Shefali Shah - SVP, General Counsel and Corporate Secretary Chris Bradshaw - President & CEO Andy Puhala - SVP & CFO Paul White - SVP Commercial Stuart Stavley - SVP Operations & Fleet Management.

Cameron Schnier - Evercore ISI Bill Mastoris - Baird & Company Adam Ritzer - Pressprich Christopher Hagedorn - Redwood Capital.

Good day and welcome to the Era Group reports Fourth Quarter and Full Year 2016 Results Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Shefali Shah. Please go ahead..

Thank you, Evan. Good morning, everyone. Thank you for joining Era’s fourth quarter and full year 2016 earnings call. I’m here today with our President and CEO, Chris Bradshaw; our SVP and CFO, Andy Puhala; our SVP Commercial; Paul White, our SVP Operations and Fleet Management, Stuart Stavley and our [SPNA Manager, Seema].

If you have not already done so, you may access our most recent earnings press release and presentation slides on our website eragroupinc.com or the SEC website, sec.gov.

Forward-looking statements expressed on this call are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed including those described in our most recent annual report on Form 10-K and the other filings we make with the SEC.

In addition, we will discuss non-GAAP financial measures on this call, such as adjusted EBITDA. Please refer to our earnings press release or the presentation slides for the calculation of these measures and the appropriate GAAP reconciliation. I’d now like to turn the call over to our President and CEO.

Chris?.

Thank you, Shefali, and welcome to the call everyone. As always, I will begin our prepared remarks with a note on safety, which is Era’s most important core value and our highest operational priority.

The operational status of H225 and AS332 L2 model helicopters continues to be a major safety-related issue impacting the offshore helicopter industry, following a fatal accident offshore Norway in April of last year. The European Aviation Safety Agency and the U.S.

Federal Aviation Administration have issued directives that provide for additional maintenance and inspection requirements to allow these helicopters to return to service. The civil aviation authorities in Norway and the United Kingdom, the major European markets for the H225 have not lifted the operational suspension in those countries.

The accident investigation remains ongoing and a definitive root cause has not yet been identified.

Beyond regulatory approval and the completion of the accident investigation, the other key milestones for a potential broad-based return to service of these helicopters include confidence amongst the helicopter operators and our oil and gas customers as well as support from certain industry labor unions.

As of today, we believe H225 helicopters have only returned to service and offshore oil and gas missions in a few countries in Asia. As disclosed in our Form 10K, Era filed a lawsuit in November 2016 seeking damages from Airbus related to our purchase of H225 helicopters.

As this is an ongoing legal dispute, we will not comment on the content or status of that lawsuit. In 2016, we implemented measures to minimize our H225 related expenses, including placing the helicopters in long-term storage, reducing or reassigning staff and withdrawing these helicopters for maintenance programs.

We exited PBH agreements for our H225 airframes and engines, which resulted in $6.4 million of credits in 2016 and an additional $3.1 million of credits that we expect to utilize over the next five to six quarters.

In prior years, we have provided disclosures regarding the company's NAV based on a third-party appraisal of our helicopter fleet performed by Ascend. Given the current situation, Ascend is not providing appraisal values for H225 helicopters. This is a global policy by Ascend and is not specific to Era's fleet.

As a result, we are unable to provide the NAV presentation at this time as a like-for-like analysis is not possible without the appraisal values for the H225s.

Turning now to our 2016 financial highlights, despite the persistence of very challenging conditions in the offshore oil and gas industry, Era's efforts to maximize fleet utilization and control costs, help generate positive operating cash flow of $12 million in Q4 raising the full year 2016 total to $59 million.

We continue to prioritize the protection of our strong balance sheet and decreased net debt by $55 million during 2016.

In addition, our efforts to proactively manage capital commitments and realize value from the sale of underutilized asset have allowed us to fund prudent investments to continue to upgrade and diversify our fleet with the addition of AW189 and S92 heavy helicopters.

We maintain an order book that provides optionality for growth should market opportunities present themselves while limiting our noncancelable capital commitments to just $12 million in 2017 and less than $3 million in 2018.

I'll provide commentary on current market conditions later in the call, but for now, I'll turn it over to our CFO, Andy Puhala, to provide a review of our Q4 and full year 2016 financial results.

Andy?.

Thanks Chris. For the fourth quarter of 2016, we reported a net loss of $5.5 million or $0.27 per diluted share on operating revenues of $56.3 million compared to a net loss of $3.4 million or $0.17 per diluted share on operating revenues of $73.9 million in Q4 of 2015.

Revenues were down $17.7 million or 24%, primarily due to lower utilization and lower average rates in oil and gas, the end of certain dry leasing contracts and fewer search and rescue subscribers. During the quarter, management identified errors related to the classification and accounting treatment of certain fixed assets.

These errors were immaterial to each of the prior periods and to the current year and these corrections were recorded in the current quarter. The net impact of these corrections on the results for the quarter was a $1.7 million decrease in operating income, a $1 million decrease in net income and a $0.05 decrease in EPS.

Operating expenses were $37.8 million in the quarter, down $7.3 million or 16%, primarily due to lower repair and maintenance expenses, partially offset by the impact of the accounting adjustments just described.

G&A expenses were $9.3 million in the quarter down $1.7 million or 16%, primarily due to a bad debt reserve recorded in Q4 of 2015 and the impact of cost control measures. EBITDA was $9.4 million in the current quarter, compared to $16.8 million in Q4 of 2015.

Excluding the impact of the accounting adjustments recorded in Q4, EBITDA in the current quarter would have been $11.5 million.

For the full year of 2016, revenues decreased by $34.6 million or 12%, primarily due to lower utilization and lower average rates in the oil and gas line of service, the end of certain dry leasing contracts and the sale of the FBO in Alaska, partially offset by the full-year impact of the consolidation of Aeróleo.

As we have discussed in previous calls, we began consolidating Aeróleo in October 2015, which makes the full-year comparisons for 2015 and 2016 less straightforward.

To provide some additional visibility into the impact of the Aeróleo consolidation, included in our presentation slides is a comparison of the revenue and operating income that would have been reported in FY 2015 and FY 2016 using the prior reporting methodology as well as a pro forma presentation assuming Aeróleo was consolidated for the full year of 2015.

Total operating expenses for the year were $169.9 million down $1.6 million or 1% from FY 2015. Excluding the expenses resulting from the Aeróleo consolidation, operating expenses in the year were $139.1 million down $23.4 million or 14% from 2015, primarily due to lower repair and maintenance personnel and fuel expenses in the U.S.

Total, general and administrative expenses for the year were $36.2 million, down $6.6 million or 15% compared FY 2015.

Excluding the additional expenses resulting from the Aeróleo consolidation, general and administrative expenses were down $7.8 million or 19% for the year, primarily due to lower compensation expenses in the U.S., the effective cost control measures and lower bad debt expense.

EBITDA for the full year was $47.6 million compared to $81.7 million in FY 2015. Adjusted EBITDA excluding gains on asset sales and special items was $42.3 million compared to $63 million in FY 2015. Moving to the balance sheet and liquidity.

We generated approximately $59 million of cash flows from operations for the year, including $12 million during Q4. During 2016, our total debt decreased by $39 million and cash balances including Escrow deposits increased by $16 million, resulting in a $55 million reduction in net debt.

We've continued to reduce debt levels in 2016 even given the challenging industry conditions. We believe our cash flows from operations, cash on hand and availability under our revolving credit facility, provide sufficient liquidity to manage through the current downturn and execute our strategy.

At this time, I'll turn the call back to Chris for some market commentary.

Chris?.

Thank you. Andy. I'll now provide a brief update on current market conditions by line of service. First of all, we want to remind investors that our business in Alaska and the Gulf of Mexico is seasonal, with Q4 and Q1 generally characterized by lower activity levels than Q2 and Q3.

Next, as mentioned in our last earnings call, we expect our remaining air medical services contracts in the U.S. to end this quarter. As also discussed in prior calls, our search and rescue service line is based in the Gulf of Mexico and largely dependent upon oil and gas customers.

As a result of pressures related to the market downturn, we had experienced a reduction in the number of subscribers and a decrease in missions, which have negatively impacted revenues. this trend continued when another subscriber siding cost control as the rationale, declined to renew its subscription at year-end.

Despite the difficult market conditions, the operational capabilities and safety assurance offered by Era SAR our program, continue to lead the industry and we were honored by the recent recognition of Era SAR as the 2017 winner of HAI's Salute to Excellence Golden Hour Award, which recognizes those who have advanced the use of helicopters and the vital mission of air medical transport.

In our dry leasing line of service, Q4 2016 benefited from short-term leases for light aircraft that should continue to benefit our near-term financial results. However, we expect two medium helicopters to come off lease during Q2 2017. Turning to our oil and gas service line, activity in the U.S. Gulf of Mexico remained stable, but subdued.

Although there are discrete opportunities on the radar, competition remains intense with access equipment available in the market and there is little visibility on a near-term catalyst that would lead to a significant broad-based increase in activity.

Internationally, we are seeing signs of positive activity trends in other areas of the Americas, including Brazil, Columbia and the Suriname Guyana Basin.

We believe our expansion into Columbia and Suriname over the last couple of years, as well as the integration of our business in Brazil placed us in a good position to capitalize on opportunities in these markets.

In summary, we expect the challenging market conditions to persist in 2017; however, Era has continued to generate positive operating cash flow despite these challenging conditions and we believe we are well positioned to withstand the pressures of a prolonged market downturn. With that, let's open the line for questions.

Evan?.

[Operator instructions] And we'll take our first question from Cameron Schnier from Evercore. Please go ahead..

Hey. Good morning, guys..

Good morning..

Chris, I was hoping you could discuss any trends that you're seeing on the production side of the business and specifically maybe touch on whether you believe activity and pricing have generally bottomed on that side and also whether I guess any of the changes that you may view as cyclical in nature have started to reverse at all or you think are on course to reverse?.

Sure. Thanks for the question, Cameron. Our production activity has proven to be relatively stable throughout the downturn. Early last year and also in 2015, we did see measures by our customer base to attempt to reduce costs wherever possible and we engaged with our long-term partners and worked on efficiency measures that were possible.

But what we've seen really beginning with midyear 2016 as a stabilization of activity in the markets in which we participate and that stability has continued through the first part of 2017. So, on the production side, we think activity will continue at the pace that it's been in recent periods.

In terms of cyclical changes, certainly there was a lot of activity that pulled out of the market, particularly exploration related.

Fortunately, we benefit from some positive customer mix in the Gulf of Mexico, wherein our largest customer has continued to be quite active even during the downturn and they provided visibility both in their public statements as well as information that was provided to about their continued exploration plans with drilling rigs that they have on contract in the Gulf of Mexico and that provides us some stability or some visibility, continued stability in the Gulf of Mexico as well..

Okay.

And you gaining any sort of pricing traction with those customers or are they pushing back less on pricing now?.

We're not going to make specific comments on pricing or rates for competitive reasons, but I would note that the acute pressure that was taking place across the Board, including rates earlier in the cycle has largely stabilized and we're not witnessing the same sort of pressures that existed earlier in the cycle..

Got it. Another one. I know that you guys have historically been the exclusive flight provider for Anadarko, and I was wondering whether that now encompasses the freeport assets acquired by Anadarko..

Yes, as with any large transaction, which the Anadarko's acquisition of Freeport-McMoRan's assets was a significant transaction, the integration typically takes time. We are still working through that transition. Would expect it to be complete in the first part of this year.

We've been grateful for our long-term partnership with Anadarko and we expect the intimate nature of that relationship to continue once the transition is complete..

Okay.

And last one, has there been any incremental tendering opportunities in Brazil with competitor's contracts rolling over there?.

What's happening in Brazil which is encouraging is that there's really been a structural change in the market with the liberalization of the pre-salt regime. So, the former requirement that Petrobras remain the operator and retain at least a 30% economic interest of all pre-salt reserves has been removed.

This has opened up the market more for international oil companies using Statoil and Total already moved to buy assets from Petrobras. You've also seen in the North part of the country from a round of licenses that took place a few years ago, project start to move forward to work on expiration plans for those blocks.

So, what we've seen is the IOCs becoming increasingly active in Brazil. That has led to some tender activity for helicopters, some of which has already begun, some of which we believe is timed for later in the year and that's part of the positive trends that we point to when we look at the market in Brazil..

Great. That's all for me. Thanks Chris..

Thank you..

And our next question comes from Bill Mastoris from Baird & Company. Please go ahead..

Thank you.

Chris, I wonder if you could give us some color a little bit on what your intentions might be if the 225 fleet does return and that regulatory clearance is provided and what dynamics you think that's going to have on the marketplace?.

Sure Bill. Thanks for the question. I would note first of all that the investigation remains ongoing. It's still too early to speculate on what the outcome will be and when if ever these machines will return to the market.

To address your hypothetical question, if the 225s do return to service at some point in the future, we would expect this to increase the available supply of heavy aircraft in the market.

This will have a large impact on certain areas of the world, particularly the North Sea, West Africa, parts of Asia, less of an impact on the markets in which we operate, which were never quite as reliant on the 225 helicopters..

Okay.

And with the absence of the 225s, what's the current status of the used helicopter market from where you're perched? Have we seen any stability in the heavy market at all? I know you mentioned in your press release there was still a little bit of weakness there, but does some of the other carriers seem to think that that has stabilized just a little bit now and maybe just a quick comment on maybe the status of the medium helicopter used market would be appreciated?.

Sure. On the heavy side globally, we continue to believe that there is an excess supply of equipment, but the amount of that excess is contracted considerably with the 225s being on operational suspension. So that market for S92's and some of the light heavy like the 189 and H175 has become tighter.

During the suspension, although it's not a case where there is complete utilization of all the available equipment. So, in terms of the secondary market for helicopters, you're still nothing much activity at all on the heavy side.

You continue to see activity in other asset classes whether they be might be singles where you do have a larger diversity of end markets in which these helicopters can operate whether that's air medical, private, corporate, VIP charter, firefighting or other applications outside of oil and gas.

On the medium side, you really need to break that down into a specific model market. So, each model has its own micro market if you will and some of the older model aircraft there continues to be an excess supply and really these aircraft aren’t being bid as actively for new projects around as well.

When you look at the current generation or latest generation of medium aircraft, and really talking about the AW189s, the markets for those has improved somewhat, but again there does remain some excess capacity globally in that market but the supply-demand balance has improved significantly over the course of the last year for the 139s..

And your plans would be to continue to go ahead and dispose of excess capacity where opportunities would present themselves, would that be a fair statement and should we expect similar activity to what we saw in the fourth quarter?.

It's always been part of our long-standing strategy that we will sell assets when that represents the best return potential for the machine.

So, when we have a machine that's available, we'll look at the various possibilities that we have to generate a return, whether that's operating it ourselves and what the yield is going to be from that, whether it's leasing it out to another operator, with the potential yield from those lease revenue streams would be or selling.

And we'll compare the projected yields from those alternatives to the present value of what could be realized by selling the aircraft today and take the highest NPV alternative that presents itself. Again, that's been our strategy for years and we continue to see opportunity through the downturn including the sale of nine aircrafts during 2016.

And so, when such opportunities present themselves as the best return potential going forward, we expect to continue that long-standing strategy..

Okay.

And lastly with the reduction in CapEx, which seems to be a stabilizing price environment, would it be fair to characterize it in 2017 that you might be free cash flow neutral?.

We're not going to provide financial guidance, which is consistent with the long-standing disclosure policy that we have.

I think if you look at our performance in 2016 and weigh that against our capital commitment to schedule for new aircraft which we said is just $12 million of noncancelable commitments due in 2017 and the fact that we've said that we are not a net cash tax payer in the U.S.

for federal income tax purposes and don't expect to be in the near-term, you can get a feel for what our cash outflows are going to be a net of EBITDA. And I think people can make their own assessment based upon what our EBITDA performance has been and what our capital commitment and interest payments are likely to be..

Thanks for the color Chris. I appreciate it..

Thank you, Bill..

[Operator instructions] Our next question comes from Adam Ritzer from Pressprich. Please go ahead..

Good morning, guys. Thanks for taking the call..

Hey. Good morning..

Just two quick questions. First of all, I think in the past you've said at the end of the year, you get a full evaluation done one time a year.

Is that still the case? I am just kind of wondering in terms of book value, how accurate that is etcetera?.

Yes Adam, in the past, we have disclosed a net asset value for the company, which is based upon a market value for the helicopters as determined by a third-party appraisal, which has been performed by Ascend, plus the book value of our other assets and liabilities and that's what we've disclosed on an annual basis when those appraisals were timely.

We're not able to provide that same disclosure this year because Ascend given this current situation with H225s is not providing appraised values for those helicopters and that's a global Ascend policy.

It's not specific to our fleet, but as a result of that, we do not have an appraised value for our full fleet to include in that NAV calculation, which is why we haven't provided it at that this..

Okay. So, let me ask you this. I think when you had your press release last week, you indicated a possible fleet value on the 225's of about $160 million. I think I don't have it in front of me, but I think that was about the right number.

If you take out of your year-end balance sheet, assume those rewards zero, would the other helicopter's value would that be your current valuation ex the 225s?.

No, what we've disclosed in our 10-K as well the press release and this earnings presentation is that the net book value so, not an appraised value or an estimation of market value, but the net book value of our H225 helicopters and related equipment it was $160 million as of year-end 2016.

As to your question, if someone wants to conduct an analysis like that, they can look at the information that's available in our financials. We're not saying that's a useful analysis. We're also not going to comment on specific classes of helicopters or models of helicopters. We've never disclosed values on a class or model basis.

Only on an entire fleet basis and we don't intend to change that policy..

Okay. I appreciate that. My other question has to do with the recent S92 crashes. I think there was one recently on land, it didn't result in any incidences or deaths and there was one the other day I read about, with CHC offshore.

Has there been any investigations into that? Could that be another 225 type issue going forward? Any comments on that you can make..

Yeah. Thank you for the question Adam and I'd like to start on behalf of everyone at Era by extending our condolences to the families, the employees and everyone that was impacted by the fatal accident involving the Irish Coast Guard S92 that occurred earlier this week.

It's a tragic event and it's really felt by all of those, all of us who participate in the offshore helicopter industry. That investigation is ongoing. It's very early in the process. It's too early to tell at this point what the cause of the incident may have been.

You also referenced some incidents that occurred involving oil and gas configured S92s in Q4 of last year. This related to the tail rotor pitch change staff. There was a service bulletin that was issued by Sikorsky, which required additional inspections of that component.

Era responded immediately to that service bulletin, performed that without events. There was not a material impact on our operations. We were able to provide seamless service to our customer base during that period of the service bulletin.

I think what this highlights and first I would like to say, we believe the S92 has been a very reliable helicopter and we think it's an important part of our fleet, an important part of the global fleet, but I think what it highlights is that with the 225s being on suspension, the overall industry has become highly reliant on just one helicopter model for long-range operations, namely the S92.

And although it is a reliable machine in which we have confidence, this is aviation and at any point in time there could be an issue with a particular helicopter model and that underlines the importance for fleet diversity. This is one of the reasons that we feel very good about the investments that we've made over the last couple of years.

We used to be purely an H225 fleet from a heavy standpoint.

Over the last couple of years, we've added S92's, we've added AW189s and I think with the recent tail rotor pitch change staff issues with the S92, it highlights the importance of an asset like the AW189 as it presents an alternative for some of these long-range operations that are required around the world and with the 225's being on operational suspension now, it's our opinion that next to the S92, the AW189 is the next best alternative for those long-range operations.

We've been operating those aircraft for well over a year now. What we found is that they’ve been very well received by our customer base who appreciate the efficiency and low operating cost profile that they present and we believe that our early mover position in the AW189 could prove to be a competitive advantage for company..

Okay. I appreciate that color.

After all that, I guess you're saying currently, there's no suspensions, investigations or anything going on with the S92's after these incidences, is that correct?.

That's correct. Investigation on the accident that occurred earlier this week is very early stages still ongoing. It's too early to speculate on what the cause would've been. As of now, there's no information available that would point to a global concern for the S92 fleet..

Got it. Okay. Thanks very much. Appreciate it..

Thank you..

Our next question comes from Christopher Hagedorn from Redwood Capital. Please go ahead..

Hey guys. Thanks for taking the question. I just actually had two.

One if I look, Chris, if I look at your commentary that you provided regarding for the different areas and segments earlier, my read was that in Gulf of Mexico, things are looking somewhat in, sorry, I should say this, in the Gulf of Mexico production side, things are looking a little bit better than maybe in other -- and in international than in other parts of the market.

Is that a fair summary?.

I think there is a very large installed base of production facilities in the Gulf of Mexico. There are roughly 2100 offshore facilities in the Gulf of Mexico that have helipads. What we've seen is that the market in the Gulf has largely stabilizing and that stabilization occurred in mid-2016.

So, if you think back to this time a year ago, the market was really declining and it declined for about the first half of 2016.

Stabilized around midyear and we sort of been balancing along the bottom for lack of a better expression since then and I think that's where we are as of today in the Gulf of Mexico and from what we can see, we would expect a similar level of market activity to persist for the near-term future..

Got it.

And when you look at, you break out Gulf of Mexico oil and gas, but if you look at and I appreciate the production versus exploration maybe a little bit different, but when you look at the more stable I guess production side, how much is that, Gulf of Mexico production, how much is that of your current LTM or run rate revenues you would say?.

Overall as a company our exploration exposure is less than 20% of revenues. In the Gulf, we've moved to a place where almost all of the activity that we're supporting is production related.

The exploration exposure that we have currently is largely with our biggest customer and they are in a position where they have a very good portfolio of attractive prospects. They’ve acquired some additional expiration prospects. They have a number over 30 development tieback opportunities that they’ve publicly identified.

So, based upon the public disclosures that they've made as well as the information that we're privy to, we believe that their exploration activity in the Gulf that we have good visibility on the stability of that through the balance of this year and into 2018..

Got it. Okay. That's what I was getting at. So, you feel pretty good about that Gulf of Mexico oil and gas line at the moment, at those levels..

Yeah, it's subdued activity, but it's been stable..

Got it. Okay. And the second question I had regard -- going back to the appraisal, I understand that because of the 225 or H225 I should say issue, that is currently not being provided but remind me, I think that for the [AVI] you need an appraisal of the fleet and annual.

What are your bank saying? Is that an issue or was that like no problem we get, or how did I go?.

Yeah since, you're correct that we ascended a decline to provide appraisal values for the 225s globally, not specific to Era. It's just their policy is given the current situation they're not going to provide appraisal values for the 225s. You referenced an asset coverage test that we do have as part of our credit facility covenants.

We are able to comply with that, without referencing the 225s. So, we are in good standing with our credit facility..

So, you do have an appraisal ex H225, you're just not disclosing that, it that kind of what you're saying?.

That's accurate..

Okay. Got it. Thanks..

Yes. Thank you..

And there appears to be no other questions at this time..

Thank you, Evan. And thanks for everyone for joining the call. We'll talk to you again next quarter..

And this does conclude today's presentation. Thank you for your participation. You may disconnect..