 million compared to $10 million last year. This year's expenses were comprised primarily of $9.4 million in interest on outstanding borrowings and $0.6 million in amortized cost of debt issuance. Adjusted EBITDA, excluding one-time expenses, was $10.3 million for the quarter compared to $13.8 million in the same quarter last year. As Jeff mentioned, this quarter's performance was over $8 million better than our first-quarter 2015 EBITDA on just $3 million more of revenue. Adjusted EBITDAR, which also excludes aircraft lease expenses, was $14.5 million compared to the prior year's level of $19 million. We were pleased to reduce leasing expense by over $1 million year-over-year. As we refine our fleet strategy, we will operate fewer aircraft platforms going forward and expect to continue reducing our lease expense. As discussed on our last couple earnings calls, one of our top priorities for the year is to manage the business to be free cash flow breakeven to positive. I am pleased to report that we are on our way to achieving this goal. Our second quarter historically has been our heaviest cash consumption quarter as we prepare for the firefighting season. This year, we consumed $10 million in free cash flow during the second quarter compared to a use of $46 million in free cash flow during last year's second quarter. This $36 million improvement reflected the contributions of our cash initiatives and was accomplished by improving working capital consumption by $24 million as we realized the early benefits of our inventory reduction initiative and other working capital initiatives. In addition, we reduced capital spending for the period by $13 million as we've managed spending to maintenance capital and our growth capital investment in the composite main rotor blade program. We now expect capital spending to be between $35 million and $40 million for the full year. To further improve our financial flexibility, we also recently amended our credit facility to modify the fixed charge coverage ratio covenant through a springing test such that the ratio is not tested unless the availability is less than 12.5% of the maximum revolver amount of $140 million. This means that the ratio would not be tested until the revolver balance was above $122.5 million. We ended the quarter with $113.7 million drawn on the revolver and have since paid it down another $12 million, putting the [perm] balance at $101 million. We do not anticipate exceeding $120 million on the revolver for the foreseeable future. As part of this amendment, our gross CapEx will not exceed $10 million in 2015, $20 million in 2016 and $25 million in subsequent years. We do not believe this will constrain the Company's growth prospects going forward. We continue to believe we have ample liquidity for 2015 and beyond. Jeff will now provide context around our expectations for the business for the remainder of the year, as well as our business transformation. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [5] -------------------------------------------------------------------------------- Thanks, Eric. As we look forward, we see opportunities, but there's still a fair amount of headwinds this year. The 2015 defense market is soft and extremely competitive. It's still early in the fire season and our oil and gas business is under increasing pressure from lower energy prices. That being said, we still see a path to achieve our fiscal year guidance. We are confident that even at the low end of our revenue and EBITDA guidance, we can achieve breakeven to modestly positive free cash flow. We are going to control the factors that we can and take action as necessary. We continue to focus on improving our front end, transforming, streamlining our organizational, operational structure and increasing accountability across the enterprise. As I previously mentioned, we are investing in developing our front end to be more customer-centric with more resources to grow our sales pipeline. We will cast a wider net to find opportunities where our unique skill set and capabilities will provide value. This focus is helping to increase proposal activity and we are beginning to see early traction in some of our end markets. We are also beginning an organizational transformation, which will reduce costs by streamlining operations, eliminating non-value-add activities and creating clear lines of responsibility and focus. We have significant opportunities to improve efficiency, to implement best practices and eliminate redundancy. Some of these initial opportunities include closure of unprofitable foreign subsidiaries, rationalizing operating structures and the relocation closure of our McMinnville facility, among others. We have a clear line of sight to $12 million to $15 million of savings and are pushing for more. We are pleased with our initial traction and will finalize this plan in the near term. Finally, we are increasing accountability and metrics throughout the Company. We have implemented management by objectives and set specific targets with toll gates and deliverables across the business. We've instituted additional, more frequent and deeper operating reviews. Our culture is increasingly focused on delivering to commitments. These changes will position the Company for improved performance as we move forward. Thanks for your time today and we are now prepared to entertain questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Ken Herbert, Canaccord. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [2] -------------------------------------------------------------------------------- Eric and Jeff, I just wanted to see if I could get a little more detail on some of the working capital improvements in the quarter. They seem pretty significant. Can you provide some more granularity on maybe the pieces of that, whether it be inventory and parts and how sustainable some of these might be or if any of it was -- any of it maybe reverses as you look at new opportunities out past 2015? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [3] -------------------------------------------------------------------------------- Ken, most of them are existing initiatives that we put in place earlier in the year such as the inventory initiatives that we had spoken to. We committed to deliver $10 million by inventory reductions over the course of the year and we realized a good portion of that in Q1. We also had a number of receivables that we've collected and our past dues essentially are down to almost zero for the period, which has been a great accomplishment by the group. And then on the aircraft support parts, we've been very careful with our spending there and so really was an across-the-board improvement that resulted in the $24 million. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [4] -------------------------------------------------------------------------------- Okay, okay, that's helpful. And you sold a couple of aircraft in the quarter, it sounded like? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [5] -------------------------------------------------------------------------------- We did. We sold a Beechcraft 1900 and an A350. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [6] -------------------------------------------------------------------------------- How does the -- what's the plan for additional sales over the course of the year. Is it something as you just continue to go through the fleet, look for maybe a few aircraft each quarter or is there perhaps more opportunity there as you dig into the fleet more? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [7] -------------------------------------------------------------------------------- So as you know, last quarter, we put nine aircraft up for sale out of the fleet. We are certainly going to continue to block and tackle and move on those. And as I've said before, we have too many different types of aircraft, so there is going to be some fleet rationalization in terms of types to start with. So you might see some movement as we opportunistically go forward and beyond that, we are going to have a fleet that we can keep busy and that we can utilize. Now we are starting, as I mentioned, to see some traction in some areas, so it's too early to get real specific about how big that fleet is, but as we make our way through the year where we see opportunities and where we believe we can put the fleet to work, we will and we will keep those, and where we don't, we will take the appropriate action. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [8] -------------------------------------------------------------------------------- Okay, that's great. And it sounds like activity in Afghanistan was maybe even a little softer than you had expected heading into the quarter. Do you get a sense, and with visibility here the second half of the year, that we are any closer to maybe some stabilization there, or how do you think about timeframe for maybe seeing that business trough? And is it too early to even start to think about sort of 2016 levels there and what the business might entail? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [9] -------------------------------------------------------------------------------- Yes, it's a tough one. I will tell you it was probably a little softer than we had anticipated. I wouldn't put it hugely material, but a bit softer. But we don't think that that's indicative of an acceleration of drawdown or anything. So I think the guidance that we've given before is mostly right. In terms of 2016, I'm going to say it's too early. There are a lot of, as you guys know, moving parts going on here and just seems to be adjusting kind of as we go. So as soon as we get more clarity and specificity, we will certainly let everyone know. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [10] -------------------------------------------------------------------------------- Okay, great. Thanks, Jeff. Thanks, Eric. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [12] -------------------------------------------------------------------------------- I guess just, first off, you had talked about your oil and gas business. If you could just remind us of the revenue dollars at risk and then the allocation between your onshore and offshore exposure and then what you are kind of seeing as far as potential pricing concession and some of the weakness you were referring to in your prepared remarks? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [13] -------------------------------------------------------------------------------- Sure. That segment for us is about $35 million, $40 million and originally a good bit, kind of a mix of onshore versus offshore. I think as we talk about moving forward, we are going to be increasingly focused on the onshore, land-based environment. It just lends itself much better to our capabilities. And candidly we think that Brazil, South America -- well, Brazil specifically is a very difficult environment and so that's why you see us kind of refocusing our attention to other areas. In terms of pricing environment, I don't see it abating anytime soon. The price of oil I think is actually down again today to some degree. There's a tremendous amount of capacity in that space, specifically in the offshore oil and gas. So my presumption would be it will continue to be a very challenging and difficult market for the foreseeable future. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [14] -------------------------------------------------------------------------------- Got it. If you could just remind us again on your actual guidance for 2015. And then if you could provide us a bridge for not only revenues and if you can allocate that between segment, but then also just on your free cash flow metrics. I'm just thinking CapEx of $40 million, cash interest of about $35 million, working capital. What your expectations are and I guess you have about $3 million of taxes. I know you are looking for a breakeven cash flow, but just wanted to confirm the bridging items for those various components. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [15] -------------------------------------------------------------------------------- Yes, what I can do is we will follow up with some more specifics if needed, but I think we've said 330 to 350 on the top line. We've said the 80 to 90 on the bottom and breakeven to slightly positive. And as I think I indicated in the earlier remarks, we are seeing some headwind, but -- so we see some risk, but we also see some opportunity. So we are kind of hanging onto it and deals are sticking with what we've said. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [16] -------------------------------------------------------------------------------- Got it. And when we look at articles all over the place about the fire season, if you could just comment on what you are seeing into the third quarter and then also just wanted to see if you could provide us an update on the US Forestry Service contract, if there's been any movement there? I think you said that that was up for negotiation, but just curious if you have any color at this point in time? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [17] -------------------------------------------------------------------------------- Yes, the fire season started a bit slow, candidly. You wouldn't recognize it today if you turn on the television, but it started slow in the second quarter in the southwestern part of the United States and the first half of July, first three quarters of July were probably a bit slow as well. Right now, I think I saw the number this morning, there are about 43 what I will call large fires going on in the Western United States. So the activity has certainly picked up, but it's early days. So this is part of the business that is not much fun because you really can't get a whole lot of clarity or specificity about what it looks like going forward. A lot of people say that all the conditions are right for it to be a big season. Who knows? That could be true, but it could start raining and I'm not a weatherman, so don't --. In terms of the Forestry Service contracts, well, there was the amendment that we were successful in signing for the remainder of this year. That happened some time ago and I think we discussed and announced that. And then the proposal and a request for bids and proposals for the go-forward period has just come out and I think we've just completed and put stuff in for that, so that's underway and ongoing. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [18] -------------------------------------------------------------------------------- Got it. That's helpful. And then, Eric, just to understand the cost savings you guys quantified, $12 million to $15 million, how much of that is already in the numbers, and then if you could just help us understand the allocation between cost of revenues versus SG&A and those buckets? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [19] -------------------------------------------------------------------------------- Yes, so that's all forward-looking, so that will be initiatives that we realized and called the beginning of Q4 and hen early into 2016 and most of that will be in COGS. We have already taken a fair amount of cost out of the SG&A line to date, but you'll start to see that benefit Q4 and into 2016. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [20] -------------------------------------------------------------------------------- Okay, got it. And then I apologize, just one more question. As you think about pruning the fleet of aircraft, how should we think about the maintenance CapEx and the various overhead costs that are associated with each aircraft? For example, if you were to offload eight of the aircraft you have remaining as held for sale, what would the maintenance CapEx number look like and if you would see any other positive operational cash flow savings from divesting those assets? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [21] -------------------------------------------------------------------------------- Yes, it's a good question. My sense is -- and it's going to be a general answer because we are not specifically defined on what the fleet needs to look like. We are getting closer, but here's what I can tell you. I think we will continue to operate disproportionally, medium to heavy lift utility aircraft of generally the same type. I think we will operate a fewer number in terms of different types. We have 10, 11 types today. I think that number will be down and there should therefore be efficiencies from commonality that we will see in terms of inventory and parts and churn and so forth. Don't want to get, very candidly, real specific because until we really get zeroed in on what that looks like, I don't want to overpromise and underachieve. I want to do the opposite. That said, my expectation is that it certainly won't be any worse and that it should be a little bit better. -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [22] -------------------------------------------------------------------------------- Yes. And Andrew, I would say the maintenance capital number going forward should be in the range of $35 million to $40 million and any growth CapEx would be above that. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [23] -------------------------------------------------------------------------------- Got it. Thanks so much. I'll get back in the queue. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- (Operator Instructions). Hamed Khorsand, BWS Financial. -------------------------------------------------------------------------------- Hamed Khorsand, BWS Financial - Analyst [25] -------------------------------------------------------------------------------- I was hoping you could provide us with something a little bit more tangible as far as your outlook goes for the rest of the year. If I'm looking at $330 million of revenue and you've one done let's say $137 million so far, we are talking about a big increase for the second half of the year and you haven't really provided us with anything tangible other than saying there's a couple of opportunities, how are we supposed to feel good about that? Given the history for the past year and half, can you give us something that we can say, okay, there is something tangible here? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [26] -------------------------------------------------------------------------------- Okay, the way I would answer that is the third quarter is almost always disproportionately the largest quarter of the entire year for the business and it's not very far detracted away from the fire season that we have. So I think the best that I can do is the specificity we've said that the fire season kind of started late, but the activity levels are now kind of back up to where we thought that they would be and there seems to be a significant number of fires going on and unfortunately growing in intensity. Now how long will that last and what does that look like, as I said, I can't get into predicting that simply because I can't -- there's too many factors I can't control. Beyond that, I would -- it's a small piece, but we continue to see good performance and growth out of the manufacturing MRO segment and we believe that that business will continue to expand and grow. It's small, relatively speaking, but we think it will grow. We've tried to provide some clear guidance about where the government business unit is going to be. So that's kind of where we end up is some headwinds, but as it stands right now, if all things being equal, we feel like the guidance we've given is still the right guidance. -------------------------------------------------------------------------------- Hamed Khorsand, BWS Financial - Analyst [27] -------------------------------------------------------------------------------- Okay. And my other question is can you just clarify, when you talk about cash flow breakeven, are you taking into consideration your asset sales or is this purely the cash coming from operations that's going to lead to the breakeven? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [28] -------------------------------------------------------------------------------- Yes, the way we define free cash flow is cash flow from operations on a GAAP basis less CapEx. So it would incorporate the revenue that we are getting from the sale of (inaudible), which should be in the range of call it $5 million to $10 million. -------------------------------------------------------------------------------- Hamed Khorsand, BWS Financial - Analyst [29] -------------------------------------------------------------------------------- Okay. That's it for me. Thank you. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- (Operator Instructions). Bill Mastoris, Baird & Company. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [31] -------------------------------------------------------------------------------- Thank you. Many of my questions have already been answered, but, Jeff, I'm just kind of wondering, as we look forward to the balance of the year, would it be fair to say or what would be a good percentage of visibility as far as revenue for the year? Would it be 80%, 90% and then what assumptions are embedded in that? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [32] -------------------------------------------------------------------------------- Sure, yes. These percentages are always tricky because -- but here's what I would say. If you're going to ask me to pick a number, I think we are probably 75%, 80% visibility on these numbers and I hate to put it this way, but it is all tied around the fire season and the 5, 10-year averages. It's the best we can do and so that's kind of the fundamental basis of it. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [33] -------------------------------------------------------------------------------- Okay. So we have -- really 20% of those revenues are going to come from new contract awards? Is that a fair characterization? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [34] -------------------------------------------------------------------------------- Yes, that's probably generally right, precisely wrong. I don't want to mislead you. I think, obviously, we are going to take the revenue wherever we can get it. But I would say that's probably a fair statement. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [35] -------------------------------------------------------------------------------- Okay. And then how many aircraft right now do you have on contract and then kind of a quick follow-up to that would be how many right now are airworthy? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [36] -------------------------------------------------------------------------------- Okay. So we've got -- our fleet has got 84 aircraft in it. 75 are positioned as -- operational is the way that we would character it and of those 75, we've got 50 or 51 I think that are currently on contract. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [37] -------------------------------------------------------------------------------- And is that 75 also an airworthy number? In other words, they could get up in a moment's notice if the opportunity presented itself? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [38] -------------------------------------------------------------------------------- I think -- yes. Yes, I believe that's correct. And I'm hedging only because aircraft are funny things when you say a moment's notice, but, yes, I believe they could be operationally dispatched within a reasonable amount of time. Let me answer it that way. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [39] -------------------------------------------------------------------------------- Okay. And Jeff, one of the things that you've talked about in the past has to do with increasing that utilization rate where you can take that revenue up, really that same core set of assets. Roughly right now what should be embedded in our assumptions as far as a utilization rate, maybe a current one and maybe one that's going forward for the balance of the year? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [40] -------------------------------------------------------------------------------- Yes, I think if you look at it, the first half of the year, utilization rates are very, very low. I think in our guidance or in our report, we stated it is somewhere around 40%. Q3 will be much higher simply because the fire season is here and we are starting to see that. So I think you'll see it jump quite dramatically and it unfortunately tails off again in Q4. So 40% for the first half of the year and probably closer to the 75% for the third quarter and then back down. So on an aggregate basis, probably 55%, 60%. That's a bad news story today, but that's a good news story as you look forward because we certainly have assets that we can put more revenue on. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [41] -------------------------------------------------------------------------------- Okay. Last question for Eric, and Eric, in that $5 million to $10 million just in terms of sales, are those all -- I assume they are all owned aircraft and they are all kind of done on a part-out basis, would that be a fair statement? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [42] -------------------------------------------------------------------------------- No, they are all owned aircraft, but they are not parted out. Most of those are operational; they just happen to be idle. They're not part of the longer-term fleet plan. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [43] -------------------------------------------------------------------------------- Okay. And so they are not part of the fleet that's airworthy, is that fair? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [44] -------------------------------------------------------------------------------- No, a couple of them are airworthy. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [45] -------------------------------------------------------------------------------- Okay. Thank you very much. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Andrew Casella, Imperial capital. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [47] -------------------------------------------------------------------------------- I guess because the visibility around the fire season seems like a little bit difficult to reconcile, I guess comments just saying July is kind of slow and then you see a lot of the media talking about fires happening in California. What is the best metric we can look at? Is it something on the US Forestry site like the number of large active fires, or is it an acreage that's on fire? I'm just trying to better understand how we can track this throughout the season because the third quarter is kind of a make or break for the Company during the year just because it's so seasonal. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [48] -------------------------------------------------------------------------------- Yes, so it's a fantastic question and one that I've been asking for about 122 days. And here is the way I would answer it is it's a combination of all of that. It's how many fires, what is the acreage and where are the fires at. So here's the -- and I will give you this. All that information is readily available, but the acreage can be misleading because depending upon where the acreage is, it can be very significant or it can be almost not a throwaway metric, but not very important. If the acreage is at the far reaches of Alaska, the Forestry Service does not fight those fires aggressively as it does if the fire and the acreage is in the Los Angeles metropolitan area or where civilization and wilderness meet. So I think you kind of have to take a look at the acreage burn and then you have to look at the number of fires and the materiality size of those fires and then you have to balance that against the containment metric, the likelihood of containment in a relatively short period of time. So it's kind of complicated and so you then have to balance that I think, Andrew, against this 5, 10-year average and that will give you a generalized sense. The thing that is a bit maddening for me is that could all -- if it starts raining or if it doesn't rain and gets hot and the wind blows, that could have a material effect on all of this. So I am generally not trying to be obtuse or not specific, but I just don't want to mislead anybody. I want to give people facts and data. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [49] -------------------------------------------------------------------------------- Sure, that's understandable. Then my next follow-up, just on some of the construction opportunities, I know we've discussed in the past about there potentially being some work overseas in China and India. Can you help us understand what type of progress you are making there, when we could see potential awards and eventually those numbers trickle into the revenue line items? I think you had said there were some construction wins in the revenue numbers in the second quarter, but just trying to see the progress on that front. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [50] -------------------------------------------------------------------------------- Yes, it's a fair question. We continue to have what I would consider and label productive and constructive conversations with potential customers at various locales around the world. But this will be a bit of a longer cycle because it's a new application for them and it's complicated in a number of operational ways for them. But I would tell you that while three months ago there were I would call them preliminary conversations, I would say we are now kind into the middle part of the conversation where more specificity, more details and more serious conversations are taking place. And then as I look forward, ultimately I can't predict when and what the prospect of the market is ultimately going to do, but I would hope that we would see continued forward motion on this through Q3 and into Q4. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [51] -------------------------------------------------------------------------------- Got it. And then, Eric, just a quick question on the revolver. I guess if you can help us -- what's the actual availability today and then given the fact that you have a springing fixed charge coverage ratio test if availability falls below a certain level, what's the actual excess availability? So I'm guessing are you in compliance with the fixed charge coverage ratio, say for example if you actually were below that 12.5% threshold? Just trying to understand the actual number you can draw today. -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [52] -------------------------------------------------------------------------------- Yes, so we were at 101 and cash continues to be strong, so it's really a non-issue as we go through the balance of the year. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [53] -------------------------------------------------------------------------------- Okay, got it. So availability at the end of the quarter though, do you have that number? -------------------------------------------------------------------------------- Eric Struik, Erickson Incorporated - CFO [54] -------------------------------------------------------------------------------- I don't have it in front of me. I can follow up with you later. -------------------------------------------------------------------------------- Andrew Casella, Imperial Capital - Analyst [55] -------------------------------------------------------------------------------- Okay, perfect. That's all the questions I had. Thanks again. -------------------------------------------------------------------------------- Operator [56] -------------------------------------------------------------------------------- Ken Herbert, Canaccord. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [57] -------------------------------------------------------------------------------- Jeff, I just had one quick follow-up. So it sounds like you are still sticking to the $330 million to $350 million for revenues this year. If I remember well, I think in the initial guidance, oil and gas was about maybe $50 million to $60 million as part of the initial plan, but it sounds like that's maybe closer to $40 million, maybe $45 million now or a little softer. Is there any areas in the initial guidance where you perhaps have seen an offset to keep at that $340 million midpoint, or is it sort of new contract wins that sort of get up to the upper end of the guidance range? Maybe just help me think about that with some softer oil and gas. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [58] -------------------------------------------------------------------------------- It's a good question. Our sense is -- I'll be very transparent -- our original plan for oil and gas is not going to materialize like we thought it would. Brazil was a big part of that. I think as everybody knows it's turned into a bit of a different place, but we are seeing some traction in other places. Alaska I mentioned specifically. So we are going to be shifting and looking for those kinds of opportunities, but we are seeing -- and it's small -- but we are seeing improved and good traction in the manufacturing MRO business. It's small, but it's helping. And we've got some pipeline opportunities in some of the other end markets that we see that makes it -- could be attractive as well. But that's why I said we are fighting a headwind and -- but the fire season could be remarkable. So it's early for us to tell, but we still believe we are in that range. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [59] -------------------------------------------------------------------------------- Okay. And then you've talked about Africa a few times and I know there's some significant opportunity there. Is it possible to size that for us either just in terms of the overall magnitude of what that market could evolve into or maybe sort of what's near-term versus long-term opportunities? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [60] -------------------------------------------------------------------------------- Yes, a bit of a moving target at the present time, Ken, for what I'm sure you can appreciate for lots of different reasons. And I'm not being flippant, but large. I would put it well north of $500 million, $600 million in aggregate in Africa alone and today, that's not a very big portion of our portfolio. So I think as we look forward, I think everybody believes that a tremendous amount of DOD, Department of State, nation-building dollars will be pushed and forwarded to Africa and that's why we think it's an important place for us to be. -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [61] -------------------------------------------------------------------------------- Okay. That's helpful. And then if I could, just one follow-up. You've obviously got the Bell 214. You talked about some upside you are seeing there. Can you provide just a little more specifics on maybe the opportunity from an MRO standpoint on that aircraft this year versus next year? I know there's a decent fleet out there and you've got some real unique capabilities here. How should we think about that ramping as we go through the rest of this year and into 2016? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [62] -------------------------------------------------------------------------------- Yes, I think it's kind of coming in line with where we want it to be. In terms of materiality, I don't have those numbers close at hand. We can get back to you with it, but my sense is these kinds of legacy platforms and support are going to be a bigger part of our future going forward. We like what we are seeing on the 214, the customers that we are interacting with and the prospects we are interacting with like it and we are getting positive feedback from Bell because it's solving an issue for them. But we can come back to you with a little more specificity on a one-off basis, okay? -------------------------------------------------------------------------------- Ken Herbert, Canaccord Genuity - Analyst [63] -------------------------------------------------------------------------------- Okay, perfect. Thanks, Jeff. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Bill Mastoris, Baird & Company. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [65] -------------------------------------------------------------------------------- Jeff, kind of just digging a little bit deeper on the last topic, is there an opportunity here to go ahead and leverage the Bell contract from the 200 series maybe up to the 400 series? Is that possibly in the cards or is this something where you are going to have to prove yourself for a certain period of time before you can entertain that thought? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [66] -------------------------------------------------------------------------------- It's a very good question and the way I would answer it is it's a bit of both. We are probably going to be impatient in some people's eyes about wanting to scale this, but we will have to earn our way there. We will move at the pace that the market will allow, but you can be certain that we're going to be trying to push the market as aggressively as we can. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [67] -------------------------------------------------------------------------------- Okay. And the last question I have, to the extent that you can comment, is there an appraisal number for your fleet that you can share with us? -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [68] -------------------------------------------------------------------------------- No, not in an aggregate or a traditional manner. Now we can certainly offline go through with you how anecdotally it's been done in the past, but, no, we don't have a formalized appraisal or holistic fleet at this juncture. -------------------------------------------------------------------------------- Bill Mastoris, Robert W. Baird - Analyst [69] -------------------------------------------------------------------------------- Okay. I will follow up offline and so I appreciate it. Thank you. -------------------------------------------------------------------------------- Operator [70] -------------------------------------------------------------------------------- And that does conclude our question-and-answer session for today. I'd like to turn it back to Jeff Roberts for any additional or closing remarks. -------------------------------------------------------------------------------- Jeff Roberts, Erickson Incorporated - CEO & President [71] -------------------------------------------------------------------------------- Just thank you to everybody for participating. We look forward to speaking to you in the future. Have a great day. -------------------------------------------------------------------------------- Operator [72] -------------------------------------------------------------------------------- Thank you very much and that does conclude our conference for today. I'd like to thank everyone for your participation and have a great afternoon.
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