[Company Information](index=1&type=section&id=Company%20Information) Details Mesa Air Group, Inc.'s filer status and common stock structure - Mesa Air Group, Inc. is an **accelerated filer** and an **emerging growth company**[3](index=3&type=chunk)[4](index=4&type=chunk) Common Stock Information (June 30, 2021) | Metric | Value | | :--- | :--- | | Shares Authorized | 125,000,000 | | Shares Issued and Outstanding | 35,891,029 | | Warrants Issued and Outstanding | 4,899,497 | [Cautionary Note Regarding Forward Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) Highlights inherent uncertainties and risks that could cause actual results to differ from forward-looking statements - Forward-looking statements are subject to known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially[7](index=7&type=chunk)[8](index=8&type=chunk) - Key factors that could cause actual results to differ include public health epidemics (e.g., COVID-19), supply and retention of qualified airline pilots and mechanics, dependence on capacity purchase agreements, increases in labor costs, and significant debt[9](index=9&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) Presents the unaudited condensed consolidated financial statements and related notes for Mesa Air Group, Inc. [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited condensed consolidated financial statements and accompanying notes for Mesa Air Group, Inc. [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes the Company's financial position, including assets, liabilities, and equity, for the specified periods Condensed Consolidated Balance Sheets (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $180,398 | $99,395 | | Total current assets | $222,360 | $155,591 | | Property and equipment, net | $1,164,193 | $1,212,415 | | Total assets | $1,525,013 | $1,501,930 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $275,991 | $353,326 | | Total noncurrent liabilities | $754,355 | $690,745 | | Total liabilities | $1,030,346 | $1,044,071 | | Total stockholders' equity | $494,667 | $457,859 | | Total liabilities and stockholders' equity | $1,525,013 | $1,501,930 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Details the Company's operating performance, including revenues, expenses, and net income, for the specified periods Condensed Consolidated Statements of Operations (Three Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total operating revenues | $125,157 | $73,099 | +71.2% | | Total operating expenses | $110,783 | $57,875 | +91.4% | | Operating income | $14,374 | $15,224 | -5.6% | | Net income | $4,276 | $3,419 | +25.1% | | Basic EPS | $0.12 | $0.10 | +20.0% | | Diluted EPS | $0.11 | $0.10 | +10.0% | Condensed Consolidated Statements of Operations (Nine Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total operating revenues | $372,808 | $437,030 | -14.7% | | Total operating expenses | $314,701 | $380,729 | -17.3% | | Operating income | $58,107 | $56,301 | +3.2% | | Net income | $24,083 | $16,089 | +49.7% | | Basic EPS | $0.68 | $0.46 | +47.8% | | Diluted EPS | $0.62 | $0.46 | +34.8% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in stockholders' equity, including common stock, retained earnings, and total equity, for the specified period Condensed Consolidated Statements of Stockholders' Equity (Nine Months Ended June 30, 2021) | (In thousands, except share amounts) | Common Stock and Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | | Balance at September 30, 2020 | $242,772 | $215,087 | $457,859 | | Stock compensation expense | $2,314 | — | $2,314 | | Issuance of warrants, net of issuance costs | $11,489 | — | $11,489 | | Net income | — | $24,083 | $24,083 | | Balance at June 30, 2021 | $255,497 | $239,170 | $494,667 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the Company's cash inflows and outflows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $131,212 | $103,601 | +26.6% | | Net cash used in investing activities | $(17,039) | $(25,114) | -32.1% | | Net cash used in financing activities | $(33,264) | $(82,610) | -59.7% | | Net change in cash, cash equivalents and restricted cash | $80,909 | $(4,123) | N/A | | Cash, cash equivalents and restricted cash at end of period | $183,750 | $68,378 | +168.7% | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Organization and Operations](index=9&type=section&id=Note%201.%20Organization%20and%20Operations) Describes Mesa Air Group, Inc.'s business, operational structure, fleet, and key capacity purchase agreements - Mesa Air Group, Inc. operates as a regional air carrier (Mesa Airlines) providing scheduled flight service to **116 cities** in **36 states**, D.C., and Mexico, and cargo services out of Cincinnati/Northern Kentucky International Airport[24](index=24&type=chunk) - As of June 30, 2021, Mesa operated a fleet of **155 aircraft** with approximately **470 daily departures**, and leases **12 aircraft** to a third party[24](index=24&type=chunk) - All flights are operated on behalf of major partners (American Eagle, United Express, DHL Express) under Capacity Purchase Agreements (CPAs) or a Flight Services Agreement (FSA)[24](index=24&type=chunk) - Financial arrangements are revenue-guarantee, with major partners paying fixed-fees and reimbursing certain direct operating expenses, reducing Mesa's exposure to passenger traffic, fare levels, and fuel prices[25](index=25&type=chunk) - The American CPA was amended and restated, extending the term to December 31, 2025, reducing aircraft to **40 CRJ-900s**, and providing American options to withdraw aircraft[28](index=28&type=chunk) - The United CPA was amended, transferring financing and ownership of **20 E-175 LL aircraft** to United, and extending the term for **42 E-175 aircraft** leased from United and **18 owned E-175 aircraft**[34](index=34&type=chunk)[36](index=36&type=chunk) - The DHL FSA involves operating **two Boeing 737-400F aircraft** for cargo services, with a fee per block hour and performance bonuses/penalties[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the Company's key accounting principles, including revenue recognition, maintenance, and government grant treatment - The Company operates as a **single operating and reportable segment**, with the CEO using consolidated financial information to evaluate performance and allocate resources[42](index=42&type=chunk)[152](index=152&type=chunk) - Contract revenue is recognized when service is provided under CPAs and FSA, including fixed monthly amounts, per-flight/block-hour fees, and incentives[44](index=44&type=chunk)[46](index=46&type=chunk)[48](index=48&type=chunk) - Pass-through revenue represents reimbursements for direct expenses like insurance, property taxes, and major maintenance on nominally leased aircraft[47](index=47&type=chunk) - Heavy maintenance and major overhaul costs for owned E-175 fleet are deferred and amortized; for other fleets, costs are expensed as incurred, except for utilization-based contracts[58](index=58&type=chunk)[59](index=59&type=chunk) Government Grant Recognition (Three and Nine Months Ended June 30) | (In thousands) | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Government grant recognition | $(26,101) | $(93,379) | $(43,018) | $(43,018) | - The Company received **$56.0 million** under PSP2 and **$52.2 million** under PSP3, with **$26.1 million** of PSP3 deferred as of June 30, 2021, to be recognized in Q3 2021[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Note 3. Recent Accounting Pronouncements](index=16&type=section&id=Note%203.%20Recent%20Accounting%20Pronouncements) Discusses the adoption and evaluation of new accounting standards and their impact on the financial statements - Adopted new guidance on expected credit losses (ASU 2016-13) on October 1, 2020, with **no material impact**[64](index=64&type=chunk) - Adopted new guidance on cloud computing arrangement implementation costs (ASU 2018-15) on October 1, 2020; capitalized amounts are **immaterial**[65](index=65&type=chunk) - Currently evaluating the impact of new guidance to simplify accounting for income taxes (effective after December 15, 2020) and Reference Rate Reform (ASU 2020-04) on consolidated financial statements[66](index=66&type=chunk)[67](index=67&type=chunk) [Note 4. Concentrations of Credit Risk](index=16&type=section&id=Note%204.%20Concentrations%20of%20Credit%20Risk) Identifies significant revenue and accounts receivable concentrations with major airline partners and related risks - Substantially all revenue and accounts receivable are derived from capacity purchase agreements with American Airlines and United Airlines, and a flight services agreement with DHL[69](index=69&type=chunk) Revenue Concentration by Major Partner (Three and Nine Months Ended June 30, 2021) | Partner | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | American Airlines | ~45% | ~46% | | United Airlines | ~51% | ~52% | - A termination of either the American or United CPA would have a **material adverse effect** on the Company's business[69](index=69&type=chunk) - Allowance for doubtful accounts was **$1.4 million** at June 30, 2021, up from **$0.8 million** at September 30, 2020[71](index=71&type=chunk) [Note 5. Intangible Assets](index=17&type=section&id=Note%205.%20Intangible%20Assets) Details the Company's intangible assets, including customer relationships, amortization, and remaining useful life Intangible Assets (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Customer relationship | $43,800 | $43,800 | | Accumulated amortization | $(36,698) | $(35,768) | | Net carrying value | $7,102 | $8,032 | - Total amortization expense was **$0.9 million** for the nine months ended June 30, 2021, down from **$1.1 million** in the prior year[72](index=72&type=chunk) - The remaining weighted average term for intangible assets is **14.3 years** as of June 30, 2021[73](index=73&type=chunk) [Note 6. Balance Sheet Information](index=18&type=section&id=Note%206.%20Balance%20Sheet%20Information) Provides additional details on selected balance sheet items, including expendable parts, prepaid expenses, and other assets Selected Balance Sheet Items (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Expendable parts and supplies, net | $24,707 | $22,971 | | Prepaid expenses and other current assets | $8,956 | $16,067 | | Property and equipment, net | $1,164,193 | $1,212,415 | | Other assets | $25,315 | $742 | | Other accrued expenses | $59,452 | $45,478 | - Other assets increased significantly due to **$16.4 million** in equity warrant assets obtained in connection with a forward purchase contract for eVTOL aircraft from Archer Aviation, Inc[77](index=77&type=chunk)[78](index=78&type=chunk) - The grant date value of the warrants (**$16.4 million**) was recognized as a vendor credit liability within other noncurrent liabilities, to be settled as a reduction of eVTOL aircraft acquisition cost[79](index=79&type=chunk) - No impairment charges were deemed necessary for long-lived assets as of June 30, 2021[75](index=75&type=chunk) [Note 7. Fair Value Measurements](index=19&type=section&id=Note%207.%20Fair%20Value%20Measurements) Explains the fair value measurement methodologies for financial instruments, particularly long-term debt - Carrying values for cash, receivables, and payables approximate fair value due to short-term maturity[80](index=80&type=chunk) - Estimated fair value of debt is classified as Level 3, using the discounted cash flow method due to unobservable inputs[81](index=81&type=chunk) Fair Value of Long-Term Debt (June 30, 2021 vs. September 30, 2020) | (In millions) | June 30, 2021 Carrying Value | June 30, 2021 Fair Value | September 30, 2020 Carrying Value | September 30, 2020 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Long-term debt and finance leases, including current maturities | $713.7 | $724.8 | $743.3 | $768.7 | [Note 8. Long-Term Debt, Finance Leases and Other Borrowings](index=20&type=section&id=Note%208.%20Long-Term%20Debt,%20Finance%20Leases%20and%20Other%20Borrowings) Details the Company's debt structure, including the U.S. Treasury Loan, warrants, and compliance with covenants Net Long-Term Debt (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Gross long-term debt, including current maturities | $713,656 | $743,250 | | Less unamortized debt issuance costs | $(9,948) | $(11,526) | | Less Notes payable warrants | $(10,219) | — | | Net long-term debt, including current maturities | $693,489 | $731,724 | | Less current portion | $(107,728) | $(189,268) | | Net long-term debt | $585,761 | $542,456 | - The Company entered into a Loan and Guarantee Agreement with the U.S. Department of the Treasury for a secured loan facility of up to **$200.0 million**, maturing October 2025[88](index=88&type=chunk)[94](index=94&type=chunk) - **$195.0 million** was borrowed by November 2020[94](index=94&type=chunk) - In connection with the Treasury Loan, the Company issued warrants to purchase **4,899,497 shares** of common stock to the U.S. Treasury at an exercise price of **$3.98 per share**[94](index=94&type=chunk)[100](index=100&type=chunk) - Prior to the Treasury Loan funding, the Company repaid **$167.7 million** in existing aircraft debt, resulting in a net gain on extinguishment of **$1.0 million**[102](index=102&type=chunk) - As of June 30, 2021, the Company is **in compliance with all debt covenants**[103](index=103&type=chunk) [Note 9. Earnings Per Share and Equity](index=23&type=section&id=Note%209.%20Earnings%20Per%20Share%20and%20Equity) Presents the calculation of basic and diluted earnings per share and equity components for the specified periods Net Income Per Common Share (Three Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | | :--- | :--- | | Net income attributable to Mesa Air Group | $4,276 | $3,419 | | Basic weighted average common shares outstanding | 35,769 | 35,299 | | Diluted weighted average common shares outstanding | 39,513 | 35,299 | | Basic EPS | $0.12 | $0.10 | | Diluted EPS | $0.11 | $0.10 | Net Income Per Common Share (Nine Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | | :--- | :--- | | Net income attributable to Mesa Air Group | $24,083 | $16,089 | | Basic weighted average common shares outstanding | 35,642 | 35,154 | | Diluted weighted average common shares outstanding | 38,811 | 35,248 | | Basic EPS | $0.68 | $0.46 | | Diluted EPS | $0.62 | $0.46 | - Dilutive share adjustment for the UST warrant was **3,084 thousand shares** for the three months ended June 30, 2021, and **2,536 thousand shares** for the nine months ended June 30, 2021[104](index=104&type=chunk) [Note 10. Common Stock](index=24&type=section&id=Note%2010.%20Common%20Stock) Provides information on common stock, outstanding warrants, and restrictions on dividend payments - All previously outstanding warrants (not related to the Treasury Loan) were converted to common shares as of March 31, 2020[106](index=106&type=chunk) - As of June 30, 2021, **4,899,497 warrants** issued to the U.S. Treasury were outstanding, exercisable at **$3.98 per share**[109](index=109&type=chunk) - The Company has not historically paid dividends, and current loan/lease agreements restrict or prohibit dividend payments[110](index=110&type=chunk) [Note 11. Income Taxes](index=24&type=section&id=Note%2011.%20Income%20Taxes) Discusses the Company's effective tax rate, deferred taxes, and net operating loss carryovers Effective Tax Rate (ETR) from Continuing Operations | Period | 2021 ETR | 2020 ETR | | :--- | :--- | :--- | | Three Months Ended June 30 | 26.3% | 30.7% | | Nine Months Ended June 30 | 25.5% | 28.3% | - ETR differences from prior year and the U.S. federal statutory rate (**21%**) are due to stock compensation, state taxes, changes in valuation allowance against state net operating losses, and other book/tax differences[111](index=111&type=chunk)[112](index=112&type=chunk) - As of September 30, 2020, the Company had federal and state net operating loss carryovers of approximately **$512.6 million** and **$223.9 million**, respectively[113](index=113&type=chunk) [Note 12. Share-Based Compensation and Stock Repurchases](index=25&type=section&id=Note%2012.%20Share-Based%20Compensation%20and%20Stock%20Repurchases) Details restricted share activity, share-based compensation expense, and common stock repurchases Restricted Share Activity (Nine Months Ended June 30, 2021) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Restricted shares unvested at September 30, 2020 | 1,195,548 | $5.47 | | Granted | 305,374 | $9.54 | | Vested | (445,937) | $7.16 | | Forfeited | (35,500) | $4.75 | | Restricted shares unvested at June 30, 2021 | 1,019,485 | $5.98 | Share-Based Compensation Expense | Period | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Three Months Ended June 30 | $0.7 | $1.0 | | Nine Months Ended June 30 | $2.4 | $3.5 | - As of June 30, 2021, **$5.4 million** of unrecognized compensation cost related to unvested share-based compensation is expected to be recognized over a weighted-average period of **2.6 years**[114](index=114&type=chunk) - The Company repurchased **139,896 shares** for **$1.4 million** during the nine months ended June 30, 2021, to cover income tax obligations on vested employee equity awards[116](index=116&type=chunk) [Note 13. Employee Stock Purchase Plan](index=25&type=section&id=Note%2013.%20Employee%20Stock%20Purchase%20Plan) Describes the Company's Employee Stock Purchase Plan, including eligibility and share issuance limits - The 2019 ESPP allows eligible employees to purchase ordinary shares at a **10% discount** through payroll deductions[118](index=118&type=chunk) - A maximum of **500,000 ordinary shares** may be issued under the 2019 ESPP; **157,714 shares** were purchased and issued as of June 30, 2021[119](index=119&type=chunk) [Note 14. Commitments and Contingencies](index=25&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) Outlines the Company's operating lease obligations, engine purchase commitments, and pending legal proceedings - As of June 30, 2021, the Company leased **17 aircraft**, airport facilities, office space, and other property under non-cancelable operating leases, with a remaining weighted average lease term of **2.9 years**[120](index=120&type=chunk)[124](index=124&type=chunk) Aggregate Rental Expense Under Operating Leases | Period | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Three Months Ended June 30 | $13.9 | $15.6 | | Nine Months Ended June 30 | $41.6 | $51.0 | - The Company committed to purchase **ten new CF34-8C5 or CF34-8E5 engines** from GE for approximately **$50.0 million**, with deliveries from July 2021 to November 2022[125](index=125&type=chunk) - A **$7.0 million** deposit was made for the first five engines[125](index=125&type=chunk) - The Company is subject to two putative class action lawsuits alleging federal securities law violations related to its IPO, but management believes the ultimate outcome is not likely to have a **material adverse effect**[128](index=128&type=chunk) [Note 15. Subsequent Events](index=27&type=section&id=Note%2015.%20Subsequent%20Events) Reports significant events occurring after the balance sheet date, including new investments and agreement amendments - In July 2021, the Company invested **$5.0 million** in preferred stock of Heart Aerospace Incorporated, a developer of electric aircraft, and obtained a warrant to purchase common shares[129](index=129&type=chunk) - The Company entered into an Aircraft Purchase Agreement for **100 nineteen-seat electric aircraft** (ES-19) with an option for an additional **50**, subject to future terms and conditions[129](index=129&type=chunk) - Amendment No. 5 to the Amended and Restated American Capacity Purchase Agreement was entered into on August 9, 2021, as described in Note 1[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes the Company's financial condition, results of operations, and liquidity, including COVID-19 impacts - The Company increased liquidity through Payroll Support Programs (PSP2: **$56.0M**, PSP3: **$52.2M**) and a **$200.0M** secured loan from the U.S. Treasury[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - Prior to the Treasury Loan, **$167.7 million** in existing aircraft debt was repaid[199](index=199&type=chunk) - Principal sources of liquidity are government grants, Treasury Loan, cash on hand, operating cash flow, and external borrowings[200](index=200&type=chunk) - As of June 30, 2021, cash and cash equivalents were **$180.4 million**, with **$3.4 million** in restricted cash[205](index=205&type=chunk)[206](index=206&type=chunk) - Management believes current liquidity sources are **adequate to fund operating and capital needs** and maintain debt covenant compliance for at least the next **12 months**[203](index=203&type=chunk) [Overview](index=28&type=section&id=Overview) Provides an overview of Mesa Airlines' operations, fleet, and revenue model under capacity purchase agreements - Mesa Airlines operates as a regional air carrier for American Eagle, United Express, and DHL Express under capacity purchase agreements (CPAs) and a flight services agreement (FSA)[133](index=133&type=chunk) - As of June 30, 2021, the fleet comprised **155 aircraft** with approximately **470 daily departures**, including **45 CRJ-900s** for American, **80 E-175/E-175LLs** for United, and **2 Boeing 737-F400s** for DHL[134](index=134&type=chunk) - CPAs provide guaranteed monthly revenue, fixed fees per block hour/flight, and reimbursement of certain direct operating expenses, shielding the Company from fuel price, ticket price, and passenger fluctuation volatility[135](index=135&type=chunk) [Impact of the COVID-19 Pandemic](index=28&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) Discusses the pandemic's adverse effects on air travel demand and the mitigating impact of government support and CPAs - COVID-19 significantly reduced demand for air travel, adversely impacting revenues and financial position in fiscal year 2020 and early 2021, though Q3 2021 showed improvement[136](index=136&type=chunk) - Payroll Support Program funds and the U.S. Treasury Loan, combined with cost savings, partially offset negative impacts[137](index=137&type=chunk) - Fixed revenue structure of CPAs limited severity[137](index=137&type=chunk) [Components of Results of Operations](index=28&type=section&id=Components%20of%20Results%20of%20Operations) Explains the key components of the Company's operating revenues and expenses [Operating Revenues](index=28&type=section&id=Operating%20Revenues_MD%26A) Describes the sources of operating revenues, including contract revenue and pass-through reimbursements - Contract revenue includes fixed monthly aircraft fees, per-flight/block-hour fees, and rental revenue from aircraft leased to GoJet[140](index=140&type=chunk) - Pass-through and other revenue covers reimbursements for passenger/hull insurance, aircraft property taxes, other direct costs, and certain E-175 maintenance costs[141](index=141&type=chunk) [Operating Expenses](index=29&type=section&id=Operating%20Expenses_MD%26A) Details the various categories of operating expenses, such as flight operations, maintenance, and aircraft rent - Flight operations expense includes pilot, flight attendant, and dispatch personnel salaries, bonuses, benefits, and training[142](index=142&type=chunk) - Fuel expense is for non-CPA/FSA flights (repositioning, maintenance); fuel for CPA/FSA flights is directly paid by major partners[143](index=143&type=chunk) - Maintenance expense covers routine and heavy maintenance; heavy maintenance for owned E-175s is deferred, others expensed as incurred or based on utilization contracts[144](index=144&type=chunk) - Aircraft rent expense covers leased engines and aircraft[145](index=145&type=chunk) - General and administrative expense includes insurance, taxes (mostly pass-through), administrative wages, building rents, utilities, legal, and audit expenses[146](index=146&type=chunk) [Other (Expense) Income, Net](index=29&type=section&id=Other%20(Expense)%20Income,%20Net_MD%26A) Explains the components of other expense and income, primarily interest expense and income - Interest expense relates to debt for aircraft, engine, and equipment purchases, including amortization of debt financing costs[148](index=148&type=chunk) - Interest income is from cash and cash equivalent balances[149](index=149&type=chunk) [Segment Reporting](index=29&type=section&id=Segment%20Reporting_MD%26A) Confirms the Company operates as a **single operating and reportable segment** for financial evaluation - The Company operates as a **single operating and reportable segment**, as the chief operating decision maker evaluates performance and allocates resources on a consolidated basis[151](index=151&type=chunk)[152](index=152&type=chunk) [Cautionary Statement Regarding Non-GAAP Measures](index=30&type=section&id=Cautionary%20Statement%20Regarding%20Non-GAAP%20Measures) Defines and explains the use and limitations of non-GAAP financial measures like Adjusted EBITDA and EBITDAR - Adjusted EBITDA and Adjusted EBITDAR are presented as supplemental non-GAAP measures, used by management, investors, and analysts for industry comparisons[153](index=153&type=chunk) - Adjusted EBITDA is net income/loss before interest, income taxes, depreciation, and amortization, adjusted for revaluation of liability awards, lease termination costs, loss on debt extinguishment, and financing fee write-offs[154](index=154&type=chunk) - Adjusted EBITDAR further adjusts Adjusted EBITDA by excluding aircraft rent[155](index=155&type=chunk) - These non-GAAP measures have limitations, as they do not reflect cash expenditures for capital, working capital, debt service, or asset replacement, and may not be comparable across companies[156](index=156&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations_MD%26A) Analyzes the Company's financial performance for the three and nine months ended June 30, 2021, compared to prior periods [Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020](index=30&type=section&id=Three%20Months%20Ended%20June%2030,%202021%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202020) Compares the Company's operating revenues, expenses, and net income for the three months ended June 30, 2021 and 2020 Operating Revenues (Three Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract revenue | $109,654 | $71,648 | $38,006 | 53.0% | | Pass-through and other revenue | $15,503 | $1,451 | $14,052 | 968.4% | | Total operating revenues | $125,157 | $73,099 | $52,058 | 71.2% | Operating Data (Three Months Ended June 30) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Available seat miles (thousands) | 2,056,905 | 783,702 | 1,273,203 | 162.5% | | Block hours | 85,162 | 31,622 | 53,540 | 169.3% | | Revenue passenger miles (thousands) | 1,692,687 | 314,422 | 1,378,265 | 438.3% | | Passengers | 2,572,303 | 548,705 | 2,023,598 | 368.8% | Operating Expenses (Three Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $41,314 | $29,664 | $11,650 | 39.3% | | Maintenance | $51,986 | $22,591 | $29,395 | 130.1% | | Aircraft rent | $9,648 | $15,582 | $(5,934) | (38.1)% | | Government grant recognition | $(26,101) | $(43,018) | $16,917 | (39.3)% | | Total operating expenses | $110,783 | $57,875 | $52,908 | 91.4% | - Net income increased by **25.1%** to **$4.3 million**, driven by increased contract and pass-through revenue due to lessened COVID-19 impact, partially offset by higher operating expenses[157](index=157&type=chunk)[162](index=162&type=chunk) - Maintenance expense increased significantly (**130.1%**) due to higher C-check events, component contracts, pass-through maintenance, and labor[166](index=166&type=chunk) - Aircraft rent expense decreased (**38.1%**) due to fewer leased engines and the purchase of a previously leased aircraft[167](index=167&type=chunk) - Other expense decreased (**16.7%**) due to lower interest expense from reduced principal balances and lower interest rates on the Treasury Loan[172](index=172&type=chunk) [Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020](index=33&type=section&id=Nine%20Months%20Ended%20June%2030,%202021%20Compared%20to%20Nine%20Months%20Ended%20June%2030,%202020) Compares the Company's operating revenues, expenses, and net income for the nine months ended June 30, 2021 and 2020 Operating Revenues (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract revenue | $318,524 | $409,228 | $(90,704) | (22.2)% | | Pass-through and other revenue | $54,284 | $27,802 | $26,482 | 95.3% | | Total operating revenues | $372,808 | $437,030 | $(64,222) | (14.7)% | Operating Data (Nine Months Ended June 30) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Available seat miles (thousands) | 5,499,346 | 6,131,028 | (631,682) | (10.3)% | | Block hours | 228,351 | 255,488 | (27,137) | (10.6)% | | Passengers | 6,086,060 | 7,084,255 | (998,195) | (14.1)% | Operating Expenses (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $115,681 | $135,199 | $(19,518) | (14.4)% | | Maintenance | $156,623 | $145,021 | $11,602 | 8.0% | | Aircraft rent | $29,688 | $39,196 | $(9,508) | (24.3)% | | Lease termination | $4,508 | — | $4,508 | 100.0% | | Government grant recognition | $(93,379) | $(43,018) | $(50,361) | 117.1% | | Total operating expenses | $314,701 | $380,729 | $(66,028) | (17.3)% | - Net income increased by **49.7%** to **$24.1 million**, despite a **14.7%** decrease in total operating revenue, primarily due to a significant increase in government grant recognition and lower operating expenses[176](index=176&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - Contract revenue decreased (**22.2%**) due to lower flying from COVID-19 impacts and temporary rate reductions, while pass-through revenue increased (**95.3%**) due to higher pass-through maintenance[179](index=179&type=chunk) - Government grant recognition increased by **117.1%** to **$93.4 million**, reflecting funds from PSP2 and PSP3[189](index=189&type=chunk) Adjusted EBITDA and Adjusted EBITDAR (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | | Net income | $24,083 | $16,089 | | Adjusted EBITDA | $124,162 | $118,677 | | Adjusted EBITDAR | $153,850 | $157,873 | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the Company's financial liquidity, capital needs, and sources of cash, including government support and debt [Sources and Uses of Cash](index=37&type=section&id=Sources%20and%20Uses%20of%20Cash) Identifies the primary cash requirements and factors influencing the Company's cash sources - Cash is required for operating expenses, working capital, capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent, and debt service[200](index=200&type=chunk) - Key factors affecting cash sources include operational results, demand for services, competitive pricing, operating expense reductions, and access to financing/capital markets[201](index=201&type=chunk) [Restricted Cash](index=38&type=section&id=Restricted%20Cash) Explains the nature and amount of restricted cash held as collateral for various business needs - As of June 30, 2021, restricted cash totaled **$3.4 million**, collateralizing outstanding letters of credit for airport authorities, insurance, and other business needs[206](index=206&type=chunk) [Cash Flows](index=38&type=section&id=Cash%20Flows_MD%26A) Summarizes the Company's cash flows from operating, investing, and financing activities for the specified periods Net Cash Flow Summary (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | | Net cash provided by operating activities | $131,212 | $103,601 | | Net cash used in investing activities | $(17,039) | $(25,114) | | Net cash used in financing activities | $(33,264) | $(82,610) | | Net change in cash, cash equivalents and restricted cash | $80,909 | $(4,123) | - Operating cash flow increased by **$27.6 million** (**26.6%**) to **$131.2 million**, driven by net income and changes in operating assets/liabilities[208](index=208&type=chunk) - Investing activities used **$17.0 million**, primarily for inventory, aircraft purchases, tools, and equipment[210](index=210&type=chunk) - Financing activities used **$33.3 million**, including **$195.0 million** from the Treasury Loan, offset by **$225.8 million** in debt repayments[212](index=212&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of off-balance sheet arrangements and explains the treatment of leased aircraft - The Company does not currently have any off-balance sheet arrangements as defined by SEC rules[215](index=215&type=chunk) - A majority of leased aircraft are through single-owner trusts where the Company is not the primary beneficiary, limiting exposure to remaining lease payments and return condition obligations[216](index=216&type=chunk) [Critical Accounting Policies and Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Refers to the Annual Report for details on critical accounting policies and estimates - No changes to critical accounting policies as explained in the 2020 Form 10-K[218](index=218&type=chunk) [Recently Issued Accounting Pronouncements](index=39&type=section&id=Recently%20Issued%20Accounting%20Pronouncements_MD%26A) Refers to Note 3 for information on recently issued accounting pronouncements - Refers to Note 3 for a description of recently issued accounting pronouncements[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Assesses the Company's exposure to market risks, including interest rate, foreign currency, and fuel price risks [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) Analyzes the Company's exposure to interest rate fluctuations on variable-rate debt and the impact of LIBOR discontinuation - The Company is exposed to interest rate risk on **$521.1 million** of variable-rate long-term debt (including current maturities) as of June 30, 2021, based on LIBOR[221](index=221&type=chunk)[222](index=222&type=chunk) - A hypothetical **50 basis point** change in market interest rates would affect interest expense by approximately **$2.6 million** for the nine months ended June 30, 2021[222](index=222&type=chunk) - The discontinuation of LIBOR after 2021 poses uncertainty regarding replacement rates and potential impacts on financial markets and the Company's LIBOR-based debt[224](index=224&type=chunk)[225](index=225&type=chunk) [Foreign Currency Risk](index=40&type=section&id=Foreign%20Currency%20Risk) Discusses the Company's minimal exposure to foreign currency fluctuations and lack of hedging programs - The Company has de minimis foreign currency risks related to station operating expenses denominated primarily in Canadian dollars, with all revenue in U.S. dollars[226](index=226&type=chunk) - Foreign currency transaction gains and losses have been **not material**, and **no formal hedging program is in place**[226](index=226&type=chunk) [Fuel Price Risk](index=40&type=section&id=Fuel%20Price%20Risk) Explains how capacity purchase agreements mitigate the Company's exposure to fuel price volatility - Capacity purchase agreements largely shelter the Company from fuel price volatility, as fuel is directly paid and supplied by major partners[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures and acknowledges inherent limitations of internal controls [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) States management's conclusion on the effectiveness of disclosure controls and procedures as of June 30, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were **effective as of June 30, 2021**[228](index=228&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=41&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Acknowledges the inherent limitations of any internal control system, including design judgment and potential for misconduct - The effectiveness of any internal control system is subject to inherent limitations, including judgment in design and operation, and the inability to eliminate misconduct completely[229](index=229&type=chunk) [PART II – OTHER INFORMATION](index=42&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) Presents other required information not covered in the financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) Details the Company's involvement in putative class action lawsuits and management's assessment of their potential impact - The Company is subject to two putative class action lawsuits alleging federal securities law violations in connection with its IPO, seeking unspecified monetary damages[128](index=128&type=chunk)[231](index=231&type=chunk) - Management believes the ultimate outcome of these lawsuits and other routine legal matters is not likely to have a **material adverse effect** on the Company's financial position, liquidity, or results of operations[128](index=128&type=chunk)[232](index=232&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) Refers to the Annual Report for comprehensive risk factors and notes the potential for additional unknown risks - Readers are referred to 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and the 'Cautionary Statements Regarding Forward-looking Statements' in this report for important risk factors[233](index=233&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also **materially adversely affect** the business[233](index=233&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on common stock repurchases made to cover income tax obligations on employee equity awards - The Company repurchased **139,896 shares** of common stock for **$1.4 million** during the nine months ended June 30, 2021[116](index=116&type=chunk)[234](index=234&type=chunk) - The purpose of the repurchases was to cover income tax obligations on vested employee equity awards and warrant conversions[116](index=116&type=chunk)[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that there were no defaults upon senior securities during the reported period - **None**[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the Company's operations - **Not applicable**[235](index=235&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) Indicates that there is no other information to report under this item - **None**[236](index=236&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including various agreements, amendments, and certifications - Includes Payroll Support Program 3 Agreement, amendments to the American Capacity Purchase Agreement, and certifications by principal executive and financial officers[238](index=238&type=chunk) [SIGNATURES](index=44&type=section&id=SIGNATURES) Provides the official signatures for the Quarterly Report on Form 10-Q - Report signed by Michael J. Lotz, President and Chief Financial Officer, on August 9, 2021[242](index=242&type=chunk)

Financial Data and Key Metrics Changes - The company reported a pretax profit of $7.6 million, with an adjusted pretax profit of $12.1 million or $0.23 per share, compared to a net income of $1.9 million or $0.05 per diluted share in the same quarter last year [10][36] - The net income for Q2 2021 was $5.7 million, an increase from $1.9 million in Q2 2020, primarily due to a $56 million pretax benefit received through PSP2 under the CARES Act [36][37] - Cash at the end of Q2 was $148 million, down from $181 million in Q1, with total debt reduced to $725 million from $746 million [38][41] Business Line Data and Key Metrics Changes - The company generated 73,942 block hours, down 32% from the previous year but improved by 6.8% from the December quarter [18] - The controllable completion factor was 99.9%, consistent with the previous year, while controllable on-time departures improved to 91.1% from 81.3% a year ago [21] - The company added five additional CRJ aircraft to its American operation, with a current fleet of 64 CRJ-900s [22][23] Market Data and Key Metrics Changes - The company expects June quarter utilization in the United operation to be 75% to 80% of pre-COVID levels and approximately 100% in the American operation [19] - The September quarter is projected to be 85% to 90% at United and a little over 100% in the American operation [19] Company Strategy and Development Direction - The company is focusing on adopting new technology and decarbonization of air travel, including an investment in Archer Aviation's eVTOL aircraft [13][14] - The company aims to be a leader in decarbonization and eco-friendly flying, with plans to expand regional jet operations in Europe [12][96] - The company is committed to improving operational performance and maintaining strong relationships with partners [17][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a gradual improvement in block hours and operational performance as the vaccine rollout continues [42] - The company anticipates a steady increase in block hours and is focused on addressing heavy maintenance needs that were deferred during the pandemic [43][90] - Management highlighted the importance of maintaining strong operational performance and industry-leading economics for long-term growth [18][45] Other Important Information - The company has secured a third 737-400 cargo aircraft to support its operations with DHL [30] - The company is actively hiring and training to meet increasing staffing requirements across operational divisions [32][34] Q&A Session Summary Question: Block hours guidance - Management indicated that the slight decrease in block hours guidance is due to a more conservative estimate as schedules are changing week-to-week [48][50] Question: CRJ purchase off lease - The company is focused on buying out leases to own aircraft, with the recent purchase being financially attractive due to low cash outlay and avoidance of return conditions [51][52] Question: CapEx and storm impact - For fiscal 2021, the company plans to acquire one GE engine, with additional engines in fiscal 2022 and 2023 [56][58] - The estimated impact of the storm and power outages in Texas was about $3 million, with a mix of costs covered by the company and partners [60][68] Question: Future contract rates - Lower contract rates were tied to COVID and the PSP program, and management does not expect these rates to continue in the absence of PSP [68][69] Question: Joint venture accounting - The accounting for the joint venture with Gramercy Associates is still under consideration, with no significant impact expected in the current fiscal year [72] Question: Long-term capital structure - The company plans to focus on paying down debt while maintaining liquidity, with a target debt to capital ratio and continued aircraft purchases [74][76] Question: Normalized margins post-COVID - Management expects margins to return to pre-COVID levels by fiscal 2022, with ongoing heavy maintenance impacting this year's performance [81][82]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-38626 MESA AIR GROUP, INC. (Exact name of registrant as specified in its charter) Nevada 85-0302351 (State or other jurisdiction ...

Mesa Air Group, Inc. (NASDAQ:MESA) Q1 2021 Earnings Conference Call February 9, 2021 4:30 PM ET Company Participants Jonathan Ornstein - Chairman & Chief Executive Officer Mike Lotz - President & Chief Financial Officer Brian Gillman - Executive Vice President & General Counsel Brad Rich - Chief Operating Officer Conference Call Participants Savi Syth - Raymond James Joseph DeNardi - Stifel Mike Linenberg - Deutsche Bank Helane Becker - Cowen Operator Thank you for standing by, and welcome to the Mesa Airli ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements regarding future operating results, financial condition, business strategies, and management plans, which may differ materially from expectations due to known and unknown risks and uncertainties - This report contains forward-looking statements regarding future operating results, financial condition, business strategies, and management plans, where actual results may differ materially from expectations due to known and unknown risks, uncertainties, and other important factors[6](index=6&type=chunk)[7](index=7&type=chunk) - Key factors that could cause actual results to differ from expectations include the severity, duration, and impact of the COVID-19 pandemic, the supply and retention of qualified pilots, reliance on and potential changes to capacity purchase agreements, increased labor costs, reduced utilization under capacity purchase agreements, the financial strength of major airline partners, and the company's debt levels and ability to comply with financial covenants[8](index=8&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements of Mesa Air Group, Inc. as of December 31, 2020, along with detailed notes [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section provides Mesa Air Group, Inc.'s unaudited condensed consolidated financial statements as of December 31, 2020, including balance sheets, statements of operations and comprehensive income, stockholders' equity, and cash flows, along with detailed notes covering various accounting aspects [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the condensed consolidated balance sheets, highlighting key financial positions at quarter-end Condensed Consolidated Balance Sheets Key Data (As of December 31, 2020 vs September 30, 2020) | Metric ($ in thousands) | December 31, 2020 | September 30, 2020 | Change | Change Rate (%) | | :--------------------------------- | :------------- | :------------- | :----- | :--------- | | Cash and cash equivalents | 181,300 | 99,395 | 81,905 | 82.4 | | Restricted cash | 3,634 | 3,446 | 188 | 5.5 | | Accounts receivable, net | 15,412 | 13,712 | 1,700 | 12.4 | | Consumable parts and supplies, net | 22,760 | 22,971 | (211) | (0.9) | | Prepaid expenses and other current assets | 12,897 | 16,067 | (3,170)| (19.7) | | **Total current assets** | **236,003** | **155,591** | **80,412** | **51.7** | | Property and equipment, net | 1,194,061 | 1,212,415 | (18,354)| (1.5) | | Intangible assets, net | 7,722 | 8,032 | (310) | (3.9) | | Lease and equipment deposits | 1,851 | 1,899 | (48) | (2.5) | | Operating lease right-of-use assets | 114,666 | 123,251 | (8,585)| (7.0) | | Other assets | 514 | 742 | (228) | (30.7) | | **Total assets** | **1,554,817** | **1,501,930** | **52,887** | **3.5** | | Current liabilities: | | | | | | Current portion of long-term debt and financing leases | 99,745 | 189,268 | (89,523)| (47.3) | | Current portion of deferred revenue | 51,253 | 9,389 | 41,864 | 445.9 | | Current maturities of operating leases | 44,712 | 43,932 | 780 | 1.8 | | Accounts payable | 47,576 | 53,229 | (5,653)| (10.6) | | Accrued compensation | 7,029 | 12,030 | (5,001)| (41.6) | | Other accrued expenses | 37,581 | 45,478 | (7,897)| (17.4) | | **Total current liabilities** | **287,896** | **353,326** | **(65,430)** | **(18.5)** | | Non-current liabilities: | | | | | | Long-term debt and financing leases, net of current portion | 624,116 | 542,456 | 81,660 | 15.1 | | Non-current operating lease liabilities | 53,570 | 62,531 | (8,961)| (14.3) | | Deferred credits | 5,176 | 5,705 | (529) | (9.3) | | Deferred income taxes | 69,111 | 64,275 | 4,836 | 7.5 | | Deferred revenue, net of current portion | 26,504 | 14,369 | 12,135 | 84.5 | | Other non-current liabilities | 4,147 | 1,409 | 2,738 | 194.3 | | **Total non-current liabilities** | **782,624** | **690,745** | **91,879** | **13.3** | | **Total liabilities** | **1,070,520** | **1,044,071** | **26,449** | **2.5** | | Total stockholders' equity | 484,297 | 457,859 | 26,438 | 5.8 | | **Total liabilities and stockholders' equity** | **1,554,817** | **1,501,930** | **52,887** | **3.5** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section provides the condensed consolidated statements of operations and comprehensive income, detailing revenue and expense performance Condensed Consolidated Statements of Operations and Comprehensive Income Key Data (For the Three Months Ended December 31, 2020 vs December 31, 2019) | Metric ($ in thousands) | December 31, 2020 | December 31, 2019 | Change | Change Rate (%) | | :--------------------------------- | :------------- | :------------- | :----- | :--------- | | Contract revenue | 127,158 | 171,800 | (44,642)| (26.0) | | Pass-through and other revenue | 23,213 | 12,236 | 10,977 | 89.7 | | **Total operating revenue** | **150,371** | **184,036** | **(33,665)** | **(18.3)** | | Operating expenses: | | | | | | Flight operations | 36,964 | 52,644 | (15,680)| (29.8) | | Fuel | 390 | 169 | 221 | 130.8 | | Maintenance | 52,864 | 58,095 | (5,231)| (9.0) | | Aircraft rent | 10,048 | 11,329 | (1,281)| (11.3) | | Aircraft and traffic services | 901 | 1,064 | (163) | (15.3) | | General and administrative | 13,073 | 12,996 | 77 | 0.6 | | Depreciation and amortization | 20,470 | 20,552 | (82) | (0.4) | | CARES Act grant recognition | (11,311) | — | (11,311)| 100.0 | | **Total operating expenses** | **123,399** | **156,849** | **(33,450)** | **(21.3)** | | **Operating income** | **26,972** | **27,187** | **(215)** | **(0.8)** | | Other (expense) income, net | (8,033) | (12,867) | 4,834 | (37.6) | | **Income before income taxes** | **18,939** | **14,320** | **4,619** | **32.3** | | Income tax expense | 4,821 | 3,535 | 1,286 | 36.4 | | **Net income and comprehensive income** | **14,118** | **10,785** | **3,333** | **30.9** | | Net income per share (basic) | 0.40 | 0.31 | 0.09 | 29.0 | | Net income per share (diluted) | 0.39 | 0.31 | 0.08 | 25.8 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, including common stock, additional paid-in capital, and retained earnings Changes in Stockholders' Equity (As of December 31, 2020) | Metric ($ in thousands) | Balance September 30, 2020 | Share-based compensation expense | Stock repurchases | Restricted stock issuance | Warrants issued, net | Net income | Balance December 31, 2020 | | :--------------------------------- | :----------------- | :----------- | :------- | :------------- | :--------------- | :----- | :----------------- | | Common stock and additional paid-in capital | 242,772 | 850 | (19) | — | 11,489 | — | 255,092 | | Retained earnings | 215,087 | — | — | — | — | 14,118 | 229,205 | | **Total** | **457,859** | **850** | **(19)** | **—** | **11,489** | **14,118** | **484,297** | - As of December 31, 2020, the company had **35,532,162 shares of common stock** issued and outstanding, and **4,899,497 warrants** outstanding[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Key Data (For the Three Months Ended December 31, 2020 vs December 31, 2019) | Metric ($ in thousands) | December 31, 2020 | December 31, 2019 | Change | Change Rate (%) | | :--------------------------------- | :------------- | :------------- | :----- | :--------- | | Net cash provided by operating activities | 79,273 | 38,230 | 41,043 | 107.3 | | Net cash used in investing activities | (1,773) | (12,828) | 11,055 | (86.2) | | Net cash provided by/(used in) financing activities | 4,593 | (36,692) | 41,285 | (112.5) | | Net change in cash, cash equivalents, and restricted cash | 82,093 | (11,290) | 93,383 | (827.1) | | Cash, cash equivalents, and restricted cash at end of period | 184,934 | 61,211 | 123,723| 202.1 | - In the fourth quarter of 2020, the company's operating cash flow significantly increased, primarily due to higher net income and an increase in deferred revenue[20](index=20&type=chunk)[172](index=172&type=chunk)[174](index=174&type=chunk) Investing cash outflows substantially decreased, and financing cash flow shifted from a net outflow to a net inflow, mainly as proceeds from the U.S. Treasury loan agreement offset debt repayments[20](index=20&type=chunk)[172](index=172&type=chunk)[174](index=174&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the accounting policies, significant transactions, and other relevant information supporting the condensed consolidated financial statements [1. Organization and Operations](index=8&type=section&id=1.%20Organization%20and%20Operations) This note describes Mesa Air Group, Inc.'s business as a regional airline operating under capacity purchase agreements with major carriers - Mesa Air Group, Inc. is a regional airline providing scheduled flight services, operating **159 aircraft** with approximately **420 daily flights** and **3,200 employees** as of December 31, 2020; all flights operate under the American Eagle, United Express, or DHL Express brands, generating revenue through Capacity Purchase Agreements (CPAs) and Flight Service Agreements (FSAs)[22](index=22&type=chunk) - The company's financial arrangements with major airline partners are revenue-guaranteed models, where major airlines pay fixed monthly amounts, fixed fees per flight hour and departure, and reimburse certain direct operating expenses, thereby reducing the company's exposure to fluctuations in passenger traffic, fares, and fuel prices[23](index=23&type=chunk) - On November 19, 2020, the company entered into an amended and restated capacity purchase agreement with American Airlines, effective for **five years** (January 1, 2021, to December 31, 2025), covering **40 aircraft** and granting American Airlines the right to withdraw aircraft under specific conditions[26](index=26&type=chunk)[27](index=27&type=chunk) On December 22, 2020, this agreement was further amended to add CRJ-900 aircraft and allow American Airlines to withdraw incremental aircraft with **60 days' notice**[28](index=28&type=chunk) - On November 4, 2020, the company amended and restated its capacity purchase agreement with United Airlines, transferring ownership of **20 E175LL aircraft** from the company to United Airlines, which then leased them back to the company for **12 years** of operation[32](index=32&type=chunk) The company agreed to adjusted rates and received the right to waive minimum utilization clauses until December 31, 2021[33](index=33&type=chunk) United Airlines also prepaid **$81.5 million** for future services, of which **$33.3 million** was recognized as revenue by December 31, 2020[33](index=33&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the condensed consolidated financial statements - The company prepares its condensed consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and has elected to "opt out" of the extended transition period for the JOBS Act, thus following the same accounting standards as other non-emerging growth public companies[36](index=36&type=chunk)[38](index=38&type=chunk) - Contract revenue is recognized as services are provided, comprising fixed monthly fees and additional amounts based on flight hours and departures[39](index=39&type=chunk) Pass-through revenue includes passenger and hull insurance, aircraft property taxes, and maintenance costs for certain E-175 aircraft[42](index=42&type=chunk) The company treats a portion of its capacity purchase agreement revenue as operating lease revenue[42](index=42&type=chunk) Deferred Revenue Recognition Schedule ($ in thousands) | Period Ending | Total Amount Due | | :------------- | :--------- | | Remainder of 2021 | 48,420 | | 2022 | 9,714 | | 2023 | 9,563 | | 2024 | 8,503 | | 2025 | 1,338 | | Thereafter | 219 | | **Total** | **77,757** | - The company uses the direct expense method for regional jet engine overhauls, airframes, landing gear, and routine scheduled maintenance, recognizing expenses when maintenance is completed or during the repair period if the difference is significant[48](index=48&type=chunk) For the three months ended December 31, 2020, engine overhaul expenses were **$14.4 million** (of which **$9.6 million** was pass-through), and airframe C-check expenses were **$10.1 million** (of which **$7.1 million** was pass-through)[50](index=50&type=chunk) [3. Recent Accounting Pronouncements](index=13&type=section&id=3.%20Recent%20Accounting%20Pronouncements) This note discusses the adoption and potential impact of recently issued accounting standards on the company's financial reporting - The company is evaluating the impact of ASU 2020-04 (Reference Rate Reform) on its consolidated financial statements[51](index=51&type=chunk) The new credit loss model was adopted on **October 1, 2020**, with no significant impact[52](index=52&type=chunk) Topic 842 (Leases) was adopted on **October 1, 2019**, leading to the recognition of operating lease right-of-use assets and lease liabilities, but without a material impact on the statements of operations and cash flows[53](index=53&type=chunk)[54](index=54&type=chunk) [4. Concentrations](index=14&type=section&id=4.%20Concentrations) This note details the company's reliance on major airline partners for substantially all its revenue and accounts receivable - As of December 31, 2020, all of the company's consolidated revenue and accounts receivable were derived from capacity purchase agreements with American Airlines and United Airlines, and a flight service agreement with DHL[59](index=59&type=chunk) Major Customer Revenue Contribution (For the Three Months Ended December 31, 2020) | Customer | 2020 Revenue Share (%) | 2019 Revenue Share (%) | | :--- | :----------------- | :----------------- | | American Airlines | 46 | 51 | | United Airlines | 53 | 49 | | DHL | 1 | 0 | - Termination of capacity purchase agreements with American Airlines or United Airlines would have a **material adverse effect** on the company's business prospects, financial condition, operating results, and cash flows[61](index=61&type=chunk) [5. Intangible Assets](index=14&type=section&id=5.%20Intangible%20Assets) This note provides information on the company's intangible assets, primarily customer relationships, and their amortization Intangible Assets, Net ($ in thousands) | Metric | December 31, 2020 | September 30, 2020 | | :--- | :------------- | :------------- | | Customer relationships | 43,800 | 43,800 | | Accumulated amortization | (36,078) | (35,768) | | **Net** | **7,722** | **8,032** | - For the three months ended December 31, 2020, amortization expense was approximately **$0.3 million**, with an estimated **$0.9 million** for the remainder of 2021, and **$1.0 million, $0.9 million, $0.8 million, and $0.7 million** for fiscal years 2022-2025, respectively[63](index=63&type=chunk) [6. Balance Sheet Information](index=15&type=section&id=6.%20Balance%20Sheet%20Information) This note provides additional details on specific line items within the condensed consolidated balance sheets Key Balance Sheet Items ($ in thousands) | Item | December 31, 2020 | September 30, 2020 | | :--- | :------------- | :------------- | | Consumable parts and supplies, net | 22,760 | 22,971 | | Prepaid expenses and other current assets | 12,897 | 16,067 | | Property and equipment, net | 1,194,061 | 1,212,415 | | Other accrued expenses | 37,581 | 45,478 | - As of December 31, 2020, the company identified no indicators of impairment for long-lived assets[64](index=64&type=chunk) Depreciation expense was approximately **$20.2 million** for both the 2020 and 2019 periods[65](index=65&type=chunk) [7. Fair Value Measurements](index=15&type=section&id=7.%20Fair%20Value%20Measurements) This note describes the fair value hierarchy and methods used to measure certain financial instruments, particularly long-term debt - The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values[66](index=66&type=chunk) The fair value of the company's long-term debt is determined to be Level 3, estimated using discounted cash flow methods with unobservable inputs[67](index=67&type=chunk) Fair Value of Long-Term Debt ($ in millions) | Metric | Carrying Value December 31, 2020 | Fair Value December 31, 2020 | Carrying Value September 30, 2020 | Fair Value September 30, 2020 | | :--- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Long-term debt and financing leases (including current portion) | 746.4 | 777.3 | 743.3 | 768.7 | [8. Long-Term Debt, Financing Leases and Other Borrowings](index=16&type=section&id=8.%20Long-Term%20Debt,%20Financing%20Leases%20and%20Other%20Borrowings) This note details the composition of the company's long-term debt, financing leases, and other borrowing arrangements, including recent government loans Long-Term Debt Composition ($ in thousands) | Debt Type | December 31, 2020 | September 30, 2020 | | :--- | :------------- | :------------- | | Notes payable to financial institutions (due 2022) | — | 41,472 | | Notes payable to financial institutions (due 2024) | — | 55,674 | | Senior and subordinated notes payable to guarantors (due 2027) | 105,989 | 105,887 | | Notes payable to guarantors (due 2028) | 172,137 | 172,137 | | Senior and subordinated notes payable to guarantors (due 2028) | 134,325 | 138,114 | | Senior and subordinated notes payable to guarantors (due 2022) | — | 47,319 | | Senior and subordinated notes payable to guarantors (due 2022) | — | 29,682 | | Notes payable to financial institutions (due 2020) | 1,523 | 1,523 | | Notes payable to financial institutions (due 2020) | — | 4,182 | | Other notes payable to financial institutions (due 2023) | 6,185 | 6,864 | | Notes payable to financial institutions (due 2024) | 58,988 | 63,341 | | Notes payable to financial institutions (due 2023) | 43,750 | 48,125 | | Notes payable to financial institutions (due 2023) | 5,500 | 6,000 | | Revolving credit facility | 22,296 | 22,930 | | Notes payable to financial institutions (due 2025) | 195,705 | — | | **Total long-term debt (including current portion)** | **746,398** | **743,250** | | Less: Unamortized debt issuance costs | (11,174) | — | | Less: Note warrants | (11,363) | (11,526) | | **Net long-term debt (including current portion)** | **723,861** | **731,724** | | Less: Current portion | (99,745) | (189,268) | | **Net long-term debt** | **624,116** | **542,456** | - On October 30, 2020, the company entered into a secured loan agreement with the U.S. Department of the Treasury for up to **$200 million**, borrowing **$43 million** on October 30 and **$152 million** on November 13[76](index=76&type=chunk)[78](index=78&type=chunk) This loan matures on **October 30, 2025**, and is collateralized by specific aircraft and engines[82](index=82&type=chunk) The company also issued **4,899,497 warrants** to the U.S. Treasury[82](index=82&type=chunk) - Prior to receiving the U.S. Treasury loan, the company repaid **$167.7 million** of existing aircraft debt, recognizing a **$1.0 million net gain** on debt extinguishment[84](index=84&type=chunk) As of December 31, 2020, the company was in compliance with all debt covenants[85](index=85&type=chunk) [9. Earnings Per Share and Equity](index=20&type=section&id=9.%20Earnings%20Per%20Share%20and%20Equity) This note presents the calculation of basic and diluted earnings per share and provides information on equity-related items Net Income Per Common Share ($ in thousands, except per share data) | Metric | December 31, 2020 | December 31, 2019 | | :--- | :------------- | :------------- | | Net income attributable to Mesa Air Group | 14,118 | 10,785 | | Basic weighted average common shares outstanding | 35,531 | 35,023 | | Diluted weighted average common shares outstanding | 36,647 | 35,182 | | Net income per share (basic) | 0.40 | 0.31 | | Net income per share (diluted) | 0.39 | 0.31 | - In the fourth quarter of 2020, both basic and diluted net income per share increased, primarily due to higher net income[86](index=86&type=chunk) Dilutive share adjustments include U.S. Treasury warrants and restricted stock[87](index=87&type=chunk) [10. Common Stock](index=20&type=section&id=10.%20Common%20Stock) This note provides details on the company's common stock, including warrants issued and dividend policies - The company issued **4,899,497 warrants** to the U.S. Treasury with an exercise price of **$3.98 per share**, expiring five years from the issuance date, and exercisable via net share settlement or net cash settlement[92](index=92&type=chunk)[93](index=93&type=chunk) - The company has historically not paid common stock dividends, and loan and guarantee agreements, as well as aircraft lease agreements, restrict or prohibit the company from paying dividends to common stockholders[94](index=94&type=chunk) [11. Income Taxes](index=21&type=section&id=11.%20Income%20Taxes) This note explains the company's income tax provisions, effective tax rates, and net operating loss carryforwards Effective Tax Rate (ETR) | Period | ETR (%) | | :--- | :------ | | For the three months ended December 31, 2020 | 25.5 | | For the three months ended December 31, 2019 | 24.7 | - The effective tax rate increased in the fourth quarter of 2020, primarily due to permanent book-to-tax deductible expense differences, state taxes, changes in state net operating loss valuation allowances, and changes in state apportionment and statutory rates[95](index=95&type=chunk)[96](index=96&type=chunk) - As of September 30, 2020, the company had federal and state net operating loss carryforwards of approximately **$512.4 million** and **$223.9 million**, respectively, expected to expire between 2027-2038 and 2021-2040, respectively[97](index=97&type=chunk) [12. Share-Based Compensation and Stock Repurchases](index=21&type=section&id=12.%20Share-Based%20Compensation%20and%20Stock%20Repurchases) This note details the company's share-based compensation plans, restricted stock activity, and stock repurchase programs Restricted Stock Activity (For the Three Months Ended December 31, 2020) | Metric | Number of Shares | Grant Date Fair Value ($) | | :--- | :------- | :----------------- | | Unvested restricted stock September 30, 2020 | 1,195,548| 5.47 | | Granted | 5,000 | 7.71 | | Vested | (7,500) | 7.37 | | Forfeited | (17,500) | 4.59 | | Unvested restricted stock December 31, 2020 | 1,175,548| 5.48 | - As of December 31, 2020, unrecognized compensation cost related to unvested share-based compensation arrangements was **$4.2 million**, expected to be recognized over a weighted-average period of **2.0 years**[98](index=98&type=chunk) Share-based compensation expense was **$0.9 million** and **$1.3 million** for the 2020 and 2019 periods, respectively[99](index=99&type=chunk) - The company repurchased **2,256 shares** of common stock for **$20,000** during the three months ended December 31, 2020, to cover income tax obligations arising from vested employee equity awards and warrant conversions[99](index=99&type=chunk) [13. Employee Stock Purchase Plan](index=22&type=section&id=13.%20Employee%20Stock%20Purchase%20Plan) This note describes the company's Employee Stock Purchase Plan, allowing eligible employees to acquire common stock at a discount - The 2019 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase company common stock at a **10% discount** through payroll deductions, contributing **1% to 15%** of eligible compensation each semi-annual period[102](index=102&type=chunk) The ESPP authorizes the issuance of up to **500,000 shares** of common stock, with **99,644 shares** issued as of December 31, 2020[103](index=103&type=chunk) [14. Leases and Commitments](index=22&type=section&id=14.%20Leases%20and%20Commitments) This note outlines the company's leasing arrangements and significant contractual commitments, including future minimum lease payments - The company adopted Topic 842 on **October 1, 2019**, recognizing **$154.6 million** in right-of-use assets and **$141.9 million** in lease liabilities[104](index=104&type=chunk) As of December 31, 2020, the company leased **18 aircraft**, airport facilities, office space, and other property and equipment, with operating lease right-of-use assets of **$114.7 million** and current and non-current lease liabilities of **$44.7 million** and **$53.6 million**, respectively[105](index=105&type=chunk)[106](index=106&type=chunk) Operating Lease Expense and Future Minimum Lease Payments ($ in thousands) | Metric | For the Three Months Ended December 31, 2020 | For the Three Months Ended December 31, 2019 | | :--- | :--------------------- | :--------------------- | | Operating lease cost | 13,839 | 16,784 | | Period Ending | Total Future Minimum Lease Payments | | :--- | :------------------- | | Remainder of 2021 | 38,095 | | 2022 | 33,242 | | 2023 | 15,973 | | 2024 | 14,682 | | 2025 | 1,494 | | Thereafter | 160 | | Less: Interest | (5,364) | | **Amounts Recorded on Consolidated Balance Sheets** | **98,282** | - The company revised its agreement with General Electric Company, deferring delivery and payment dates for **20 new spare CF34-8C5 engines**, with total purchase commitments of approximately **$118.9 million**, and deliveries expected to commence in **May 2021**[111](index=111&type=chunk) [15. Contingencies](index=23&type=section&id=15.%20Contingencies) This note addresses various legal proceedings and other contingent matters, assessing their potential financial impact - The company is involved in various legal proceedings and FAA civil actions, but management believes these will not have a **material adverse effect** on the company's business, financial condition, or operating results[113](index=113&type=chunk) [16. Subsequent Events](index=23&type=section&id=16.%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date, such as additional government financial assistance - In February 2021, the company received **$48.6 million** in financial assistance from the U.S. Treasury under the Payroll Support Program Extension (PSP2) of the Consolidated Appropriations Act, with the first installment of **$24.3 million** received on February 8, 2021[114](index=114&type=chunk) This aid comes with conditions, including no involuntary layoffs or furloughs until **March 31, 2021**, and prohibitions on stock repurchases and dividend payments until **March 31, 2022**[115](index=115&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition and operating results for the three months ended December 31, 2020, focusing on the impact of COVID-19, revenue and expense components, non-GAAP measures, and liquidity [Overview](index=25&type=section&id=Overview) This section provides a general description of Mesa Airlines' business model as a regional airline operating under capacity purchase agreements - Mesa Airlines is a regional airline providing scheduled flight services, operating **159 aircraft** with approximately **420 daily flights** as of December 31, 2020[117](index=117&type=chunk) All flights operate under the American Airlines, United Airlines, or DHL Express brands, with all revenue derived from these capacity purchase agreements and flight service agreements[118](index=118&type=chunk) - The company's long-term capacity purchase agreements provide fixed monthly revenue, fixed fees per flight hour and departure, and reimbursement for certain direct operating expenses, thereby insulating the company from fluctuations in fuel prices, fares, and passenger traffic[119](index=119&type=chunk) [Impact of the COVID-19 Pandemic](index=25&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This section analyzes the significant adverse effects of the COVID-19 pandemic on the company's revenue and financial condition, and mitigation efforts - The COVID-19 pandemic led to a significant decline in air travel demand, materially adversely impacting the company's revenue and financial condition[120](index=120&type=chunk) In the fourth quarter of 2020, contract revenue decreased due to reduced flight volumes for the CRJ-900, CRJ-700, and E-175 fleets[121](index=121&type=chunk) - The company partially offset the negative impacts of the pandemic through Payroll Support Program (PSP) funding, a U.S. Treasury loan agreement, and stringent cost-saving measures[121](index=121&type=chunk) Due to the fixed revenue structure of its capacity purchase agreements, the company experienced a relatively smaller impact[121](index=121&type=chunk) - As of December 31, 2020, the company's cash and cash equivalents balance was **$181.3 million**[122](index=122&type=chunk) [Components of Results of Operations](index=26&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the key components of the company's operating revenues and expenses - Operating revenue primarily includes contract revenue (fixed monthly fees and additional fees based on flight hours/departures from capacity purchase agreements) and pass-through and other revenue (passenger and hull insurance, aircraft property taxes, and E-175 aircraft maintenance costs)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Operating expenses include flight operations (pilot, flight attendant salaries, benefits, and training), fuel (for non-CPA/FSA flights), maintenance (engine overhauls, airframes, landing gear, and routine maintenance), aircraft rent, aircraft and traffic services, general and administrative expenses, and depreciation and amortization[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - The company is currently managed and operated as a single operating and reporting segment, with all resource allocation and performance assessment based on consolidated financial information[135](index=135&type=chunk)[136](index=136&type=chunk) [Cautionary Statement Regarding Non-GAAP Measures](index=27&type=section&id=Cautionary%20Statement%20Regarding%20Non-GAAP%20Measures) This section provides a cautionary note on the use and limitations of non-GAAP financial measures like Adjusted EBITDA and Adjusted EBITDAR - The company presents Adjusted EBITDA and Adjusted EBITDAR in this report as non-GAAP financial measures for supplemental disclosure, as management believes they are commonly used valuation metrics in the airline industry[137](index=137&type=chunk) Adjusted EBITDA is defined as net income or loss plus interest, income taxes, depreciation, and amortization, adjusted for the impact of liability revaluation, lease termination costs, debt extinguishment losses, and related financing expense write-offs[138](index=138&type=chunk) - Adjusted EBITDAR is defined as net income or loss plus interest, income taxes, depreciation, amortization, and aircraft rent, adjusted for the impact of liability revaluation, lease termination costs, debt extinguishment losses, and related financing expense write-offs[139](index=139&type=chunk) - These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP, as they do not reflect certain cash expenditures, capital expenditures, working capital requirements, debt interest or principal payments, and may be calculated differently by other companies[140](index=140&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This section presents a detailed analysis of the company's financial performance, including revenue, expenses, and profitability for the period Operating Revenue (For the Three Months Ended December 31, 2020) | Metric ($ in thousands) | 2020 | 2019 | Change | Change Rate (%) | | :--- | :----- | :----- | :----- | :--------- | | Contract revenue | 127,158| 171,800| (44,642)| (26.0) | | Pass-through and other revenue | 23,213 | 12,236 | 10,977 | 89.7 | | **Total operating revenue** | **150,371**| **184,036**| **(33,665)**| **(18.3)** | | Operating Data: | | | | | | Available Seat Miles (ASMs) | 1,670,943| 2,735,386| (1,064,443)| (38.9) | | Block Hours | 69,247 | 115,562| (46,315)| (40.1) | | Revenue Passenger Miles (RPMs) | 1,171,411| 2,151,593| (980,182)| (45.6) | | Average Stage Length (miles) | 637 | 573 | 64 | 11.2 | | Contract Revenue per Available Seat Mile (CRASM) | ¢7.61 | ¢6.28 | ¢1.33 | 21.2 | | Passengers | 1,829,714| 3,697,138| (1,867,424)| (50.5) | - Total operating revenue for the fourth quarter of 2020 decreased by **18.3%** year-over-year to **$150.4 million**, primarily due to a **26.0% decline** in contract revenue from reduced flight volumes for the CRJ-900, CRJ-700, and E-175 fleets[141](index=141&type=chunk)[146](index=146&type=chunk) Pass-through and other revenue increased by **89.7%**, mainly driven by pass-through maintenance revenue for the E-175 fleet[146](index=146&type=chunk) Operating Expenses (For the Three Months Ended December 31, 2020) | Metric ($ in thousands) | 2020 | 2019 | Change | Change Rate (%) | | :--- | :----- | :----- | :----- | :--------- | | Flight operations | 36,964 | 52,644 | (15,680)| (29.8) | | Fuel | 390 | 169 | 221 | 130.8 | | Maintenance | 52,864 | 58,095 | (5,231)| (9.0) | | Aircraft rent | 10,048 | 11,329 | (1,281)| (11.3) | | Aircraft and traffic services | 901 | 1,064 | (163) | (15.3) | | General and administrative | 13,073 | 12,996 | 77 | 0.6 | | Depreciation and amortization | 20,470 | 20,552 | (82) | (0.4) | | CARES Act grant recognition | (11,311)| — | (11,311)| 100.0 | | **Total operating expenses** | **123,399**| **156,849**| **(33,450)**| **(21.3)** | - Total operating expenses decreased by **21.3%** year-over-year to **$123.4 million**, primarily due to lower flight operations expenses (pilot and flight attendant wages, training costs) and maintenance expenses (engine overhauls, C-checks, parts contracts)[148](index=148&type=chunk)[150](index=150&type=chunk)[156](index=156&type=chunk) CARES Act grant recognition of **$11.3 million** further reduced operating expenses[148](index=148&type=chunk)[150](index=150&type=chunk)[156](index=156&type=chunk) Maintenance Cost Details ($ in thousands) | Maintenance Item | 2020 | 2019 | Change | Change Rate (%) | | :--- | :----- | :----- | :----- | :--------- | | Engine overhauls | 4,753 | 8,751 | (3,998)| (45.7) | | Pass-through engine overhauls | 9,633 | 1,851 | 7,782 | 420.4 | | C-checks | 2,958 | 6,051 | (3,093)| (51.1) | | Pass-through C-checks | 7,138 | 1,220 | 5,918 | 485.1 | | Parts contracts | 5,787 | 9,687 | (3,900)| (40.3) | | Rotable and consumable parts | 5,318 | 7,405 | (2,087)| (28.2) | | Other pass-through expenses | 3,112 | 4,337 | (1,225)| (28.2) | | Labor and other | 14,165 | 18,793 | (4,628)| (24.6) | | **Total** | **52,864**| **58,095**| **(5,231)**| **(9.0)** | Adjusted EBITDA and EBITDAR ($ in thousands) | Metric | December 31, 2020 | December 31, 2019 | | :--- | :------------- | :------------- | | Net income | 14,118 | 10,785 | | Adjusted income before income taxes | 17,989 | 14,320 | | Interest expense | 9,082 | 12,628 | | Interest income | (126) | (58) | | Depreciation and amortization | 20,470 | 20,552 | | **Adjusted EBITDA** | **47,415** | **47,442** | | Aircraft rent | 10,048 | 11,329 | | **Adjusted EBITDAR** | **57,463** | **58,771** | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's strategies and sources for managing its liquidity and capital needs, especially in response to the pandemic - In response to the COVID-19 pandemic, the company implemented several measures to increase liquidity, including collaborating with major partners and OEMs to defer future aircraft and spare engine deliveries[162](index=162&type=chunk) - The company's primary liquidity sources include cash grants under the Payroll Support Program, the U.S. Treasury loan agreement, existing cash, cash generated from operations, and external borrowings[163](index=163&type=chunk) In the fourth quarter of 2020, the company secured a **$195 million five-year U.S. Treasury loan** and an **$81.5 million prepayment** from United Airlines, used to repay existing long-term debt[163](index=163&type=chunk) - The company believes that cash flows from operating activities, existing cash and cash equivalents, short-term investments, available credit facilities, financing arrangements, and CARES Act government assistance will be sufficient to meet operating and capital requirements for the next **12 months** and ensure compliance with debt covenants[167](index=167&type=chunk) Cash Flows ($ in thousands) | Metric | For the Three Months Ended December 31, 2020 | For the Three Months Ended December 31, 2019 | | :--- | :--------------------- | :--------------------- | | Net cash provided by operating activities | 79,273 | 38,230 | | Net cash used in investing activities | (1,773) | (12,828) | | Net cash provided by/(used in) financing activities | 4,593 | (36,692) | | Net change in cash and cash equivalents | 82,093 | (11,290) | | Cash and cash equivalents at end of period | 184,934 | 61,211 | [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) This section clarifies the company's off-balance sheet arrangements, primarily related to leased aircraft - The company had no off-balance sheet arrangements during the reporting period and currently has none[176](index=176&type=chunk) Most leased aircraft are held through trusts, where the company does not bear the risk of loss and is not considered the primary beneficiary, with the maximum exposure being remaining lease payments and any return condition obligations[177](index=177&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the critical accounting policies and estimates that require significant judgment in preparing the financial statements - The company prepares financial statements in accordance with GAAP, requiring estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses[178](index=178&type=chunk) No changes were made to critical accounting policies in this report[179](index=179&type=chunk) [Recently Issued Accounting Pronouncements](index=33&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to disclosures regarding the impact of new accounting standards on the company's financial reporting - Recently issued accounting pronouncements may have a potential impact on the company's financial condition and operating results, with specific disclosures provided in Note 2, "Summary of Significant Accounting Policies," to the condensed consolidated financial statements[180](index=180&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily interest rate risk and limited commodity price risk, and their potential financial impact - The company faces interest rate risk due to its variable-rate long-term debt based on LIBOR[182](index=182&type=chunk) As of December 31, 2020, the company had **$545.8 million** in variable-rate debt[183](index=183&type=chunk) A **50 basis point change** in market interest rates would impact interest expense by approximately **$2.7 million** for the fourth quarter of 2020[183](index=183&type=chunk) - LIBOR is expected to cease after 2021, which could result in different or higher interest payments on the company's LIBOR-indexed debt than anticipated[185](index=185&type=chunk) The company currently does not use derivative instruments to hedge against changes in interest rates[186](index=186&type=chunk) - The company's foreign currency risk is minimal, primarily related to station operating expenses denominated in non-U.S. dollar currencies[187](index=187&type=chunk) Due to capacity purchase agreements, the company is largely insulated from fuel price fluctuations[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) This section assesses the effectiveness of the company's disclosure controls and procedures as of December 31, 2020 - As of December 31, 2020, the company's management, including the Chief Executive Officer and Chief Financial Officer, assessed the disclosure controls and procedures to be **effective**[189](index=189&type=chunk) - Any internal control system has inherent limitations, providing only reasonable, not absolute, assurance, and its effectiveness is subject to the exercise of judgment and the inability to completely eliminate improper conduct[191](index=191&type=chunk) Management will continue to monitor and upgrade internal controls[191](index=191&type=chunk) [PART II – OTHER INFORMATION](index=36&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section contains additional information not covered in the financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section describes ongoing legal actions, including federal securities class action lawsuits related to the company's IPO - The company faces two federal securities class action lawsuits related to its IPO, alleging material false and misleading statements or omissions in the IPO registration statement, seeking unspecified monetary damages and other relief[193](index=193&type=chunk) - As of December 31, 2020, management, after consulting with legal counsel, believes these lawsuits and other routine legal matters are **unlikely to have a material adverse effect** on the company's financial condition, liquidity, or operating results[194](index=194&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section refers to previously disclosed risk factors that could materially affect the company's business, financial condition, and future performance - The company recommends referring to "Item 1A. Risk Factors" in its Fiscal Year 2020 Form 10-K and the "Cautionary Note Regarding Forward-Looking Statements" section of this Form 10-Q for a comprehensive understanding of significant risk factors that could materially adversely affect its business, financial condition, and future performance[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's repurchase of common stock to cover tax obligations related to employee equity awards - The company repurchased **2,256 shares** of common stock for **$20,000** during the three months ended December 31, 2020, to cover income tax obligations arising from vested employee equity awards and warrant conversions[196](index=196&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms no defaults occurred on senior securities during the reporting period [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company's operations [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to disclose for the reporting period [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including key agreements and certifications - Exhibits include the amended and restated capacity purchase agreement with American Airlines and its first amendment, certifications by the Chief Executive Officer and Chief Financial Officer under the Sarbanes-Oxley Act, and XBRL-related documents[199](index=199&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) This section confirms the official signing of the report by Mesa Air Group, Inc.'s authorized officer - This report was formally signed by Mesa Air Group, Inc. on **February 9, 2021**, by Michael J. Lotz, President and Chief Financial Officer[202](index=202&type=chunk)[203](index=203&type=chunk)

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Mesa Air Group operates as a regional air carrier under capacity purchase agreements with American and United, providing scheduled passenger service and mitigating fuel and passenger risks, despite COVID-19's impact on 2020 operations - Mesa Airlines operates as a regional air carrier, providing scheduled passenger service to **102 cities** in **39 states**, the District of Columbia, and Mexico[13](index=13&type=chunk) - All flights are operated as American Eagle or United Express under capacity purchase agreements, which provide guaranteed monthly revenue and mitigate exposure to fuel prices, ticket prices, and passenger fluctuations[13](index=13&type=chunk)[15](index=15&type=chunk) Fiscal Year 2020 Revenue Distribution by Major Airline Partner | Partner | Revenue Share | | :------ | :------------ | | American CPA | 52% | | United CPA | 48% | - The COVID-19 pandemic negatively affected revenue and operating results in fiscal 2020, with expected continued impact on financial condition and liquidity[17](index=17&type=chunk) - Key business strategies include maintaining a **low-cost structure**, offering attractive work opportunities, maintaining a **prudent capital structure**, and minimizing 'tail risk' on aircraft leases[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) General COVID-19 Pandemic Our Business Strategy Aircraft Fleet Capacity Purchase Agreements Maintenance and Repairs Competition Seasonality Aircraft Fuel Insurance Human Capital Management Safety and Security Facilities Foreign Ownership Government Regulation Legal Proceedings Corporate Information [Item 1A. Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from high dependence on airline partners, substantial debt, pilot shortages, and the severe impact of the COVID-19 pandemic - The company is highly dependent on its capacity purchase agreements with American and United, which account for nearly all operating revenue. Termination or non-renewal of these agreements would severely impact the business[87](index=87&type=chunk)[88](index=88&type=chunk) - Reduced aircraft utilization levels, particularly due to the COVID-19 pandemic, have adversely impacted financial results and are expected to continue into 2021[90](index=90&type=chunk) Debt and Lease Obligations (as of September 30, 2020) | Obligation Type | Amount (in millions) | | :-------------- | :------------------- | | Total Long-Term Debt | **$743.3** | | Future Minimum Lease Payments | **$112.9** | | Debt Service Obligations | **$853.4** | - The supply of qualified pilots is limited due to FAA Qualification Standards, leading to increased labor costs and potential operational disruptions if pilot attrition rates exceed recruitment capabilities[106](index=106&type=chunk)[107](index=107&type=chunk)[110](index=110&type=chunk) - The COVID-19 pandemic has resulted in a severe decline in demand for air travel, leading to significant capacity cuts by major airline partners and a material adverse impact on the company's business, operating results, financial condition, and liquidity[148](index=148&type=chunk)[149](index=149&type=chunk)[152](index=152&type=chunk) [Item 1B. Unresolved Staff Comments](index=35&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported - No unresolved staff comments were reported[187](index=187&type=chunk) [Item 2. Properties](index=35&type=section&id=Item%202.%20Properties) The company operated a fleet of 146 aircraft as of September 30, 2020, and maintains various leased facilities suitable for its needs Aircraft Fleet as of September 30, 2020 | Aircraft Type | Owned | Leased | Total | Passenger Capacity | Average Age (years) | | :------------------ | :---- | :----- | :---- | :----------------- | :------------------ | | E-175 Regional Jet | 18 | 42 | 60 | 76 | 4.9 | | CRJ-900 Regional Jet| 48 | 16 | 64 | 76/79 | 14.0 | | CRJ-700 Regional Jet| 18 | 2 | 20 | 70 | 16.7 | | CRJ-200 Regional Jet| 1 | — | 1 | 50 | 26.7 | | Boeing 737 Cargo Jet| — | 1 | 1 | — | 26.1 | | **Total** | **85**| **61** | **146**| | | - The company's fleet size and mix are subject to change based on contract and lease expirations, growth opportunities, and transitions to other airline partners[187](index=187&type=chunk) Key Leased Facilities | Type | Location | Approximate Square Feet | | :--------------------- | :------------- | :---------------------- | | Corporate Headquarters | Phoenix, Arizona | 33,770 | | Training Center | Phoenix, Arizona | 23,783 | | Hangar | Houston, Texas | 74,524 | [Item 3. Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company faces two class action lawsuits regarding its 2018 IPO, but management expects no material adverse financial impact - The company is subject to two putative class action lawsuits alleging federal securities law violations in connection with its August 2018 IPO[190](index=190&type=chunk) - These lawsuits, filed in March and April 2020, claim materially false and misleading statements or omissions in the IPO registration statement and seek unspecified monetary damages[190](index=190&type=chunk) - Management believes the ultimate outcome of these lawsuits and other routine legal matters is not likely to have a material adverse effect on the company's financial position, liquidity, or results of operations[191](index=191&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to Mesa Air Group, Inc[192](index=192&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq under "MESA" since 2018, with no dividends paid, and its performance has declined since IPO - Common stock has traded on The Nasdaq Global Select Market under "MESA" since August 10, 2018[194](index=194&type=chunk) - The company has not paid cash dividends and does not expect to in the foreseeable future, intending to retain future earnings and being subject to dividend restrictions in lease facilities[197](index=197&type=chunk) Indexed Returns (August 10, 2018 - September 30, 2020) | Company Name/Index | 8/10/2018 | 9/30/2020 | | :----------------- | :-------- | :-------- | | Mesa Air Group, Inc.| $100.00 | $25.11 | | NASDAQ Composite | $100.00 | $145.67 | | NASDAQ Transportation Index | $100.00 | $90.89 | [Item 6. Selected Financial Data](index=40&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes consolidated financial and operating data from 2016-2020, showing 2020 declines in revenue, net income, and operating metrics due to COVID-19 Selected Consolidated Statements of Operations Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | | :---------------------- | :---------- | :---------- | :---------- | | Operating revenues | $545,070 | $723,357 | $681,595 | | Operating income | $80,167 | $121,137 | $72,648 | | Net income | $27,464 | $47,580 | $33,255 | | Net income per share (Diluted) | $0.78 | $1.36 | $1.32 | | Total assets | $1,501,930 | $1,451,917 | $1,472,388 | | Long-term debt and financing leases, excluding current portion | $542,456 | $677,423 | $760,177 | | Stockholders' equity | $457,859 | $425,868 | $374,467 | Selected Operating Data | Metric | 2020 | 2019 | 2018 | | :---------------------- | :---------- | :---------- | :---------- | | Block hours | 313,110 | 456,247 | 410,974 | | Departures | 166,776 | 246,634 | 227,978 | | Passengers | 8,500,072 | 14,664,441 | 13,556,774 | | Available seat miles (thousands) | 7,581,506 | 10,863,623 | 9,713,877 | | Contract revenue per ASM (cents) | 6.68 ¢ | 6.29 ¢ | 6.58 ¢ | | Operating cost per ASM (cents) | 6.13 ¢ | 5.54 ¢ | 6.27 ¢ | Adjusted Non-GAAP Financial Data (in thousands) | Metric | 2020 | 2019 | 2018 | | :-------------- | :---------- | :---------- | :---------- | | Adjusted EBITDA | $163,306 | $208,652 | $164,778 | | Adjusted EBITDAR| $212,108 | $260,858 | $233,670 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial performance, liquidity, and operations, focusing on COVID-19's impact, revenue declines, cost measures, and CARES Act funding - Total operating revenue decreased by **$178.3 million (24.6%)** in fiscal year 2020 compared to 2019, primarily due to decreased flying across all fleets as a result of COVID-19[268](index=268&type=chunk) - Net income for fiscal year 2020 was **$27.5 million ($0.78 per diluted share)**, down from **$47.6 million ($1.36 per diluted share)** in 2019[232](index=232&type=chunk) - The company received **$95.2 million** in CARES Act Payroll Support Program (PSP) funds, with **$83.8 million** recognized in fiscal 2020 to offset payroll expenses[278](index=278&type=chunk) - Subsequent to year-end, the company secured a **$200.0 million** secured loan facility from the U.S. Treasury under the CARES Act, with **$195.0 million** borrowed by November 13, 2020[235](index=235&type=chunk)[328](index=328&type=chunk) - Cash and cash equivalents stood at **$99.4 million** as of September 30, 2020, with total unrestricted liquidity of **$99.4 million**[231](index=231&type=chunk)[334](index=334&type=chunk) Overview Impact of the COVID-19 Pandemic 2020 Financial Highlights Industry Trends Seasonality Components of Our Results of Operations Results of Operations Cautionary Statement Regarding Non-GAAP Measures Adjusted EBITDA and Adjusted EBITDAR Liquidity and Capital Resources Sources and Uses of Cash Restricted Cash Cash Flows Commitments and Contractual Obligations Off-Balance Sheet Arrangements Critical Accounting Policies Emerging Growth Company Status Recent Accounting Pronouncements [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on variable-rate debt, with limited foreign currency and fuel price risk due to capacity agreements - The company is subject to interest rate risk on its variable-rate long-term debt, which is based on LIBOR[391](index=391&type=chunk) Interest Rate Risk Exposure (as of September 30, 2020) | Debt Type | Amount (in millions) | | :----------- | :------------------- | | Variable Rate| $486.6 | | Fixed Rate | $259.9 | - A hypothetical 50 basis point increase in market interest rates would have increased interest expense by approximately **$2.4 million** in fiscal year 2020[392](index=392&type=chunk) - The company has de minimis foreign currency risk and limited exposure to fuel price risk due to its capacity purchase agreements[394](index=394&type=chunk)[395](index=395&type=chunk) PART I – Financial Information [Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=71&type=section&id=Item%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents audited consolidated financial statements, including balance sheets, income statements, cash flows, and comprehensive notes, along with auditor reports - The consolidated financial statements for the year ended September 30, 2020, were audited by Ernst & Young LLP, who issued an unqualified opinion[403](index=403&type=chunk) - The company adopted ASU No. 2016-02, Leases (Topic 842), effective October 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet[404](index=404&type=chunk)[507](index=507&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2020 | Sep 30, 2019 | | :---------------------- | :----------- | :----------- | | Cash and cash equivalents | $99,395 | $68,855 | | Total current assets | $155,591 | $157,841 | | Property and equipment, net | $1,212,415 | $1,273,585 | | Operating lease right-of-use assets | $123,251 | — | | Total assets | $1,501,930 | $1,451,917 | | Current portion of long-term debt and financing leases | $189,268 | $165,900 | | Current maturities of operating leases | $43,932 | — | | Total current liabilities | $353,326 | $256,706 | | Long-term debt and financing leases, excluding current portion | $542,456 | $677,423 | | Noncurrent operating lease liabilities | $62,531 | — | | Total liabilities | $1,044,071 | $1,026,049 | | Total stockholders' equity | $457,859 | $425,868 | Consolidated Statements of Operations Highlights (in thousands) | Metric | 2020 | 2019 | 2018 | | :---------------------- | :---------- | :---------- | :---------- | | Total operating revenues| $545,070 | $723,357 | $681,595 | | Total operating expenses| $464,903 | $602,220 | $608,947 | | Operating income | $80,167 | $121,137 | $72,648 | | Net income | $27,464 | $47,580 | $33,255 | | Basic EPS | $0.78 | $1.37 | $1.34 | | Diluted EPS | $0.78 | $1.36 | $1.32 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2020 | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $174,662 | $151,676 | $118,939 | | Net cash used in investing activities | $(26,667) | $(104,842) | $(138,563) | | Net cash provided by (used in) financing activities | $(117,655) | $(81,467) | $66,411 | | Net change in cash and cash equivalents | $30,340 | $(34,633) | $46,787 | 1. Organization and Operations 2. Summary of Significant Accounting Policies 3. Contract revenue and Pass- through and other 4. Recent Accounting Pronouncements 5. Concentrations 6. Intangible Assets 7. Balance Sheet Information 8. Fair Value Measurements 9. Long-Term Debt and Other Borrowings 10. Earnings Per Share 11. Common Stock 12. Income Taxes 13. Share-Based Compensation 14. Employee Stock Purchase Plan 15. Leases and Commitments 16. Contingencies 17. Selected Consolidated Quarterly Financial Data (unaudited) 18. Subsequent Events PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=113&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[607](index=607&type=chunk) - The company has a code of conduct and ethics applicable to all employees and directors, available on its investor relations website[608](index=608&type=chunk) [Item 11. Executive Compensation](index=113&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation details are incorporated by reference from the 2021 Proxy Statement - Executive compensation information is incorporated by reference from the 2021 Proxy Statement[609](index=609&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=113&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and related stockholder matters are incorporated by reference from the 2021 Proxy Statement - Security ownership information for beneficial owners and management is incorporated by reference from the 2021 Proxy Statement[610](index=610&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=113&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement[611](index=611&type=chunk) [Item 14. Principal Accountant Fees and Services](index=113&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Principal accountant fees and services information is incorporated by reference from the 2021 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement[612](index=612&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=114&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including consolidated financial statements, schedules, and a comprehensive exhibit index - The section includes consolidated financial statements and an exhibit index[614](index=614&type=chunk)[616](index=616&type=chunk) - Financial statement schedules are omitted as the required information is presented in the consolidated financial statements or notes[615](index=615&type=chunk) - The exhibit index details various agreements, including capacity purchase agreements with United and American, credit agreements, and employment agreements, many of which are incorporated by reference[617](index=617&type=chunk)[618](index=618&type=chunk)[619](index=619&type=chunk)[620](index=620&type=chunk)[621](index=621&type=chunk)[622](index=622&type=chunk)[623](index=623&type=chunk)[624](index=624&type=chunk)

Mesa Air Group, Inc. (NASDAQ:MESA) Q4 2020 Results Earnings Conference Call December 9, 2020 4:30 PM ET Company Participants Jonathan Ornstein - Chairman and CEO Mike Lotz - President and CFO Brian Gillman - Executive VP and General Counsel Brad Rich - Chief Operating Officer Conference Call Participants Savi Syth - Raymond James Bert Subin - Stifel Mike Linenberg - Deutsche Bank Helane Becker - Cowen George Stien - Corre Partners Operator Good afternoon, and thank you for standing by. And welcome to the Fo ...

Financial Data and Key Metrics Changes - The company reported adjusted pre-tax income of $4.9 million, down from $13.4 million in the same quarter last year, primarily due to a $16 million deferred revenue adjustment [22] - Net income for the quarter was $3.4 million, or $0.10 per share [22] - Total debt decreased by $24 million to $764 million [23] - Cash at the end of the quarter increased to $65 million from $52 million [20] Business Line Data and Key Metrics Changes - Block hours were down 70% compared to the same quarter last year, but an 87% increase is expected in the current quarter, reaching about 54% of pre-COVID-19 levels [4] - The company has implemented cost-saving initiatives, including a hiring freeze and reduced training costs, saving approximately $4 million in the quarter [12] - The cargo business is expected to be slightly better than breakeven with two aircraft, with a forecasted startup cost of $5 million [18] Market Data and Key Metrics Changes - The company operates 100% of its business under CPAs, which cover a significant amount of costs with fixed monthly amounts [7] - The company is working collaboratively with partners like American and United to adjust rates and cash flow benefits due to reduced utilization [9][16] Company Strategy and Development Direction - The company believes it is well-positioned as a low-cost provider of regional jet service, emphasizing cost structure advantages in the current environment [5] - The company is focusing on opportunities in the regional jet market due to ongoing industry consolidation and the impact of COVID-19 on competitors [57] - The cargo business is seen as a growth opportunity, with plans to expand beyond the initial two aircraft [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the challenges posed by COVID-19 and highlighted the importance of maintaining a low-cost structure [25] - The company is optimistic about accessing a portion of the $277 million allocation under the CARES Act loan program, which would enhance liquidity [6][21] - Management noted that while the cargo business will take time to develop, there is significant growth potential [57] Other Important Information - The company has received $46.3 million from the Payroll Support Program and expects to receive additional funds [23] - The company is preparing to operate new Embraer 175 aircraft and is working on financing options [15] Q&A Session Summary Question: What are the expectations for lease and principal deferrals over the next 18 months? - The company does not project any further deferrals beyond existing debt schedules and has made adjustments with partners related to operating costs [28] Question: Is the reduction in minimums applicable beyond September 30? - The reduction in minimums is only applicable through September 30 [30] Question: What is the potential for growth in the cargo business with DHL? - The company believes there is significant growth potential beyond the initial two aircraft, as smaller aircraft can efficiently serve the market [36] Question: What are the expected terms for the $277 million CARES Act loan? - The company expects the loan terms to be in the range of LIBOR plus 300 to 450, but specific negotiations have not yet occurred [42][43] Question: How does the company plan to account for the DHL business? - The company will operate under a crew, maintenance, and insurance contract, with DHL responsible for fuel and cargo revenue [46] Question: What is the long-term growth opportunity between cargo and air travel? - The company sees greater long-term opportunities in the regional business due to ongoing consolidation and the impact of COVID-19 on competitors [57]

PART I – FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended June 30, 2020, reflect the significant impact of the COVID-19 pandemic, showing declining revenues and net income supported by a CARES Act grant [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2020, total assets slightly increased to **$1.495 billion**, with cash decreasing and liabilities rising to **$1.05 billion** due to new lease accounting standards Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $64,934 | $68,855 | | Total current assets | $112,557 | $157,841 | | Property and equipment, net | $1,233,727 | $1,273,585 | | Operating lease right-of-use assets | $131,480 | — | | **Total assets** | **$1,495,313** | **$1,451,917** | | **Liabilities & Equity** | | | | Total current liabilities | $308,046 | $256,706 | | Long-term debt and financing leases, net | $586,877 | $677,423 | | Noncurrent operating lease liabilities | $71,068 | — | | **Total liabilities** | **$1,049,819** | **$1,026,049** | | **Total stockholders' equity** | **$445,494** | **$425,868** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2020 operating revenues significantly decreased by **59.4%** to **$73.1 million** due to COVID-19, yet net income increased to **$3.4 million** primarily due to a **$43.0 million** CARES Act grant Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $73,099 | $180,224 | $437,030 | $535,527 | | Total operating expenses | $57,875 | $163,147 | $380,729 | $444,843 | | CARES Act grant recognition | ($43,018) | — | ($43,018) | — | | Operating income | $15,224 | $17,077 | $56,301 | $90,684 | | Net income | $3,419 | $3,007 | $16,089 | $35,337 | | Diluted EPS | $0.10 | $0.09 | $0.46 | $1.01 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to **$445.5 million** by June 30, 2020, driven by net income and stock compensation, partially offset by share repurchases - Total stockholders' equity grew to **$445.5 million** as of June 30, 2020, up from **$425.9 million** at the start of the fiscal year[19](index=19&type=chunk) - During the nine months ended June 30, 2020, all remaining outstanding warrants were converted to common stock[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended June 30, 2020, operating activities provided **$103.6 million** in cash, while investing and financing activities used **$25.1 million** and **$82.6 million** respectively Cash Flow Summary (Nine Months Ended June 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $103,601 | $114,077 | | Net cash used in investing activities | ($25,114) | ($96,033) | | Net cash used in financing activities | ($82,610) | ($41,622) | | **Net change in cash** | **($4,123)** | **($23,578)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the severe impact of COVID-19 on flight demand, reliance on capacity agreements, CARES Act assistance, new lease accounting, and debt obligations - The COVID-19 pandemic caused a material decline in block hours from both American and United partners starting in March 2020, with significant reductions in the June 2020 quarter[25](index=25&type=chunk) - The company received **$46.3 million** in payroll support grants under the CARES Act as of June 30, 2020, and is eligible for a **$277.0 million** secured loan, with discussions ongoing[28](index=28&type=chunk) - Due to a significant reduction in flights, the company deferred **$16.0 million** of revenue in the quarter, as fixed monthly payments from partners exceeded the revenue recognizable under GAAP based on flights completed[55](index=55&type=chunk) - The company adopted the new lease accounting standard (ASC 842) on October 1, 2019, recognizing **$154.6 million** in right-of-use assets and **$141.9 million** in lease liabilities on the balance sheet[113](index=113&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe impact of COVID-19, leading to significant revenue decline, and details cost-saving and liquidity-enhancing measures, including CARES Act relief, to maintain an adequate liquidity position [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Q3 2020 operating revenue decreased by **59.4%** due to COVID-19, offset by a **64.5%** decrease in operating expenses, largely due to a **$43.0 million** CARES Act grant Q3 2020 vs Q3 2019 Operating Revenue (in thousands) | Revenue Type | Q3 2020 | Q3 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract | $71,648 | $170,366 | $(98,718) | (57.9)% | | Pass-through and other | $1,451 | $9,858 | $(8,407) | (85.3)% | | **Total** | **$73,099** | **$180,224** | **$(107,125)** | **(59.4)%** | - The decrease in Q3 revenue was primarily driven by a **72.3%** decrease in block hours flown due to the impact of COVID-19[152](index=152&type=chunk)[155](index=155&type=chunk) - Q3 maintenance costs decreased by **$31.7 million** (**58.4%**) due to fewer heavy maintenance events and reduced flying[160](index=160&type=chunk) - The company recognized a **$43.0 million** CARES Act grant, which offset payroll expenses and was a primary contributor to the reduction in total operating expenses[167](index=167&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company bolstered liquidity to **$65 million** by June 30, 2020, through credit facility draws, **$46.3 million** in CARES Act support, and deferred debt and tax payments, expecting adequacy for the next 12 months - Drew **$23.0 million** from the undrawn revolving credit facility with CIT Bank, N.A[194](index=194&type=chunk) - Received **$46.3 million** of a **$92.5 million** CARES Act payroll support grant, with the remainder expected by September 2020[197](index=197&type=chunk) - Deferred **$28.0 million** in principal debt payments until September 30, 2020, and expects to defer approximately **$7.0 million** of employer social security taxes[195](index=195&type=chunk)[200](index=200&type=chunk) - As of June 30, 2020, the company had **$64.9 million** in cash and cash equivalents and five unencumbered CRJ-700 aircraft available for potential financing[201](index=201&type=chunk)[207](index=207&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility on **$510.4 million** of variable-rate debt, with fuel price risk largely mitigated by capacity purchase agreements - The company is subject to interest rate risk on **$510.4 million** of variable-rate debt. A hypothetical 50 basis point change in interest rates would affect annual interest expense by approximately **$2.6 million**[226](index=226&type=chunk) - The company faces uncertainty related to the planned discontinuation of LIBOR after 2021, which could affect interest payable on its debt[228](index=228&type=chunk)[229](index=229&type=chunk) - Fuel price risk is largely sheltered because fuel for flights under capacity purchase agreements is directly paid for by major airline partners[231](index=231&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[232](index=232&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the third quarter of fiscal 2020[233](index=233&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending two class action lawsuits alleging federal securities law violations related to its IPO, with management not expecting a material adverse impact - The company is defending two class action lawsuits alleging securities law violations in connection with its IPO[236](index=236&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section updates significant risk factors, primarily concerning the severe impact of COVID-19 on air travel demand, substantial debt, financing challenges for new aircraft, and retention of key personnel - The COVID-19 pandemic has caused a severe decline in air travel demand, which has had and will continue to have a material adverse impact on the business, operating results, and financial condition[240](index=240&type=chunk)[241](index=241&type=chunk) - The company has a significant amount of debt (**$777.7 million** as of June 30, 2020) and may require additional liquidity. Its ability to raise capital may be difficult due to its debt level and non-investment grade credit ratings[248](index=248&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) - A significant risk is the inability to secure financing for twenty new Embraer E-175 aircraft scheduled for delivery starting in September 2020, which could result in forfeiting the aircraft and adversely affecting business prospects[256](index=256&type=chunk) - CARES Act restrictions on executive compensation may make it challenging to retain key management personnel, which could adversely affect the business[255](index=255&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **112,587** common shares for **$0.5 million** during the nine months ended June 30, 2020, to cover income tax obligations from vested equity awards and warrant exercises - The Company repurchased **112,587** shares of its common stock for **$0.5 million** to cover income tax obligations on vested employee equity awards and warrant exercises[257](index=257&type=chunk) [Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities occurred[258](index=258&type=chunk) [Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable - Not applicable[258](index=258&type=chunk) [Other Information](index=47&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported under this item[259](index=259&type=chunk) [Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including an amendment to a code-share agreement, CEO/CFO certifications, and Inline XBRL data files - Filed exhibits include the Twenty-First Amendment to the Code Share and Revenue Sharing Agreement, CEO/CFO certifications, and XBRL data[261](index=261&type=chunk)

Mesa Air Group, Inc. (NASDAQ:MESA) Q1 2020 Earnings Conference Call May 11, 2020 4:30 PM ET Company Participants Jonathan Ornstein - Chairman & Chief Executive Officer Mike Lotz - President & Chief Financial Officer Brian Gillman - Executive Vice President & General Counsel Brad Rich - Chief Operating Officer Conference Call Participants Savi Syth - Raymond James Helane Becker - Cowen Mike Linenberg - Deutsche Bank Operator Welcome, and thank you for standing by. At this time, all participants are in a list ...