Portland Jan 11, 2016 (Thomson StreetEvents) -- Edited Transcript of Erickson Inc earnings conference call or presentation Thursday, November 5, 2015 at 9:30:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Zachary Cotner
Erickson Incorporated - Finance Director, IR
* Jeff Roberts
Erickson Incorporated - President, CEO, Chairman
* Eric Struik
Erickson Incorporated - CFO
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Conference Call Participants
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* J.B. Groh
D.A. Davidson & Co. - Analyst
* Ken Herbert
Canaccord Genuity - Analyst
* Hamed Khorsand
BWS Financial - Analyst
* Bill Mastoris
Robert W. Baird & Company, Inc. - Analyst
* Josh Nahas
Fox Hill Capital Partners - Analyst
* Ryan Spitz
Stone Harbor Investment Partners - Analyst
* Michael Karnaky
- Private Investor
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Presentation
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Operator [1]
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Good day, ladies and gentlemen. Thank you for standing by and welcome to the Erickson Incorporated third-quarter 2015 earnings conference call. (Operator Instructions). Please note the conference is being recorded. And now, I would like to turn the conference over to Mr. Zachary Cotner. Please go ahead, sir.
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Zachary Cotner, Erickson Incorporated - Finance Director, IR [2]
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Thank you, Operator, and good afternoon, everyone.
Before we begin prepared remarks today, I would 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 risk and uncertainty that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results 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 also be discussing non-GAAP information that it believes is useful in evaluating the Company's operating performance. Reconciliations of these non-GAAP financial measures to the closest GAAP equivalent can be found on the Company's earnings press release that was released this afternoon and was also filed with the SEC on the Form 8-K.
A replay of this call can be accessed telephonically or through the webcast on the Company's website. Thank you for your attention to those items.
At this time, I would now like to turn the call over to Jeff Roberts, President and Chief Executive Officer of Erickson.
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [3]
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Thanks, Zach. Good afternoon, everyone, and thank you for joining Erickson's third-quarter 2015 earnings call. During the call today, we'll discuss the current state of the business, our third-quarter financial results, and provide an update on our 2015 guidance.
Our third-quarter results continued to reflect the headwinds in several areas of our business. The decline in energy prices, which has driven reduction in exploration and production spending, has amplified the pressure on our oil and gas end market. Operational descopes and the current US budget delays have reduced the demand for our government aerial services. And the international firefighting season was significantly weaker than we anticipated.
While it's difficult to pretend -- predict when these headwinds will abate, we're taking aggressive actions to mitigate the short-term pressure, but more importantly to create a more balanced and efficient business with a stronger front end.
I'm pleased to report that we have now largely finalized the recruitment of our personnel in the front end and look forward to their topline contributions in 2016. We have three new business development leaders who are strategically focused on the Americas, Asia Pacific, and Europe, Mideast, and Africa. We also have three new sales directors for each of the business units. The team comes from large best-in-class organizations that will help structure and grow our front end. We've already seen our sales pipeline materially increase due to this focus and expanded capability.
While we are excited to have the new team on board, the majority of our sales cycle require anywhere from nine to 18 months. Most of the new team joined in our third quarter, so we look forward to seeing their progress in the coming quarters.
I will now turn to our quarterly performance. The third quarter is historically our strongest quarter due to the timing of the North American fire season, and this year was consistent with that trend. In the third quarter, we generated just over $101 million of revenue, $38 million of adjusted EBITDA, and, most importantly, $25 million of free cash flow. We improved free cash flow by almost $8 million on a year-over-year basis, despite a $17 million revenue headwind year over year.
While we're not satisfied with our performance, our cash flow results reflect the dramatic operating changes we have made and are making to the business. This improvement is a result of reductions in operating expenses, aggressive working capital management, and disciplined capital investing. The team has done a good job managing the factors that were within our control.
I would now like to address the current state of our business units in a little more detail. I will first discuss commercial aviation services, which is our largest business unit. As I mentioned on our last call, we needed to have a very strong fire season to offset softness in other areas of our business. In the third quarter, the fires in the lower 48 states started slowing. It peaked in August, and then slowed again in September.
Ultimately, we finished below the five-year average for acres burned in the lower 48 states, which is what we use for planning purposes. Although North America as a whole saw a heavy fire season, a large portion of the burned acreage was in remote locations, such as Alaska, where aerial fire suppression is less crucial. Similarly, we saw softness in our European firefighting operations, as Greece was near a 10-year low.
Going forward, we are working to broaden our revenue base to reduce our exposure to these types of end market uncertainties.
Oil and gas was down significantly year over year, largely due to a difficult comparison last year, which included a true-up payment from HRT. That being said, we are happy to announce a renewal to an existing contract that had been in suspension since 2014. We will be providing precision, heavy lift, and placement services with one of our aircranes for a customer in South America. The two-year annual contract will help us to further balance our business portfolio.
Although the near-term oil and gas market is challenging, we are confident in our long-term prospects. We believe we can add value for onshore operations where customers need self-sustaining support in remote and rugged environments. We are increasingly less focused on the offshore market, which is crowded and has unique aircraft requirements.
Infrastructure construction continues to perform well for us on a year-to-date basis and we're excited about the long-term prospects. We see opportunities to place some of our aircranes on long-term contracts in multiple emerging markets. The aircrane can provide a speed and cost advantage for nations and utilities as they work to build out infrastructure in remote and rugged environments. We look forward to discussing our progress in these areas on upcoming calls.
Timber harvesting continues to be a steady annual business for us and the aircrane maintains a competitive advantage in heavy-lift logging. We have decent growth opportunities here and I believe this business will continue to be a positive contributor going forward.
I will now turn to government aviation services. We recently hired Brian Pierson to lead this segment and are excited to have him on board. Brian brings significant operating experience and has an impressive military background, which started at West Point. In addition, we recently hired two new senior sales members, one of which was also a West Point grad and the other is transitioning from active duty.
President Obama has committed to the current level of troop support in Afghanistan, but we have yet to see that manifest itself into additional contracts, extensions, or renewals. We believe we are well positioned to maintain our operations should this commitment require additional aerial support.
Outside of the current situation in the Middle East, we are pursuing a number of opportunities in existing and adjacent markets, particularly in Africa. In addition, we have seen improvement in our win rate this year as compared to last. However, the majority of these new contracts are smaller spot jobs as compared with the major contracts that were associated with the land wars in Iraq and Afghanistan.
We're also pleased to announce that we have recently been awarded two Defense Department contracts. The first contract will support the United States Marines with light, medium, and heavy rotor wing assets on two military bases in California for the next year. The other contract provides fixed-wing support in Africa over the next three years.
Our final segment is manufacturing MRO, which had a very strong quarter, seeing revenue more than double on a year-over-year basis. This business unit performs specialty manufacturing and provides maintenance, repair, and overhaul services for a wide variety of platforms and customers. While this continues to be our smallest business unit, we are excited about the growth prospects.
We are continuing to diversify into a variety of work for external customers and are seeing revenue from our Bell 214 program. Over time, we believe there are significant opportunities to grow this business unit and demonstrate our value and expertise on a number of additional platforms.
On the manufacturing side, we were recently awarded a contract for the refurbishment of two super heavy lift aircraft as a sub vendor to a major prime contractor. We've also recently won some additional work with Sikorsky, where we will manufacture multiple tail pylons.
I will now turn the call over to Eric.
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Eric Struik, Erickson Incorporated - CFO [4]
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Thank you, Jeff, and good afternoon, everyone. I would like to provide a review of our third-quarter 2015 financial results.
We reported third-quarter 2015 revenue of $101.1 million, compared to revenue of $118.3 million in the third quarter of last year, as a result of softness in a number of our end markets.
Our commercial aviation services business unit, serving the end markets of firefighting, oil and gas, infrastructure construction, and timber harvesting, reported revenues of $68.4 million, compared to $78.7 million in the prior year. The decline is primarily related to the ongoing contraction in the oil and gas markets and a slower-than-anticipated global firefighting season. It is important to note that we also benefited from a $5.7 million true-up related to the end of the one-year Amazonia contract with HRT in the third quarter last year.
Our government aviation services business unit, serving the US Department of Defense, other US government agencies, and foreign governments, reported revenues of $22.9 million for the quarter, compared to revenues of $36.1 million in the prior-year period. This was due to the decrease in defense activity in Afghanistan, coupled with the end of a few contracts in other locations. We've also seen a number of contracts we expected to be awarded by now get retimed to 2016.
Our manufacturing and MRO segment reported revenues of $9.8 million, compared to $3.6 million in the prior year. This increase was driven by increased parts sales supporting our legacy programs, as well as the benefit of the Bell 214 program. During the quarter, the trade group sold an idle S-61 and an idle [Aser] for $2.5 million that was included in this number.
Third-quarter operating results -- operating expenses were $7.4 million, compared to $9 million in the prior year. The 18% decline is attributable to reductions in personnel and the ongoing benefit of structural cost initiatives. We continue to meaningfully reduce our expenses in a number of categories, while investing in sales and business development resources.
Operating income in the quarter was $25.7 million, compared to operating income of $38.5 million in the prior year. The decline was largely due to the impact of the revenue headwinds described above, offset by the benefit of cost reductions.
Other expenses in the quarter were $10.6 million, compared to $9.8 million last year. This year's expenses were comprised of $9.3 million in interest expense and $0.9 million in other expense related to one-time costs incurred in the reduction and the scope for our operations in Brazil.
Adjusted EBITDA, excluding one-time expenses, was $37.8 million for the quarter, compared to $50 million in the same quarter last year. This $12.2 million EBITDA conversion on the $17 million revenue decline reflects the impact of the high operating leverage of the business. As a result, we are increasingly focused on improving the variability and efficiency of the business as we head into 2016.
We net realized over $10 million in cost savings this year and our early work has identified over $15 million in incremental cost savings that we expect to deliver next year. Adjusted EBITDAR, which also excludes aircraft lease expenses, was $41.8 million, compared to the prior year's level of $55.1 million.
We were pleased to reduce lease 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 the last couple of earnings calls, one of the top priorities for this year is to manage the business to be free cash flow breakeven to positive, and we are on track to achieve this objective in spite of the revenue headwinds. This year, we generated a record $25 million in free cash flow during the third quarter, compared to $17.2 million in free cash flow during last year's third quarter, in spite of a $12.2 million decline in EBITDA. This was the highest quarterly free cash flow the Company has generated since going public in 2012 and evidence that we can effectively manage the business's cash flow in spite of a challenging operating environment.
The $7.8 million improvement reflected the contributions of our ongoing cash initiatives and was accomplished by improving working capital consumption by $13 million as we realized the benefits of our inventory reduction initiative, and other working capital initiatives, and reducing capital spending for the period by $6.8 million. The continued reduction has allowed us to lower our full-year capital spending forecast from our previous estimate. We now expect capital spending to be approximately $30 million for the full year.
To further improve our financial flexibility, we also completed a sale-leaseback transaction on our [hangar] facility in Medford, Oregon, during the quarter. The transaction generated a little over $5 million in cash and was accomplished at favorable rates.
The results of these initiatives was a reduction of our revolver balance by $26.4 million in the quarter from $113.7 million at the end of June to $87.4 million at the end of September. We continue to believe we have ample liquidity for 2015 and beyond.
It is also worth noting that our year-to-date free cash flow through September has been a positive $2 million, compared to last year's operational cash burn of $44 million through September. This $46 million year-to-date improvement is evidence of our ability to manage this business to generate cash. As we sign new contracts and grow our topline, we expect cash flow to improve meaningfully.
Jeff will now provide context around our expectations for the business for the remainder of the year, as well as our business transformation. Jeff?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [5]
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Thanks, Eric.
2015 has been a difficult and transformative year for us. The defense market has been slow to rebound, oil prices remain depressed, and foreign firefighting activity has been well below historical levels. To offset these headwinds, we've aggressively managed cash by improving working capital, eliminating non-core business activities, and reducing CapEx. I will note that even with these reductions, we are maintaining our operating capabilities and preparing the Company for growth. Despite these improvements, we were not able to fully offset the sustained revenue pressure on the business.
We now believe our fiscal-year 2015 revenue will be in the range of $300 million and adjusted EBITDA will be in the range of $60 million. Even at this level of revenue and EBITDA, we still have a path to be cash flow breakeven to modestly positive for the year.
On balance, I am increasingly bullish on Erickson's future. There is a large and diverse market of approximately $3.5 billion to $4 billion for all of our business units to pursue and we are investing in our front end to capture it. We have created an increasingly more nimble organization that is more customer centric and results driven. While the near term will be challenging, we have reduced costs and prepared the business for growth in 2016. We have a clear path for cash generation and are rightsizing our enterprise to capture more of our growing pipeline.
Thank you for your time today and we are now prepared to take your questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions). J.B. Groh, D.A. Davidson.
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J.B. Groh, D.A. Davidson & Co. - Analyst [2]
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Thanks for the geographic breakdown on the fire season. That makes some sense, but I was curious as to have you maintained share, do you think, in the lower 48 in terms of the firefighting business? I noticed a couple of new offerings coming out and was curious as to whether you think you are picking up share or if it's stable or going down a little bit.
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [3]
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My sense is it's stable. The number of aircraft that we had deployed was in line with what we were awarded, and actually we had some extensions on a couple of the contracts, so I would say the share position is relatively stable.
I think it's important to remember in this business that where your aircraft are actually deployed and where the fire breaks out and the intensity of the fire has an effect on the utilization and the flight hours that you go through, and that obviously is something that we are not in complete control of. So I think that is -- would explain some of the variance in performance versus what we'd expected and anticipated.
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J.B. Groh, D.A. Davidson & Co. - Analyst [4]
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Okay, and then, Eric, maybe you could give us an update on what's the number of aircraft that are on the block for sale and what your progress has been on that front.
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Eric Struik, Erickson Incorporated - CFO [5]
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Yes, we've got another eight that are available for sale and we're making progress, but we are being careful not to sell them below market value. So we will pursue an orderly disposition of those aircraft. We may have another couple here in Q4 and a few more in 2016 as we complete the fleet plan.
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J.B. Groh, D.A. Davidson & Co. - Analyst [6]
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So what's the total that's available for sale? Total number.
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Eric Struik, Erickson Incorporated - CFO [7]
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I think there's another eight. It's eight. Eight total.
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J.B. Groh, D.A. Davidson & Co. - Analyst [8]
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Eight total? Okay. And then -- okay, that's good. That's all I needed. Thank you.
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Operator [9]
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Ken Herbert, Canaccord.
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Ken Herbert, Canaccord Genuity - Analyst [10]
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Just wanted to follow up first on the question regarding the -- it sounds like you entered into a sale-leaseback on a facility and raised some cash that way for the revolver. Are there other facilities that you look to do that with here throughout the rest of this year and into early next year or was this just sort of a one-time opportunity?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [11]
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Yes, I think, Ken, our strategy around facility ownership is -- it's kind of opportunistic and I don't want to say that inappropriately, but we're looking for the best return for our capital. And if we can extract it and have at a reasonable rate and a good look going forward, we will certainly do that.
That was the opportunity that presented itself on this facility. There are other facilities that we own, and if it makes sense from a financial standpoint, we will certainly explore that, but we don't have kind of a plan to go out and do that ad nauseum.
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Ken Herbert, Canaccord Genuity - Analyst [12]
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Okay, so maybe nothing else to think about on those lines here in the fourth quarter?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [13]
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I don't think so, no.
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Ken Herbert, Canaccord Genuity - Analyst [14]
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And can you give me an update or give us an update on where you stand with the Forest Service contract renewal? Is that something that is -- you are still competing here or have you had any word on that that you can provide?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [15]
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Yes, so we have submitted our bid, our proposal. They've got it, they are reviewing it, and more to come later on.
I think the fire season is still going on in the southern part of the western United States, so I think we'll get through that and then history indicates we may see it before the end of the year, but it may be the first part of next year before it comes out. We just don't know.
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Ken Herbert, Canaccord Genuity - Analyst [16]
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Okay, okay. And then if I could, just a couple more. Obviously, you indicated you haven't seen anything yet in Afghanistan short of stabilizing there that you might expect with the recent announcements in terms of maintaining troop levels. Do you have any visibility as to when you might see some stabilization there or any change in the customer purchasing or buying patterns with maybe a little more commitment now to keep troops there longer than initially expected?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [17]
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The short answer is no, Ken. Unfortunately, I don't. One would think now that this is, I would put forward, a pretty material change in strategy and so there should be or could be some manifestation that will trickle down to us, but I think it's got to go through and be vetted through the various organizations and agencies. And how long that will take and when we might actually get some clarity on it, very difficult for me to predict, but I'm not expecting anything in the near term. I think it will probably be 2016 before we really get any insight as to what this probably means.
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Ken Herbert, Canaccord Genuity - Analyst [18]
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Okay, okay, and then just finally, Jeff, clearly as you indicated you are managing what you can control. It sounds like you just brought on a number of people to maybe help with the front-end pipeline and I can appreciate that's going to take some time, but do you feel like now from a right size in the organization and having the right people in the right place, you're effectively positioned where you'd like to be, or do you think there is more you could or should be doing in terms of putting people in the right place to maybe finally start to drive some topline opportunities here into 2016? How would you characterize the state of the organization from that standpoint today?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [19]
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Yes, I -- it's a great question and here's how I'll respond. I think we've got the vast majority of our front-end orientation and positions set in place. I'm very pleased with the amount of closure we've gotten in that area in the last -- in Q3. Might we do some minor fine-tuning or adjustment? Yes. But the heavy lifting there is done and now we've got to get these guys focused on building that pipeline and converting the pipeline into revenue opportunities.
The good news is, as I kind of alluded to in my remarks, we've already seen our pipeline start to grow and expand and not in an insignificant way. And that was by design because we want to go out and bring people and have that expertise, have that experience, have that demonstrated capacity to have an immediate or a rapid effect. Now, the sales cycle of the business being what it is, it's going to take a while for that to turn into revenue for us, but the early indications are very positive and very strong.
In terms of, I will call it, the middle and the back of the business, I would say that we are at least 56 -- probably 60%, 70% down that path in terms of getting it stabilized and worked. We still have some work to do in each of those areas, but, again, we're closer to the end than we are to the beginning and I'm committed to getting it done and completed certainly as early in 2016 as possible. So for me, certainly by the middle part of the first quarter of 2016, we're going to be in a -- here's who we are, here's what we're doing, and now it's focus on execution in bringing contracts on board and generating revenue.
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Ken Herbert, Canaccord Genuity - Analyst [20]
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Okay, great. Thank you very much.
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Operator [21]
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Hamed Khorsand, BWS Financial.
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Hamed Khorsand, BWS Financial - Analyst [22]
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Just a couple of questions. First one, in your free cash flow number, are you including the sale-leaseback of the facility?
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Eric Struik, Erickson Incorporated - CFO [23]
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No, we're not, Hamed. We define free cash flow as cash flow from ops, less PPD changes -- addition to the PPD, so CapEx.
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Hamed Khorsand, BWS Financial - Analyst [24]
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I just wanted clarification on that.
And then, secondly, given that we are halfway through Q3 when you had the last call, what changed that you didn't reduce guidance then? What were you expecting to happen in Q3 that didn't materialize towards the end of the quarter?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [25]
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I think, as I indicated on that call, everybody had been talking about that this was going to be just a out-of-the-box, over-the-top fire season. All the conditions were set to really blow the doors off.
The fact of the matter is in the lower 48, the acreage burned is actually from the five-year average down about 7%. There's no way for me to accurately predict or anticipate when the fires going to break out, where the fires are going to break out, and are our aircraft located there, and how long are they going to last. So I -- that was kind of why, based upon the information we had, we guided -- we didn't see any reason to change the guidance at that point because then we had a -- as I mentioned in the call, we had a slow start, but we had a big August and then it, as fast as it started, went up is as fast as it came back down in September.
And then, the firefighting on the international front has been very, very weak. It just hasn't manifested against, again, all the pundits saying that all the conditions are just right. So, I think it's no more complicated than that.
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Eric Struik, Erickson Incorporated - CFO [26]
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And Hamed, I would add, too, that roughly 80% of our full-year EBITDA comes in Q3 and Q4.
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Hamed Khorsand, BWS Financial - Analyst [27]
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Yes. And then the other question I had was given the scope of the demand and now that you are doing these smaller spot contracts, is pricing going down? Are you able to extract more because they're smaller-sized contracts as far as frequency?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [28]
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Yes, so I'll characterize it this way. The pricing environment is competitive. If you look at the drawdown in Iraq and Afghanistan on the defense side, if you look at the contraction that is occurring in the oil and gas space, make no mistake. The pricing environment is anything but expansive and robust. It's tight; it's competitive. Is it any worse than we've seen it? I would say it's bad and, unfortunately, it's stable and bad.
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Hamed Khorsand, BWS Financial - Analyst [29]
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And this is for the aircranes as well?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [30]
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The aircranes, I would say it's probably not as bad or not as competitive as oil and gas, certainly, and/or as government, but there's a lot of folks in that space with cranes, as well as with other heavy-lift helicopters, that are vying for the same jobs. So our goal is to figure out ways to differentiate, to decommoditize, to offer services that others can't and try to get some pricing power that way.
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Hamed Khorsand, BWS Financial - Analyst [31]
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Okay. Thank you.
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Operator [32]
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Bill Mastoris, Baird & Company.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [33]
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Jeff, I just want to make sure I understand the strategy here behind actually rolling into a new pipeline of contracts. Kind of reading the tea leaves, it seems as though you are rotating out of many of the firefighting and into the infrastructure contracts. Can you give us a flavor for maybe those types of contracts, maybe the different mix that's been shifting? And then the question I have for Eric has to do with liquidity going forward. How should we be thinking about that? And Eric, should we be thinking about a new run rate of $30 million for CapEx?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [34]
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Okay, sure. So here's what I'll tell you. I've said on a couple of calls prior to this that having a seasonal -- a very cyclical business, whereas Eric just pointed out you made almost all of your money in one quarter, is a very difficult environment to find yourself in. And I wanted us to move forward and try to pursue and get into kind of an annualized longer-term contracting period where we could have much more predictability and certainty about what the future looks like and holds for us.
And we've been able to uncover and begin developing those kinds of opportunities, which you've heard me talk about. So are we going to -- if those can and are able to come into fruition and we can seed those, will we? Absolutely, indisputably.
Does that mean we're going to abandon or get out of the other business? No, but what it does mean is we need to balance our portfolio of business so that we have a more balanced view of the traditional or legacy business, but also have some longer-term, more durable, more resilient, predictable businesses.
Now if you want to characterize that, are we pivoting and transitioning? Okay, yes, we probably are. But candidly, I'll be frank, I want my cake and my ice cream, too. I want these long-term, multi-year, predictable, consistent contracts, a lot of which we think we're going to uncover and identify and develop in infrastructure, but that doesn't mean that we don't want to participate with our heritage, where we've been, and still capitalize on the unique capabilities that the crane brings to firefighting. So it's kind of a balance, if that answers your question.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [35]
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And I assume that most of those would be actually the rotation of aircranes. Would that be a fair assessment?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [36]
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It would be. It would be the rotation and/or the long-term deployment, sure.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [37]
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Okay. I'm sorry, Eric; go ahead.
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Eric Struik, Erickson Incorporated - CFO [38]
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And then, Bill, no problem, on the capital I would say the run rate is probably $35 million-ish at this revenue level, but we can scale it down to $30 million or below if need be.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [39]
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Okay, and how about liquidity? How should we think about that going forward? Are you going to remain below $90 million or will you be in the $90 million to $100 million range? How should we be thinking about that, given the seasonality?
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Eric Struik, Erickson Incorporated - CFO [40]
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I think the seasonality, it won't change overnight, so we will continue to see cash burn in Q1, a little bit in Q2. So it'll probably go from $90 million up above $100 million and maybe $110 million, in that range.
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [41]
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If I could jump in, the only thing I would add to that is a lot of this is going to depend upon what kind of contracts we can win, when we can exercise and operationalize those contracts. And I think the guidance and the direction Eric is talking about is right. But, obviously, our goal is to win more and more of these contracts that we can operationalize sooner so that we take that whole question off the table.
And that's what we're talking about earlier. We have a path where -- and we will make the decisions required so that liquidity is not an issue for us going forward.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [42]
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Would that involve if necessary, Jeff, then, maybe accelerating some aircraft sales to maybe right-size down to maybe the 55, 60 range for your total aircraft?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [43]
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Yes, you know, I think it's a balance. Certainly we're going to have the number of aircraft we need to generate the revenue we need if they are utilized appropriately and correctly. So I'm not about to get into just -- to having a fire sale of any form or fashion.
And there are other levers that we still have uncovered and identified in the business that we will be pulling on, but will it include the disposal of some assets that are underutilized and that we don't see in our strategic fleet plan? Absolutely, but we will do that in a prudent manner so that, as Eric mentioned earlier, we don't do something foolish out of desperation.
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Bill Mastoris, Robert W. Baird & Company, Inc. - Analyst [44]
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Okay, thank you.
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Operator [45]
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Josh Nahas, Fox Hill Capital Partners.
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Josh Nahas, Fox Hill Capital Partners - Analyst [46]
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Hey, guys, thanks for taking my questions. Two questions. I know we've kind of been covering the ones somewhat over the call and I was just hoping maybe to get a little bit more layout. Obviously, understand trying to reduce the seasonality and you mentioned the global market opportunity for a couple billion dollars in the infrastructure market and we've discussed on previous calls the opportunity. I think you did a show in China -- a trade show in China and there's some work in the Philippines and there's some potential utility stuff in India.
I guess just the question is, can you -- I know it's not going happen overnight and you are putting the sales team in place. Can you maybe elaborate a little bit how you see that strategy unfolding, like some milestones, and then how you plan to keep us abreast going forward of how that is evolving?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [47]
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Sure. Let me start at the very high macro level, and here's why I believe it's a big part of our future. The government of China has announced as part of policy that they're going to electrify the provinces of China. I can tell you their plans call for 13 million volt transmission lines of 2,000 kilometers in length to be under development and construction in the future. That compares in the United States to two of those lines. And when the government of China announces a policy like that and makes a big public proclamation about it, it's going to happen.
And I will tell you that we've had -- as you mentioned, we went over and have established a good relationship with a number of parties over there. We've had ongoing good conversations. We did a demonstration over there that I must say the team -- our team did a fantastic job because we were able to demonstrate the capability and the benefit in terms of speed and accessibility that we could really bring to bear in a way that, candidly, it surpassed my wildest expectations and even the end customers over there said we can't believe how well this is going.
Since that time, I've been to China and have sat down and met with the end customer and had very, very strong and very good conversations. And so, that program and that process is moving forward. I've never been known for patience, so it's not going as fast as I want it to, but my sense is there is good signs and we're making good progress, so I'm cautiously optimistic about our opportunities in China.
India is kind of a similar story. We've had good conversations, good dialogue. We have identified and are in discussions with, I think, the right people at the right levels trying to structure and create the opportunity that makes sense for them and for us, and, again, I'm as optimistic about that as I am in terms of the conversations and activities we've got going in China.
Beyond that, there are other related infrastructure opportunities that are beginning to be talked about and coming forward in other places in the world. South America specifically would be one where another infrastructure project is underway. We are in conversations about that. And then, other big opportunities are coming about in other parts of the emerging world. So I'm not going to get any more specific for competitive reasons, but I think as this thing unfolds and matures, what you should be looking for are announcements about progression on our activities in securing contracts and relationships to facilitate us doing business in the emerging markets of the world on infrastructure projects.
When we will be able to announce that? Trust me; as soon as it's viable and possible, we will announce. And that would be, for me, what I'd be looking for from us.
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Josh Nahas, Fox Hill Capital Partners - Analyst [48]
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And you think you have the team and resources necessary -- obviously, all of these places we're talking about aren't the easiest places in the world to do business, particularly for American companies, but you feel like right now for this opportunity that you want to execute upon and diversify the revenue base that your sufficient staff and resources that have the operational and negotiating expertise to bring hopefully some of these home?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [49]
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So the short answer is yes. I think with the addition of some of the new team members, specifically in business development and sales, coupled with the experience of some of the other folks that have been here, including myself, yes, I feel very confident we have the wherewithal and the capability to get this done.
And my goal, my hope is that as we execute and secure this stuff, we will need to bring on additional personnel because the scope and magnitude of this will be expansive and increase on a time go-forward basis.
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Josh Nahas, Fox Hill Capital Partners - Analyst [50]
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Okay, and then one last question. This is going to be a sort of interesting question to see how to approach it, but in general, let's just say, in the investment community there is a pretty healthy debate about whether the government aviation services business really has value or let's just use -- is essentially really permanently impaired, and as something that if you had to do over again, which you can't, but wouldn't want to have, and -- without taking a side, you own it right now, but what is the case that you would make to, say, the investment community that says, you know what, if you didn't have that government aviation business, it could be a smaller business, you could get fixed costs into place better to deal with the volatility of fire season until you capitalize on some of these commercial opportunities? Is there a case that you could make to people to say, you know what, I like this thing, but as long as that government aviation thing is an albatross around its neck, I just don't want to touch it? Is there a case out there that you would make to investors sort of long-term value for being in that market, assuming you can get the aircraft right-sized for whatever you think the future demand there is?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [51]
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So absolutely, undeniably, from my view. And here's why is, first off, my goal here strategically is to create a franchise -- a business that is diversified geographically and diversified from an end market standpoint so that what we can deliver to the stakeholders and shareholders is consistent, predictable, continual value.
And I think the best way to do that is to balance your portfolio from a business standpoint with like-minded activities where you are not getting outside your core competencies, but they are -- you are leveraging those core competencies and geographies and/or end markets where they are probably not all going to be up at the same time, but they are all probably not going to be down at the same time, and that's true for the end markets, as well as the geographies. So that's the overriding rationale and reason to do it.
Secondarily, though, the government aviation services marketplace, conservatively speaking, is probably a $2 billion, $2.5 billion market narrowly defined for utility, fixed-wing, and rotorcraft operations, as we've defined it. Today, we are a $100 million, $150 million business, so there's ample opportunity for us to grow.
Now we have to put the resources in it; we have to have people in that business unit that have the government background, that have the connections, understand the process, the procedures, then we have to have the value proposition from an execution and operational standpoint to win in the marketplace. I think with the advent to the team that we've put in place now, with the continual refinement on our operational execution, none of that is beyond our grasp. And so, that's why I believe that we will find opportunities in that marketplace outside of those traditional, big, white-paper, whitespace opportunities, a la Iraq, Afghanistan, where we can leverage our unique capabilities, our specific credibility and background to create value, long-term value, for the shareholders and stakeholders.
So that's why to me it's indisputable that the portfolio of businesses around government, around commercial, and around manufacturing and MRO make for a unique value proposition. Do we have to now demonstrate that we can grow and execute and win share in those businesses? Absolutely. We're doing it in manufacturing and MRO if you -- and we will do it in the other two as well. It's not a question of if; it's when.
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Josh Nahas, Fox Hill Capital Partners - Analyst [52]
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Okay, and then just one quick follow-on to that and then I will get off. In terms of that government business, I know when you think -- people are going to think Iraq, Afghanistan. But then, I know it's been mentioned before that there -- you mentioned there's other opportunities. There's NATO, there's State Department, there's international aid agencies, there's other foreign government and military. Where does -- obviously, that's not right now a big component. But where do you guys sit in terms of being able to execute on that anytime in the near term for it to be relevant to the story today?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [53]
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Yes, for us it's -- Africa's increasingly an area of interest and focus for us. The foreign military sales arena, as part of the Department of State's nation building, they normally transfer those legacy platforms. We are uniquely qualified to support those in a number of different ways, be it from an MRO, be it from an operation, be it from a manufacturing standpoint. You mentioned yourself all the agencies and so forth. And then, candidly, we are an ideal partner for a prime that has won a huge -- hundreds of millions, maybe $1 billion contract and they don't have that specific lift capability or capacity within their own purview. We can partner with them and do that. So I think there are a number of avenues in terms of ways that we can create and add value there.
And where in the world are we going to be focused? Where there is unrest, where there is difficulty and challenges, where there is a lack of infrastructure, where utility aircraft applications create and are opportunistically available to enhance and advance strategy, that's where we will be.
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Josh Nahas, Fox Hill Capital Partners - Analyst [54]
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Okay, and that's great. I appreciate it and thanks. Sorry for taking up all that time.
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Operator [55]
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(Operator Instructions). Ryan Spitz, Stone Harbor Investment Partners.
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Ryan Spitz, Stone Harbor Investment Partners - Analyst [56]
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I think, Eric, you mentioned earlier about being a little flexed down to $30 million or under in CapEx. Can you talk about how long you can handle that type of level?
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Eric Struik, Erickson Incorporated - CFO [57]
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We can probably do it for another 12 to 18 months, if we needed to.
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Ryan Spitz, Stone Harbor Investment Partners - Analyst [58]
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Okay. And then, I guess while the call was going on, it looks like the Company released, I guess, some contract renewals and new wins. Can you talk about what portion of that is renewal versus new contract? Or is it substantially renewal? How should we think about that?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [59]
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Boy. We're going to have to get back to you on that because it's a combination of a lot of different things and each of the business units is going to be a little bit different, but what we will do is we'll take that on and get back to you and try to provide some insight to that, okay?
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Ryan Spitz, Stone Harbor Investment Partners - Analyst [60]
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All right, terrific, thank you. And then, I guess the follow-on to that would be -- I mean, I understand that the firefighting season is very location specific. It looks like, based on the guidance adjustment, a lot of the difference is the higher-margin business, which I guess is aircrane. So as we look into next year, how should we think about what portion of the aircrane fleet is contracted at this point? Is it substantially all of it? What's left to contract?
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [61]
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Yes, well, there's a lot of contracts and bids that are outstanding. So it's hard for me to characterize that in a specific nature.
For example, the fire contract, as you heard on the call earlier, the US forestry service contracts, those bids are all out. Some of the other contracts that we are working on, we're kind of in the middle of it right now. So I don't have a specific number to answer.
And just to kind of go back, the challenges that we've had, I don't want to just lay this all on the heels of the firefighting. Certainly the fire season did not materialize in the way that we had hoped or that we had anticipated, but don't forget the oil and gas contraction on a year-over-year basis also put some pretty good pressure on us as well. So it's not just the fire season, but the oil and gas contraction and the delay and the nonrenewal of a couple of the government contracts. So I would love to just say it's one thing, but it's not. We've got work to do across the board.
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Ryan Spitz, Stone Harbor Investment Partners - Analyst [62]
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Appreciate the color, thanks.
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Operator [63]
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[Michael Karnaky], private investor.
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Michael Karnaky, - Private Investor [64]
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Yes, and I was just wondering, the third quarter, what were your earnings per share and what can you forecast for the upcoming quarters?
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Eric Struik, Erickson Incorporated - CFO [65]
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So third quarter, it was $1.09 diluted per share. And the fourth quarter, we will have to get back to you. I don't have that number in front of me.
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [66]
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But we can do that because we can work our way back into it, based on our revised guidance we've given you. So I don't know what that number is off the top of my head.
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Michael Karnaky, - Private Investor [67]
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Okay, but it's $1.09 for third quarter that we've already passed.
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Eric Struik, Erickson Incorporated - CFO [68]
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Correct.
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Michael Karnaky, - Private Investor [69]
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That's all my questions.
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Eric Struik, Erickson Incorporated - CFO [70]
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All right, Operator, I think we are ready to move on.
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Operator [71]
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Okay. And it appears there are no further questions at this time. Mr. Roberts, I would like to turn the conference back to you for any additional or closing remarks.
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Jeff Roberts, Erickson Incorporated - President, CEO, Chairman [72]
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Okay, I would just like to summarize and say thank you for your attention on the call. We appreciate your interest and we look forward to talking to you in the near term as we go forward. Thank you.
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Operator [73]
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This concludes today's call. Thank you for your participation.