Mesa Airlines(MESA) - 2019 Q2 - Quarterly Report

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 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 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 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 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 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][22] - 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][50] - 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] 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][135][152] Liquidity and Capital Resources 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] 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][176] - 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] Quantitative and Qualitative Disclosures About Market Risk 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][188] - 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] - Foreign currency risk is considered de minimis as revenue is U.S. dollar-denominated and foreign operating expenses are not material[190] Controls and Procedures 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] - 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] PART II – OTHER INFORMATION This section addresses legal proceedings, risk factors, and other required disclosures, including equity sales and defaults Legal Proceedings 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] Risk Factors 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] Other Items (2, 3, 4, 5, 6) 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][198][200] - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[199]