PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements as of March 31, 2020, reflecting decreased net income from maintenance and COVID-19 impacts [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $1.51 billion due to new lease standard adoption; cash and equivalents decreased to $52.4 million | | March 31, 2020 (In thousands) | September 30, 2019 (In thousands) | | :--- | :--- | :--- | | **Total current assets** | $98,311 | $157,841 | | **Total assets** | $1,511,740 | $1,451,917 | | **Total current liabilities** | $300,609 | $256,706 | | **Total liabilities** | $1,070,388 | $1,026,049 | | **Total stockholders' equity** | $441,352 | $425,868 | - The company adopted a new lease standard (Topic 842) effective October 1, 2019, recognizing **$140.8 million** in operating lease right-of-use assets and corresponding lease liabilities[46](index=46&type=chunk)[110](index=110&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income sharply declined for both three and six months ended March 31, 2020, primarily due to increased maintenance expenses | Metric (In thousands, except per share) | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | Six Months Ended Mar 31, 2020 | Six Months Ended Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total operating revenues** | $179,896 | $177,147 | $363,931 | $355,303 | | **Total operating expenses** | $166,004 | $142,770 | $322,854 | $281,696 | | **Operating income** | $13,892 | $34,377 | $41,077 | $73,607 | | **Net income** | $1,885 | $13,249 | $12,670 | $32,330 | | **Diluted EPS** | $0.05 | $0.38 | $0.36 | $0.92 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to $441.4 million, driven by net income and stock compensation, with all warrants converted - Stockholders' equity grew to **$441.4 million** as of March 31, 2020, up from **$425.9 million** at the start of the fiscal year[20](index=20&type=chunk) - As of March 31, 2020, all outstanding warrants had been converted to common shares[92](index=92&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow slightly decreased; significant cash used in financing for debt payments, ending with $55.8 million cash | Cash Flow Activity (In thousands) | Six Months Ended Mar 31, 2020 | Six Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $65,202 | $69,770 | | **Net cash used in investing activities** | ($24,773) | ($18,491) | | **Net cash used in financing activities** | ($57,090) | ($77,024) | | **Net change in cash, cash equivalents and restricted cash** | ($16,661) | ($25,745) | | **Cash, cash equivalents and restricted cash at end of period** | $55,840 | $81,389 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail COVID-19 impacts, reliance on capacity purchase agreements, new lease standard, and CARES Act support - The COVID-19 pandemic caused a material decline in demand for block hours from both American and United Airlines, with April 2020 block hours dropping **72.4%** year-over-year[27](index=27&type=chunk)[128](index=128&type=chunk) - Subsequent to the quarter end, the company was granted **$92.5 million** in payroll support under the CARES Act and applied for additional secured loans[121](index=121&type=chunk)[123](index=123&type=chunk) | Partner | Revenue Contribution (6 Months Ended Mar 31, 2020) | | :--- | :--- | | American Airlines | 51% | | United Airlines | 49% | - As of March 31, 2020, the company operated **145 aircraft** under capacity purchase agreements: **59 CRJ-900s** for American and a mix of **20 CRJ-700s** and **60 E-175s** for United[25](index=25&type=chunk)[33](index=33&type=chunk)[40](index=40&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses COVID-19's adverse impact on demand and revenue, highlighting increased maintenance costs and liquidity measures [COVID-19 Pandemic Impact and Response](index=29&type=section&id=COVID-19%20Pandemic%20Impact%20and%20Response) The pandemic severely impacted revenues and financial position, leading to cost-saving initiatives and liquidity bolstering actions - The pandemic caused an unprecedented and materially adverse impact on revenues and financial position, with a significant reduction in variable revenue based on block hours[135](index=135&type=chunk) - The company drew **$23.0 million** from its revolving credit facility to increase liquidity[33](index=33&type=chunk)[136](index=136&type=chunk) - In April 2020, the company was granted **$92.5 million** in emergency relief through the CARES Act payroll support program[33](index=33&type=chunk)[136](index=136&type=chunk) [Results of Operations - Three Months Ended March 31, 2020](index=32&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20March%2031%2C%202020) Operating income significantly declined due to a 41.8% surge in maintenance expenses, despite a slight revenue increase | Metric (In thousands) | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | **Contract Revenue** | $165,781 | $169,771 | (2.4)% | | **Total Operating Revenues** | $179,896 | $177,147 | 1.6% | | **Maintenance Expense** | $64,335 | $45,380 | 41.8% | | **Total Operating Expenses** | $166,004 | $142,770 | 16.3% | | **Operating Income** | $13,892 | $34,377 | (59.6)% | - The primary driver of increased operating expenses was a **$19.0 million** rise in maintenance costs, stemming from more engine overhauls and airframe C-checks[163](index=163&type=chunk) [Results of Operations - Six Months Ended March 31, 2020](index=35&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20March%2031%2C%202020) Operating income decreased by 44.2%, primarily due to a 43.7% increase in maintenance expenses over the six-month period | Metric (In thousands) | Six Months 2020 | Six Months 2019 | % Change | | :--- | :--- | :--- | :--- | | **Contract Revenue** | $337,580 | $340,220 | (0.8)% | | **Total Operating Revenues** | $363,931 | $355,303 | 2.4% | | **Maintenance Expense** | $122,430 | $85,182 | 43.7% | | **Total Operating Expenses** | $322,854 | $281,696 | 14.6% | | **Operating Income** | $41,077 | $73,607 | (44.2)% | - Maintenance costs for the six-month period increased by **$37.2 million**, primarily due to a **173.9%** increase in engine overhaul expenses[180](index=180&type=chunk)[181](index=181&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company bolstered liquidity with credit facility draws, debt deferrals, and CARES Act aid, expecting adequate funding for 12 months - Key liquidity actions include drawing **$23.0 million** from a credit facility, deferring **$28 million** in debt payments, and receiving **$92.5 million** in CARES Act aid[191](index=191&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk) - The company expects to defer approximately **$7.0 million** in employer social security tax payments under the CARES Act[196](index=196&type=chunk) - The company believes cash on hand, cash from operations, and government assistance will be adequate to fund operating and capital needs for at least the next 12 months[201](index=201&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate risk on $533.1 million variable-rate debt, with minimal foreign currency and fuel price risks - As of March 31, 2020, the company had **$533.1 million** of variable-rate debt; a **50 basis point** change in interest rates would impact annual interest expense by about **$2.7 million**[222](index=222&type=chunk) - The company acknowledges the risk associated with the planned discontinuation of LIBOR after 2021, which could affect interest payments on its variable-rate debt[224](index=224&type=chunk)[225](index=225&type=chunk) - Fuel price risk is largely mitigated as fuel costs for flights under capacity purchase agreements are directly paid by major airline partners[227](index=227&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020 - 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[229](index=229&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company faces two class action lawsuits alleging federal securities law violations related to its IPO - The company is facing two class action lawsuits alleging securities law violations in connection with its IPO, claiming false or misleading statements in the registration statement[232](index=232&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) A new primary risk factor is the COVID-19 pandemic, severely impacting demand, block hours, and financial condition - A new primary risk factor is the COVID-19 pandemic, which has caused a severe decline in air travel demand, adversely affecting the company's partners and its own operations[236](index=236&type=chunk) - As a result of partner capacity reductions due to COVID-19, the company's block hours in April 2020 dropped by **72.4%** compared to April 2019[238](index=238&type=chunk) - The company's receipt of financial assistance under the CARES Act comes with conditions, including restrictions on involuntary furloughs, dividends, share repurchases, and executive compensation[241](index=241&type=chunk) [Other Information (Items 2-6)](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales, defaults, or other material information, and listed exhibits - The company reported no unregistered sales of equity securities, defaults upon senior securities, or other material information during the reporting period[244](index=244&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk)

Mesa Air Group, Inc. (NASDAQ:MESA) Q1 2020 Earnings Conference Call February 10, 2020 4:30 PM ET Company Participants Jonathan Ornstein - Chairman and Chief Executive Officer Mike Lotz - President and Chief Financial Officer Brian Gillman - Executive Vice President and General Counsel Brad Rich - Chief Operating Officer Darren Zapfe - Vice President, Finance Conference Call Participants Savi Syth - Raymond James Helane Becker - Cowen Koosh Patel - Deutsche Bank Joseph DeNardi - Stifel Operator Welcome and t ...

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 December 31, 2019 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 jurisdict ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2019 PHOENIX, ARIZONA 85008 85008 (Address of principal executive offices) (Zip Code) 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 n ...

Mesa Air Group, Inc. (NASDAQ:MESA) Q4 2019 Results Conference Call December 11, 2019 4:30 PM ET Company Participants Jonathan Ornstein - Chairman and Chief Executive Officer Mike Lotz - President and Chief Financial Officer Brian Gillman - Executive Vice President and General Counsel Darren Zapfe - Vice President of Finance Conference Call Participants Kate Lyness - Deutsche Bank Conor Cunningham - Cowen and Company Operator Welcome, and thank you for standing by. At this time, all participants are in liste ...

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 June 30, 2019 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 jurisdictio ...

Mesa Air Group, Inc. (NASDAQ:MESA) Q3 2019 Earnings Conference Call August 9, 2019 1:00 PM ET Company Participants Jonathan Ornstein - Chairman and Chief Executive Officer Michael Lotz - President and Chief Financial Officer Brian Gillman - Executive Vice President and General Counsel Bradford Rich - Executive Vice President and Chief Operating Officer Darren Zapfe - Vice President of Finance Conference Call Participants Operator Welcome, and thank you for standing by. At this time, all participants are on ...

PART I – FINANCIAL INFORMATION This section provides the company's financial statements, management's analysis of operations and liquidity, market risk exposures, and internal control effectiveness [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The financial statements show decreased assets and liabilities, increased equity, significant revenue and net income growth, and increased operating cash flow with substantial debt repayments [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and liabilities, while stockholders' equity increased from September 2018 to March 2019 Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2019 | September 30, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,425,286** | **$1,472,388** | | Total Current Assets | $160,140 | $197,917 | | Property and equipment, net | $1,237,615 | $1,250,829 | | **Total Liabilities** | **$1,016,001** | **$1,097,921** | | Total Current Liabilities | $226,660 | $251,381 | | Long-term debt and capital leases | $696,856 | $760,177 | | **Total Stockholders' Equity** | **$409,285** | **$374,467** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Operating revenue and net income significantly increased year-over-year for both the three and six months ended March 31, 2019 Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | Six Months Ended Mar 31, 2019 | Six Months Ended Mar 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $177,147 | $167,640 | $355,303 | $332,324 | | Total operating expenses | $142,770 | $151,291 | $281,696 | $300,952 | | **Operating income** | **$34,377** | **$16,349** | **$73,607** | **$31,372** | | **Net income** | **$13,249** | **$2,372** | **$32,330** | **$24,996** | | Diluted EPS | $0.38 | $0.10 | $0.92 | $1.06 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations increased, while cash used in financing activities grew substantially due to debt repayments, leading to a net decrease in cash Cash Flow Summary for Six Months Ended March 31 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,770 | $41,208 | | Net cash used in investing activities | ($18,491) | ($16,955) | | Net cash used in financing activities | ($77,024) | ($28,073) | | **Net change in cash** | **($25,745)** | **($3,820)** | | Cash at beginning of period | $107,134 | $60,347 | | Cash at end of period | $81,389 | $56,527 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes outline the company's regional airline operations, key accounting policies, significant revenue concentration, long-term debt details, and a restatement of prior period EPS - The company operates a fleet of **145 aircraft** for American Airlines and United Airlines under capacity purchase agreements, reducing exposure to traffic and fare fluctuations[21](index=21&type=chunk)[22](index=22&type=chunk) - On October 1, 2018, the company adopted the new revenue recognition standard (ASU 2014-09, Topic 606) using the modified retrospective method, with no material impact on the opening balance sheet[35](index=35&type=chunk)[50](index=50&type=chunk) - Revenue is highly concentrated, with American Airlines and United Airlines accounting for approximately **55%** and **45%** of total revenue respectively for the three months ended March 31, 2019[58](index=58&type=chunk) Long-Term Debt Summary (in thousands) | As of | Total Long-Term Debt | Current Portion | Long-Term Portion (Net) | | :--- | :--- | :--- | :--- | | March 31, 2019 | $857,841 | $147,114 | $696,856 | | Sept 30, 2018 | $930,207 | $155,170 | $760,177 | - In January 2019, the company entered into a new **$91.2 million** Term Loan to refinance its Spare Engine Facility, resulting in a loss on extinguishment of debt of **$3.6 million**[79](index=79&type=chunk) - Basic and diluted EPS for the periods ended March 31, 2018 were restated to correctly include warrants with a nominal conversion price in the basic share count[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes improved financial performance to increased contract revenue and lower operating expenses, with solid liquidity supported by cash from operations and IPO proceeds used for capital expenditures and debt repayments [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Operating income significantly increased for both three and six-month periods due to higher contract revenue from increased flight activity and reduced operating expenses Three-Month Performance Comparison (ended March 31) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $177,147 | $167,640 | $9,507 | 5.7% | | Total Operating Expenses | $142,770 | $151,291 | ($8,521) | (5.6)% | | Operating Income | $34,377 | $16,349 | $18,028 | 110.3% | | Net Income | $13,249 | $2,372 | $10,877 | 458.5% | Six-Month Performance Comparison (ended March 31) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $355,303 | $332,324 | $22,979 | 6.9% | | Total Operating Expenses | $281,696 | $300,952 | ($19,256) | (6.4)% | | Operating Income | $73,607 | $31,372 | $42,235 | 134.6% | | Net Income | $32,330 | $24,996 | $7,334 | 29.3% | - The decrease in operating expenses was primarily driven by lower maintenance costs due to timing of engine overhauls and C-checks, and reduced aircraft rent from purchasing previously leased aircraft[134](index=134&type=chunk)[135](index=135&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strong, supported by cash and cash equivalents and robust operating cash flow, primarily used for capital expenditures and significant long-term debt repayments - As of March 31, 2019, the company held **$77.7 million** in cash and cash equivalents and **$3.6 million** in restricted cash[170](index=170&type=chunk) Cash Flow Summary for Six Months Ended March 31 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,770 | $41,208 | | Net cash used in investing activities | ($18,491) | ($16,955) | | Net cash used in financing activities | ($77,024) | ($28,073) | - Capital expenditures for the six months ended March 31, 2019, totaled **$34.3 million**, primarily for the purchase of six spare engines[169](index=169&type=chunk)[176](index=176&type=chunk) - During the six-month period, the company made **$163.7 million** in principal repayments on long-term debt and received **$91.2 million** in new debt proceeds for spare engine financing[178](index=178&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable-rate debt, with minimal foreign currency and fuel price risk due to capacity purchase agreements - The company is exposed to interest rate risk on **$555.1 million** of variable-rate debt, where a hypothetical **50 basis point** change would affect interest expense by approximately **$2.8 million** for the six months ended March 31, 2019[187](index=187&type=chunk)[188](index=188&type=chunk) - The company's capacity purchase agreements largely shelter it from volatility related to fuel prices, as fuel is directly paid for and supplied by its major airline partners[191](index=191&type=chunk) - Foreign currency risk is considered de minimis as revenue is U.S. dollar-denominated and foreign operating expenses are not material[190](index=190&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019[192](index=192&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[193](index=193&type=chunk) PART II – OTHER INFORMATION This section addresses legal proceedings, risk factors, and other required disclosures, including equity sales and defaults [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal and administrative proceedings in the ordinary course of business but does not believe their ultimate outcome will have a material adverse effect on its financial position or results of operations - The company does not expect that the outcome of current legal proceedings, claims, and regulatory reviews will have a material adverse effect on its business or financial condition[195](index=195&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The report refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018, indicating no material changes to those risks - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018[196](index=196&type=chunk) [Other Items (2, 3, 4, 5, 6)](index=36&type=section&id=Other%20Items%20(2,%203,%204,%205,%206)) For the period, there were no unregistered sales of equity securities, no defaults upon senior securities, and no other material information to report under Item 5. Mine safety disclosures are not applicable. An index of exhibits filed with the report is included - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information) are reported as "None"[197](index=197&type=chunk)[198](index=198&type=chunk)[200](index=200&type=chunk) - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[199](index=199&type=chunk)

Mesa Air Group, Inc. (NASDAQ:MESA) Q2 2019 Earnings Conference Call May 10, 2019 1:00 PM ET Company Participants Jonathan Ornstein - Chairman & CEO Brian Gillman - EVP, General Counsel & Secretary Bradford Rich - EVP & COO Michael Lotz - President & CFO Conference Call Participants Michael Linenberg - Deutsche Bank Savanthi Syth - Raymond James & Associates Helane Becker - Cowen and Company Joseph DeNardi - Stifel, Nicolaus & Company Operator Welcome, and thank you all for standing by. [Operator Instruction ...

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Mesa Air Group, Inc [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Mesa Air Group's unaudited consolidated financial statements and notes for the quarter ended December 31, 2018 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | ASSETS/LIABILITIES & EQUITY | Dec 31, 2018 | Sep 30, 2018 | | :-------------------------- | :----------- | :----------- | | Total assets | $1,443,962 | $1,472,388 | | Total liabilities | $1,048,803 | $1,097,921 | | Total stockholders' equity | $395,159 | $374,467 | - Total assets decreased by **$28.4 million** (1.9%) from September 30, 2018, to December 31, 2018. Total liabilities decreased by **$49.1 million** (4.5%), while total stockholders' equity increased by **$20.7 million** (5.5%) over the same period[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income over a period, reflecting performance Condensed Consolidated Statements of Operations (Three Months Ended December 31, in thousands, except per share amounts) | Metric | 2018 | 2017 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Total operating revenues | $178,156 | $164,684 | +8.2% |\n| Operating income | $39,230 | $15,023 | +161.1% |\n| Net income | $19,081 | $22,624 | -15.7% |\n| Basic Net income per share | $0.80 | $2.00 | -60.0% |\n| Diluted Net income per share| $0.55 | $0.96 | -42.7% | - Operating income significantly increased by **161.1%** year-over-year, driven by higher revenues and lower operating expenses. However, net income decreased by **15.7%** due to a higher income tax expense in 2018 compared to a tax benefit in 2017[14](index=14&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement tracks changes in equity from net income, stock transactions, and other comprehensive income Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended December 31, in thousands) | Item | Sep 30, 2018 | Dec 31, 2018 | | :-------------------------- | :----------- | :----------- | | Common Stock and Additional Paid-In Capital | $234,683 | $236,294 |\n| Retained Earnings | $139,784 | $158,865 |\n| Total Stockholders' Equity | $374,467 | $395,159 | - Total stockholders' equity increased by **$20.7 million**, primarily due to net income of **$19.1 million** and stock compensation expense of **$1.5 million** during the three months ended December 31, 2018[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement reports cash generated and used by operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended December 31, in thousands) | Cash Flow Activity | 2018 | 2017 | | :-------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $44,145 | $28,112 |\n| Net cash used in investing activities | $(20,329) | $(10,227) |\n| Net cash (used in) provided by financing activities | $(38,706) | $4,587 |\n| Net change in cash, cash equivalents and restricted cash | $(14,890) | $22,472 |\n| Cash, cash equivalents and restricted cash at end of period | $92,244 | $82,819 | - Operating cash flow increased significantly to **$44.1 million** in 2018 from **$28.1 million** in 2017. However, increased capital expenditures and principal debt repayments led to a net decrease in cash and cash equivalents of **$14.9 million** in 2018, a reversal from a **$22.5 million** increase in 2017[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of accounting policies, estimates, and disclosures for the financial statements [Note 1. Organization and Operations](index=8&type=section&id=Note%201.%20Organization%20and%20Operations) This note describes the company's business model, operational scope, and key corporate events including its IPO - Mesa Air Group, Inc. operates as a regional air carrier, providing scheduled passenger service to **121 cities in 40 states**, the District of Columbia, Canada, Mexico, Cuba, and the Bahamas, exclusively through capacity purchase agreements with American Airlines and United Airlines[23](index=23&type=chunk) - As of December 31, 2018, Mesa operated a fleet of **145 aircraft** with approximately **628 daily departures** and **3,400 employees**[23](index=23&type=chunk) - The company completed an Initial Public Offering (IPO) on August 14, 2018, issuing **9,630,000 shares** of common stock at **$12.00 per share**, generating approximately **$111.7 million** in net proceeds[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines key accounting principles and methods used in financial statements, including revenue and expense recognition - The company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), on October 1, 2018, using the modified retrospective method. Revenue is recognized when flight services are completed, treating in-flight and maintenance services as a single integrated performance obligation[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - A portion of compensation under capacity purchase agreements is recognized as lease revenue, totaling **$54.9 million** for the three months ended December 31, 2018[40](index=40&type=chunk) - Maintenance expenses are accounted for using the direct expense method, recognizing costs when work is completed or over the repair period. Engine overhaul expense was **$4.1 million** and airframe C-check expense was **$1.5 million** for the three months ended December 31, 2018[49](index=49&type=chunk)[51](index=51&type=chunk) [Note 3. Recent Accounting Pronouncements](index=12&type=section&id=Note%203.%20Recent%20Accounting%20Pronouncements) This note details recently adopted and upcoming accounting standards, assessing their impact on financial reporting - The company adopted ASU No. 2014-09 (Revenue from Contracts with Customers), ASU No. 2016-01 (Financial Instruments), ASU No. 2016-09 (Stock Compensation), ASU No. 2016-15 (Cash Flows), and ASU No. 2016-18 (Restricted Cash) effective October 1, 2018, or earlier[52](index=52&type=chunk)[53](index=53&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize right-of-use assets and lease liabilities, is effective for annual periods beginning after December 15, 2018, and the company is currently evaluating its potential impact[54](index=54&type=chunk) [Note 4. Concentrations](index=13&type=section&id=Note%204.%20Concentrations) This note highlights significant business dependencies, particularly on key airline partners for revenue - All of the company's consolidated revenue for the three months ended December 31, 2018 and 2017, was derived from capacity purchase agreements with American Airlines (**53%**) and United Airlines (**47%**)[58](index=58&type=chunk)[60](index=60&type=chunk) - A termination of either the American or United capacity purchase agreement would have a material adverse effect on the company's business[60](index=60&type=chunk) - The allowance for doubtful accounts was **$1.3 million** at December 31, 2018, and September 30, 2018[59](index=59&type=chunk) [Note 5. Intangible Assets](index=14&type=section&id=Note%205.%20Intangible%20Assets) This note provides details on the company's intangible assets, including customer relationships and amortization Intangible Assets (in thousands) | Item | Dec 31, 2018 | Sep 30, 2018 | | :-------------------- | :----------- | :----------- | | Customer relationship | $43,800 | $43,800 |\n| Accumulated amortization | $(32,911) | $(32,459) |\n| Net Intangibles | $10,889 | $11,341 | - Total amortization expense recognized was approximately **$0.5 million** for the three months ended December 31, 2018, and is expected to be **$1.4 million** for the remainder of 2019[62](index=62&type=chunk) [Note 6. Balance Sheet Information](index=14&type=section&id=Note%206.%20Balance%20Sheet%20Information) This note provides additional details on specific balance sheet accounts, including property and equipment and depreciation Property and Equipment—Net (in thousands) | Item | Dec 31, 2018 | Sep 30, 2018 | | :-------------------------- | :----------- | :----------- | | Total property and equipment | $1,525,051 | $1,511,093 |\n| Less accumulated depreciation | $(277,267) | $(260,264) |\n| Net property and equipment | $1,247,784 | $1,250,829 | - Depreciation expense totaled approximately **$18.0 million** for the three months ended December 31, 2018, an increase from **$15.8 million** in the prior year period[64](index=64&type=chunk) [Note 7. Fair Value Measurements](index=15&type=section&id=Note%207.%20Fair%20Value%20Measurements) This note describes methodologies and inputs used to determine the fair value of financial instruments, especially long-term debt Long-Term Debt Fair Value (in millions) | Item | Dec 31, 2018 Carrying Value | Dec 31, 2018 Fair Value | Sep 30, 2018 Carrying Value | Sep 30, 2018 Fair Value | | :------------------------------------ | :-------------------------- | :---------------------- | :-------------------------- | :---------------------- | | Long-term debt, including current maturities | $891.7 | $889.2 | $930.2 | $926.2 | - The estimated fair value of the company's debt is classified as **Level 3**, determined using the discounted cash flow method due to unobservable inputs[66](index=66&type=chunk) [Note 8. Long-Term Debt and Other Borrowings](index=16&type=section&id=Note%208.%20Long-Term%20Debt%20and%20Other%20Borrowings) This note details the company's long-term debt obligations, including principal maturities and refinancing Long-Term Debt (in thousands) | Item | Dec 31, 2018 | Sep 30, 2018 | | :------------------------------------ | :----------- | :----------- | | Total long-term debt | $891,692 | $930,207 |\n| Less current portion | $(149,842) | $(155,170) |\n| Less unamortized debt issuance costs | $(14,011) | $(14,860) |\n| Long-term debt—excluding current portion | $727,839 | $760,177 | Principal Maturities of Long-Term Debt (in thousands) | Periods Ending September 30, | Total Principal Amount | | :--------------------------- | :--------------------- | | Remainder of 2019 | $117,339 |\n| 2020 | $150,467 |\n| 2021 | $144,919 |\n| 2022 | $141,917 |\n| 2023 | $69,232 |\n| Thereafter | $267,818 |\n| Total | $891,692 | - In June 2018, the company refinanced **$16.0 million** of debt and purchased nine CRJ-900 aircraft (previously leased) for **$76.5 million**, financing the purchase with **$69.6 million** in new debt[77](index=77&type=chunk)[78](index=78&type=chunk) [Note 9. Earnings Per Share and Equity](index=18&type=section&id=Note%209.%20Earnings%20Per%20Share%20and%20Equity) This note explains the calculation of basic and diluted earnings per share, considering the impact of share issuances Net Income Per Common Share (Three Months Ended December 31, in thousands, except per share data) | Metric | 2018 | 2017 | | :-------------------------------------- | :------ | :------ | | Net income attributable to Mesa Air Group | $19,081 | $22,624 |\n| Basic weighted average common shares outstanding | 23,903 | 11,294 |\n| Diluted weighted average common shares outstanding | 34,821 | 23,559 |\n| Basic Net income per common share | $0.80 | $2.00 |\n| Diluted Net income per common share | $0.55 | $0.96 | - The increase in weighted-average common shares outstanding (basic and diluted) in 2018 significantly impacted EPS calculations, primarily due to the IPO and related share issuances[80](index=80&type=chunk)[81](index=81&type=chunk) [Note 10. Common Stock](index=19&type=section&id=Note%2010.%20Common%20Stock) This note provides information on the company's common stock, including its IPO and dividend policy - The company completed its IPO on August 14, 2018, issuing **9,630,000 shares** of common stock and an additional **723,985 shares** from the underwriters' overallotment option, at **$12.00 per share**, resulting in **$111.7 million** in net proceeds[87](index=87&type=chunk) - A **2.5-for-1 stock split** of common stock was effected on August 8, 2018, and authorized shares were increased to **125,000,000 common** and **5,000,000 preferred**[86](index=86&type=chunk) - The company has not historically paid dividends, and its aircraft lease facilities contain restrictions limiting or prohibiting dividend payments[88](index=88&type=chunk) [Note 11. Income Taxes](index=19&type=section&id=Note%2011.%20Income%20Taxes) This note details the company's income tax expense, effective tax rate, and the impact of tax legislation Effective Tax Rate (ETR) | Period | ETR | | :-------------------------- | :-------- | | Three months ended Dec 31, 2018 | 23.8% |\n| Three months ended Dec 31, 2017 | (2,609.5)%| - The significant change in ETR was primarily due to the Tax Cuts and Jobs Act (Tax Act) enacted on December 22, 2017, which reduced the federal corporate tax rate from **35% to 21%**[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - The company finalized its accounting for the Tax Act, recording a discrete net tax benefit of **$22.4 million** in the period ended September 30, 2018, and reversed a **$0.1 million** sequestration accrual for AMT credits in Q1 FY2019[93](index=93&type=chunk)[95](index=95&type=chunk) [Note 12. Share-Based Compensation](index=21&type=section&id=Note%2012.%20Share-Based%20Compensation) This note outlines the company's share-based compensation plans, including restricted stock activity and expenses Restricted Stock Activity (Three Months Ended December 31, 2018) | Item | Number of Shares | | :------------------------------------ | :--------------- | | Restricted shares unvested at Sep 30, 2018 | 1,250,625 |\n| Forfeited | (14,217) |\n| Restricted shares unvested at Dec 31, 2018 | 1,236,408 | - As of December 31, 2018, there was **$11.9 million** of total unrecognized compensation cost related to unvested share-based compensation, expected to be recognized over a weighted-average period of **1.6 years**[98](index=98&type=chunk) - Share-based compensation expense was **$1.5 million** for the three months ended December 31, 2018, up from **$0.5 million** in the prior year[99](index=99&type=chunk) [Note 13. Commitments](index=21&type=section&id=Note%2013.%20Commitments) This note details the company's contractual obligations, including future minimum lease payments Future Minimum Lease Payments (as of Dec 31, 2018, in thousands) | Periods Ending September 30, | Aircraft | Other | Total | | :--------------------------- | :--------- | :------- | :--------- | | Remainder of 2019 | $45,882 | $2,548 | $48,430 |\n| 2020 | $45,534 | $1,943 | $47,477 |\n| 2021 | $44,314 | $1,375 | $45,689 |\n| 2022 | $29,751 | $1,339 | $31,090 |\n| 2023 | $12,418 | $1,308 | $13,726 |\n| Thereafter | $11,849 | $2,704 | $14,553 |\n| Total | $189,748 | $11,217 | $200,965 | - Aggregate rental expense under all operating aircraft, equipment, and facility leases totaled approximately **$19.1 million** for the three months ended December 31, 2018, a decrease from **$21.7 million** in the prior year[100](index=100&type=chunk) [Note 14. Contingencies](index=21&type=section&id=Note%2014.%20Contingencies) This note discusses potential future obligations arising from legal proceedings and other uncertain events - The company is involved in various legal proceedings and FAA civil action proceedings but does not believe they will have a material adverse effect on its business, financial condition, or results of operations[102](index=102&type=chunk) [Note 15. Supplemental Disclosure](index=22&type=section&id=Note%2015.%20Supplemental%20Disclosure) This note provides additional financial information, including a reconciliation of cash, cash equivalents, and restricted cash Cash, Cash Equivalents, and Restricted Cash Reconciliation (in thousands) | Item | Dec 31, 2018 | Dec 31, 2017 | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $88,600 | $78,991 |\n| Restricted cash | $3,644 | $3,828 |\n| Total (in Statement of Cash Flows) | $92,244 | $82,819 | - Restricted cash primarily includes deposits in trust accounts to collateralize letters of credit and fund workers' compensation claims, landing fees, and other business needs[103](index=103&type=chunk) [Note 16. Subsequent Events](index=22&type=section&id=Note%2016.%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date but before financial statements were issued - On January 28, 2019, the company entered into a Term Loan Agreement for **$91.2 million** at LIBOR plus **3.10%**, significantly lower than the previous Spare Engine Facility (LIBOR plus **7.25%** plus **1.50%** Yield Enhancement)[104](index=104&type=chunk) - The Term Loan proceeds were used to repay the Spare Engine Facility, pay prepayment fees and accrued interest, and finance six engines acquired in 2018[105](index=105&type=chunk) - On January 29, 2019, the Board ratified a term sheet with American Airlines to amend the American Capacity Purchase Agreement, converting two aircraft to operational spares and revising operational performance criteria, which could lead to additional aircraft removal if not met[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, liquidity, and capital resources [Overview](index=24&type=section&id=Overview) This overview describes Mesa Airlines' business model as a regional air carrier operating under capacity purchase agreements - Mesa Airlines operates as a regional air carrier, providing scheduled passenger service to **121 cities in 40 states** and internationally, exclusively under capacity purchase agreements with American Airlines and United Airlines[110](index=110&type=chunk) - As of December 31, 2018, the company operated a fleet of **145 aircraft** (**64 CRJ-900** for American, **20 CRJ-700** and **60 E-175** for United) with approximately **628 daily departures**[111](index=111&type=chunk) - Capacity purchase agreements provide guaranteed monthly revenue, fixed fees for block hours/flights, and reimbursement of certain direct operating expenses, shielding the company from fuel prices, ticket price variations, and passenger traffic fluctuations[112](index=112&type=chunk) [Components of Results of Operations](index=24&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down key revenue and expense categories that constitute the company's operational results - Operating revenues consist primarily of contract revenue (fixed monthly amounts per aircraft, plus fees for flights and block hours) and pass-through and other revenues (insurance, property taxes, certain maintenance costs)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Operating expenses include flight operations (salaries, benefits, training), fuel (for non-CPA flights), maintenance (engine overhauls, airframe, lease return obligations), aircraft rent, aircraft and traffic servicing, general and administrative, and depreciation and amortization[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) [Other (Expense) Income, Net](index=25&type=section&id=Other%20(Expense)%20Income,%20Net) This category encompasses non-operating items such as interest expense, interest income, and miscellaneous fees - This category includes interest expense (debt financing for aircraft/equipment), interest income (on cash balances), and other expenses (miscellaneous third-party fees write-offs)[122](index=122&type=chunk)[123](index=123&type=chunk) [Segment Reporting](index=25&type=section&id=Segment%20Reporting) The company operates as a single reportable segment, reflecting how management evaluates its performance - The company operates as one operating and reportable segment, providing scheduled passenger services, as management evaluates performance on a consolidated basis[124](index=124&type=chunk)[125](index=125&type=chunk) [Cautionary Statement Regarding Non-GAAP Measures](index=25&type=section&id=Cautionary%20Statement%20Regarding%20Non-GAAP%20Measures) This statement clarifies the use and limitations of non-GAAP financial measures like EBITDA and EBITDAR - EBITDA (Net income before interest, income taxes, and depreciation and amortization) and EBITDAR (EBITDA plus aircraft rent) are presented as supplemental non-GAAP measures, recognized valuation metrics in the airline industry[127](index=127&type=chunk) - These non-GAAP measures have limitations, as they do not reflect cash charges, capital expenditures, working capital needs, interest/principal payments, or cash requirements for asset replacements, and should not be considered in isolation from GAAP measures[128](index=128&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing changes in revenues, expenses, and profitability [Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017](index=26&type=section&id=Three%20Months%20Ended%20December%2031,%202018%20Compared%20to%20Three%20Months%20Ended%20December%2031,%202017) This comparison highlights key financial performance changes between the current and prior year's first fiscal quarter - Operating income increased significantly to **$39.2 million** in Q1 FY2019 from **$15.0 million** in Q1 FY2018, driven by increased contract revenue and lower maintenance and aircraft rent expenses[129](index=129&type=chunk) - Net income decreased to **$19.1 million** in Q1 FY2019 from **$22.6 million** in Q1 FY2018, primarily due to higher income tax expense in the current period[129](index=129&type=chunk) [Operating Revenues](index=26&type=section&id=Operating%20Revenues_MD%26A) This section analyzes the drivers behind changes in total operating revenues, including contract and pass-through components Operating Revenues (Three Months Ended December 31, in thousands) | Operating revenues | 2018 | 2017 | Change ($) | Change (%) | | :----------------- | :----------- | :----------- | :----------- | :----------- | | Contract | $170,449 | $154,389 | $16,060 | 10.4% |\n| Pass-through and other | $7,707 | $10,295 | $(2,588) | (25.1)% |\n| Total operating revenues | $178,156 | $164,684 | $13,472 | 8.2% | - Total operating revenue increased by **$13.5 million (8.2%)**, primarily due to a **$16.1 million (10.4%)** increase in contract revenue from expanded E-175 and CRJ fleet flying, and a **17.7%** increase in block hours flown[132](index=132&type=chunk) - Pass-through and other revenue decreased by **$2.6 million (25.1%)**, mainly due to lower pass-through maintenance revenue related to the E-175 fleet[132](index=132&type=chunk) [Operating Expenses](index=27&type=section&id=Operating%20Expenses_MD%26A) This section examines changes in operating expense categories, such as maintenance, aircraft rent, and flight operations Operating Expenses (Three Months Ended December 31, in thousands) | Operating expenses | 2018 | 2017 | Change ($) | Change (%) | | :------------------------ | :----------- | :----------- | :----------- | :----------- | | Flight operations | $53,245 | $49,160 | $4,085 | 8.3% |\n| Fuel | $121 | $68 | $53 | 77.9% |\n| Maintenance | $39,802 | $54,347 | $(14,545) | (26.8)% |\n| Aircraft rent | $14,119 | $18,263 | $(4,144) | (22.7)% |\n| Aircraft and traffic servicing | $934 | $961 | $(27) | (2.8)% |\n| General and administrative | $12,214 | $10,930 | $1,284 | 11.7% |\n| Depreciation and amortization | $18,491 | $15,932 | $2,559 | 16.1% |\n| Total operating expenses | $138,926 | $149,661 | $(10,735) | (7.2)% | - Maintenance costs decreased by **$14.5 million (26.8%)**, primarily due to a decrease in engine overhaul expense (**$14.6 million**) and pass-through C-check expense (**$3.0 million**), partially offset by increases in component contracts and rotable/expendable parts[135](index=135&type=chunk)[137](index=137&type=chunk) - Aircraft rent decreased by **$4.1 million (22.7%)** due to the purchase of nine CRJ-900 aircraft previously leased under the GECAS Lease Facility[137](index=137&type=chunk) [Other Expense](index=28&type=section&id=Other%20Expense_MD%26A) This section analyzes changes in non-operating expenses, focusing on interest expense and debt amortization - Other expense increased by **$0.01 million**, primarily due to a **$1.4 million** increase in interest expense related to new aircraft financing and refinancing activities, partially offset by a **$0.7 million** decrease in debt financing amortization[141](index=141&type=chunk) [Income Taxes](index=28&type=section&id=Income%20Taxes_MD%26A) This section discusses the effective tax rate, the impact of tax legislation, and net operating loss carryforwards - The effective tax rate was **23.8%** for the three months ended December 31, 2018, compared to **(2,609.5%)** in the prior year, primarily due to the Tax Cuts and Jobs Act (Tax Act) which reduced the federal statutory rate from **35% to 21%**[142](index=142&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - The Tax Act's provisions, including **100% expensing** of qualified property and limitations on NOL deductions (**80% of taxable income** for post-2017 NOLs), will impact future financial statements[146](index=146&type=chunk) - As of September 30, 2018, the company had federal and state net operating loss carryforwards of **$415.1 million** and **$199.6 million**, respectively, with **$0.9 million** of state NOLs expiring in 2019[148](index=148&type=chunk) [EBITDA and EBITDAR](index=29&type=section&id=EBITDA%20and%20EBITDAR) This section presents and reconciles non-GAAP measures, EBITDA and EBITDAR, to net income, reflecting profitability EBITDA and EBITDAR Reconciliation (Three Months Ended December 31, in thousands) | Metric | 2018 | 2017 | | :------------------------ | :----------- | :----------- | | Net income | $19,081 | $22,624 |\n| Income tax expense (benefit) | $5,949 | $(21,789) |\n| Interest expense | $14,842 | $14,131 |\n| Interest income | $(156) | $(9) |\n| Depreciation and amortization | $18,491 | $15,932 |\n| EBITDA | $58,207 | $30,889 |\n| Aircraft rent | $14,119 | $18,263 |\n| EBITDAR | $72,326 | $49,152 | - EBITDA increased by **88.4%** to **$58.2 million**, and EBITDAR increased by **47.1%** to **$72.3 million**, reflecting improved operating performance before non-operating items and aircraft rent[149](index=149&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term obligations, including cash sources and uses [Sources and Uses of Cash](index=29&type=section&id=Sources%20and%20Uses%20of%20Cash) This section identifies the primary means by which the company generates and expends cash, including operations and borrowings - Primary liquidity sources are cash on hand, cash generated from operations, and external borrowings. The company expects to fund near-term cash requirements through operations and existing cash[150](index=150&type=chunk)[153](index=153&type=chunk) - As of December 31, 2018, the company had **$88.6 million** in cash and cash equivalents and **$3.6 million** in restricted cash[154](index=154&type=chunk)[156](index=156&type=chunk) - Capital expenditures for the three months ended December 31, 2018, were **$26.0 million**, primarily for the purchase of five spare engines[155](index=155&type=chunk) [Restricted Cash](index=30&type=section&id=Restricted%20Cash) This section details the nature and purpose of restricted cash balances, primarily for collateralizing letters of credit - As of December 31, 2018, restricted cash totaled **$3.6 million**, primarily securing letters of credit for airport authorities, workers' compensation insurance, and other business needs[156](index=156&type=chunk)[158](index=158&type=chunk) [Cash Flows](index=31&type=section&id=Cash%20Flows) This section summarizes cash movements across operating, investing, and financing activities Cash Flow Summary (Three Months Ended December 31, in thousands) | Cash Flow Activity | 2018 | 2017 | | :-------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $44,145 | $28,112 |\n| Net cash used in investing activities | $(20,329) | $(10,227) |\n| Net cash (used in) provided by financing activities | $(38,706) | $4,587 |\n| Net decrease in cash and cash equivalents | $(14,890) | $22,472 | - Operating activities provided **$44.1 million** in cash, driven by net income and non-cash adjustments like depreciation and deferred income taxes. Investing activities used **$20.3 million**, mainly for spare engines and aircraft improvements. Financing activities used **$38.7 million**, primarily for debt principal repayments[160](index=160&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) This section clarifies the company's involvement in off-balance sheet transactions and their potential financial impact - The company did not have any material off-balance sheet arrangements during the periods presented[167](index=167&type=chunk) - A majority of leased aircraft are through single-owner trusts, where the company is not considered the primary beneficiary and its maximum exposure is limited to remaining lease payments and return condition obligations[168](index=168&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights accounting policies requiring significant management judgment and estimates impacting financial reporting - The condensed consolidated financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts[169](index=169&type=chunk) - There have been no changes to critical accounting policies as explained in the 2018 Form 10-K, except for revenue recognition practices detailed in Note 2[170](index=170&type=chunk) [Recently Issued Accounting Pronouncements](index=32&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 3 for details on new accounting standards and their potential effects on the company - A description of recently issued accounting pronouncements and their potential impact is disclosed in Note 3 to the condensed consolidated financial statements[171](index=171&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including interest rate, foreign currency, and fuel price fluctuations [Interest Rate Risk](index=32&type=section&id=Interest%20Rate%20Risk) This section assesses the company's vulnerability to changes in interest rates, particularly on its variable-rate debt - The company is exposed to interest rate risk on its variable-rate long-term debt, which is based on LIBOR[173](index=173&type=chunk) - As of December 31, 2018, **$576.2 million** of debt was variable-rate. A hypothetical **50 basis point** increase in market interest rates would increase interest expense by approximately **$2.9 million** for the three months ended December 31, 2018[174](index=174&type=chunk) - The company does not use derivative instruments to hedge against interest rate changes[173](index=173&type=chunk) [Foreign Currency Risk](index=32&type=section&id=Foreign%20Currency%20Risk) This section evaluates the company's exposure to fluctuations in foreign exchange rates, primarily for non-U.S. dollar expenses - The company has de minimis foreign currency risks related to station operating expenses denominated in non-U.S. dollar currencies, primarily the Canadian dollar[176](index=176&type=chunk) - Foreign currency transaction gains and losses have not been material, and a **10%** change in exchange rates would not materially affect financial results[176](index=176&type=chunk) [Fuel Price Risk](index=32&type=section&id=Fuel%20Price%20Risk) This section explains how capacity purchase agreements largely mitigate the company's exposure to volatile fuel prices - The company is largely sheltered from fuel price volatility because its major airline partners directly pay for and supply fuel under capacity purchase agreements[177](index=177&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed the effectiveness of disclosure controls and internal control over financial reporting, concluding they were effective [Evaluation of Disclosure Controls and Procedures](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of December 31, 2018[178](index=178&type=chunk) [Changes in Internal Control over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting during the quarter - There have been no changes in internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[179](index=179&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=33&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) This section acknowledges that internal control systems provide reasonable, but not absolute, assurance due to inherent limitations - Management acknowledges that any system of internal control, no matter how well designed, can only provide reasonable, not absolute, assurance of achieving objectives due to inherent limitations and the exercise of judgment[180](index=180&type=chunk) PART II – OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other information [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal and regulatory proceedings, not expected to materially affect its financial position - The Company is subject to commercial and employment litigation claims, FAA civil action proceedings, and other administrative and regulatory reviews[182](index=182&type=chunk) - Management believes the ultimate outcome of these proceedings will not, individually or in the aggregate, have a material adverse effect on the company's financial position, liquidity, or results of operations[182](index=182&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K - Readers are referred to 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended September 30, 2018, for important risk factors[183](index=183&type=chunk) - Additional risks not currently known or deemed immaterial could also materially adversely affect the business[183](index=183&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities and use of proceeds to report[184](index=184&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities to report[185](index=185&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[186](index=186&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) No other information was required to be disclosed in this section - No other information to report[187](index=187&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[191](index=191&type=chunk) - XBRL Taxonomy Extension documents (Instance, Schema, Calculation, Definition, Label, Presentation) are also filed as exhibits[191](index=191&type=chunk) SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the financial report - The report was signed on February 13, 2019, by Michael J. Lotz, President and Chief Financial Officer of MESA AIR GROUP, INC[194](index=194&type=chunk)