Mesa Airlines(MESA) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company reported a net loss of $44.2 million, an improvement from prior year, with total assets decreasing to $1.06 billion, reflecting strategic shifts and liquidity initiatives Condensed Consolidated Balance Sheets Total assets decreased to $1.055 billion, driven by reduced property and intangible assets, while liabilities and stockholders' equity also declined due to net losses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $51,428 | $57,683 | | Total current assets | $117,121 | $98,334 | | Property and equipment, net | $868,027 | $865,254 | | Assets held for sale (Current & Noncurrent) | $40,530 | $73,000 | | Total assets | $1,055,357 | $1,115,602 | | Total current liabilities | $242,088 | $214,477 | | Long-term debt and finance leases, net | $463,646 | $502,517 | | Total liabilities | $780,140 | $807,428 | | Total stockholders' equity | $275,217 | $308,174 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss improved to $35.1 million for the quarter and $44.2 million for six months, primarily due to lower asset impairment and aircraft rent expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $121,834 | $123,213 | $269,008 | $270,970 | | Total operating expenses | $148,705 | $167,968 | $293,431 | $319,711 | | Operating loss | $(26,871) | $(44,755) | $(24,423) | $(48,741) | | Net loss | $(35,122) | $(42,783) | $(44,211) | $(57,057) | | Diluted net loss per share | $(0.88) | $(1.19) | $(1.16) | $(1.58) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $275.2 million, mainly due to a $44.2 million net loss, partially offset by a $9.8 million capital increase from United Airlines share issuance - Stockholders' equity fell to $275.2 million, mainly due to a $44.2 million net loss over six months[15] - The company issued 4,042,061 shares to United Airlines, contributing $9.8 million to additional paid-in capital[15] Condensed Consolidated Statements of Cash Flows Net cash used in operations was $8.6 million, offset by $61.8 million from investing activities, leading to a $6.5 million decrease in cash and restricted cash Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(8,636) | $9,958 | | Net cash provided by (used in) investing activities | $61,801 | $(30,004) | | Net cash used in financing activities | $(59,618) | $(24,574) | | Net change in cash, cash equivalents and restricted cash | $(6,453) | $(44,620) | - The company generated $86.1 million from the sale of aircraft and engines, which was a primary source of cash for investing activities[18] Notes to Condensed Consolidated Financial Statements Notes detail strategic shifts including winding down American Airlines CPA, expanding United Airlines partnership, and asset sales to address pilot shortages and bolster liquidity - The company is winding down its American CPA, which will terminate by April 3, 2023, and transitioning aircraft to an amended and expanded CPA with United[33][41] - To combat a severe pilot shortage, the company increased pilot hourly pay by nearly 118% for captains and 172% for new-hire first officers[27] - Mesa entered into agreements to sell surplus aircraft and 30 spare engines to United to raise capital and retire debt. The engine sale is expected to generate gross proceeds of approximately $80 million[27][147] - United provided a new revolving line of credit totaling $25.5 million and received approximately 10% of the Company's common stock, along with the right to appoint a board member[27][42][112] - As of March 31, 2023, 14 CRJ-900 aircraft and one CRJ-200 aircraft were classified as assets held for sale with a net book value of $40.5 million[84] Management's Discussion and Analysis of Financial Condition and Results of Operations Improved operating results were driven by lower rent and impairment, despite higher pilot pay, as management implemented a comprehensive plan to address pilot shortages, enhance liquidity, and meet debt obligations Results of Operations Operating revenue decreased 1.1% to $121.8 million, while expenses fell 11.5% to $148.7 million due to lower impairment and rent, despite increased pilot pay, resulting in a smaller operating loss Q2 FY2023 vs Q2 FY2022 Operating Results (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $121,834 | $123,213 | $(1,379) | (1.1)% | | Flight Operations Expense | $54,830 | $42,410 | $12,420 | 29.3% | | Aircraft Rent Expense | $835 | $9,434 | $(8,599) | (91.1)% | | Asset Impairment | $16,743 | $39,475 | $(22,732) | (57.6)% | | Total Operating Expenses | $148,705 | $167,968 | $(19,263) | (11.5)% | | Operating Loss | $(26,871) | $(44,755) | $17,884 | 40.0% | - Block hours decreased by 26.6% in Q2 2023 compared to Q2 2022, reflecting reduced flight activity due to the pilot shortage[177] Adjusted EBITDA and Adjusted EBITDAR Adjusted EBITDA was $7.1 million and Adjusted EBITDAR was $7.9 million for the quarter, both decreasing from prior year, with six-month figures at $28.9 million and $33.8 million respectively Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(35,122) | $(42,783) | $(44,211) | $(57,057) | | Adjusted EBITDA | $7,065 | $15,764 | $28,852 | $32,747 | | Adjusted EBITDAR | $7,900 | $25,198 | $33,770 | $51,767 | Liquidity and Capital Resources Liquidity was impacted by a pilot shortage, leading to an $8.6 million cash outflow from operations and a $44.2 million net loss, prompting a multi-faceted plan to improve cash position and meet debt obligations - The pilot shortage and attrition led to negative financial impacts, including cash used in operations of $8.6 million and a net loss of $44.2 million for the six months ended March 31, 2023[215] - As of March 31, 2023, the company had $51.4 million in cash and cash equivalents and $145.0 million of short-term debt due within the next twelve months[219][224] - Management's recovery plan includes selling surplus assets (CRJ-900s, CRJ-700s, 30 spare engines), establishing a new credit line with United, and restructuring debt and lease agreements to generate liquidity[217][219] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on $261.8 million in variable-rate debt, with fuel price risk largely mitigated by pass-through agreements, and is transitioning LIBOR to SOFR - The company is exposed to interest rate risk on $261.8 million of variable-rate debt. A hypothetical 100 basis point change in rates would alter semi-annual interest expense by about $1.0 million[240][241] - The company is transitioning its LIBOR-based debt ($402.9 million) to SOFR, which is expected to be completed after June 30, 2023[243][244] - Fuel price risk is minimal as fuel costs are directly paid by major partners under CPA and FSA agreements[246] Controls and Procedures Disclosure controls and procedures were deemed not effective due to material weaknesses in accounting for net operating loss carryforwards and asset impairment, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023[247] - Material weaknesses were identified in the accounting for net operating loss carryforwards and asset impairment[248] - Remediation efforts include adding technical accounting staff and partnering with external consultants to improve review controls and communication[249][252] PART II – OTHER INFORMATION Legal Proceedings Routine legal actions are ongoing, but management anticipates no material adverse effect on the company's financial position or operations - As of March 31, 2023, management believes that ongoing routine legal matters are not likely to have a material adverse effect on the company[253] Risk Factors No material changes have occurred in the risk factors previously disclosed in the 2022 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the 2022 Form 10-K[254] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 29,276 shares for $30,000 to cover income tax obligations from vested employee equity awards - The company repurchased 29,276 shares for $30,000 to satisfy tax obligations on vested employee equity awards[255] Defaults Upon Senior Securities No defaults upon senior securities were reported Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations Other Information No other material information is reported Exhibits The report includes required certifications from executive officers and Inline XBRL data files