Mesa Airlines(MESA) - 2021 Q3 - Quarterly Report

Company Information 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][4] 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 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][8] - 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] PART I – FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and related notes for Mesa Air Group, Inc. Item 1. Financial Statements Presents the unaudited condensed consolidated financial statements and accompanying notes for Mesa Air Group, Inc. Condensed Consolidated Balance Sheets 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 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 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 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 Provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Organization and Operations 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] - 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] - 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] - 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] - 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] - 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][36] - The DHL FSA involves operating two Boeing 737-400F aircraft for cargo services, with a fee per block hour and performance bonuses/penalties[35][36][38] Note 2. Summary of Significant Accounting Policies 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][152] - Contract revenue is recognized when service is provided under CPAs and FSA, including fixed monthly amounts, per-flight/block-hour fees, and incentives[44][46][48] - Pass-through revenue represents reimbursements for direct expenses like insurance, property taxes, and major maintenance on nominally leased aircraft[47] - 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][59] 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][62][63] Note 3. Recent Accounting Pronouncements 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] - Adopted new guidance on cloud computing arrangement implementation costs (ASU 2018-15) on October 1, 2020; capitalized amounts are immaterial[65] - 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][67] Note 4. Concentrations of Credit Risk 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] 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] - Allowance for doubtful accounts was $1.4 million at June 30, 2021, up from $0.8 million at September 30, 2020[71] Note 5. Intangible Assets 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] - The remaining weighted average term for intangible assets is 14.3 years as of June 30, 2021[73] Note 6. Balance Sheet Information 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][78] - 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] - No impairment charges were deemed necessary for long-lived assets as of June 30, 2021[75] Note 7. Fair Value Measurements 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] - Estimated fair value of debt is classified as Level 3, using the discounted cash flow method due to unobservable inputs[81] 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 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][94] - $195.0 million was borrowed by November 2020[94] - 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][100] - 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] - As of June 30, 2021, the Company is in compliance with all debt covenants[103] Note 9. Earnings Per Share and Equity 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] Note 10. Common Stock 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] - As of June 30, 2021, 4,899,497 warrants issued to the U.S. Treasury were outstanding, exercisable at $3.98 per share[109] - The Company has not historically paid dividends, and current loan/lease agreements restrict or prohibit dividend payments[110] Note 11. Income Taxes 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][112] - 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] Note 12. Share-Based Compensation and Stock Repurchases 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] - 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] Note 13. Employee Stock Purchase Plan 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] - 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] Note 14. Commitments and Contingencies 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][124] 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] - A $7.0 million deposit was made for the first five engines[125] - 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] Note 15. Subsequent Events 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] - 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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][197][198] - Prior to the Treasury Loan, $167.7 million in existing aircraft debt was repaid[199] - Principal sources of liquidity are government grants, Treasury Loan, cash on hand, operating cash flow, and external borrowings[200] - As of June 30, 2021, cash and cash equivalents were $180.4 million, with $3.4 million in restricted cash[205][206] - 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] 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] - 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] - 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] Impact of the COVID-19 Pandemic 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] - Payroll Support Program funds and the U.S. Treasury Loan, combined with cost savings, partially offset negative impacts[137] - Fixed revenue structure of CPAs limited severity[137] Components of Results of Operations Explains the key components of the Company's operating revenues and expenses Operating Revenues 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] - Pass-through and other revenue covers reimbursements for passenger/hull insurance, aircraft property taxes, other direct costs, and certain E-175 maintenance costs[141] Operating Expenses 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] - Fuel expense is for non-CPA/FSA flights (repositioning, maintenance); fuel for CPA/FSA flights is directly paid by major partners[143] - 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] - Aircraft rent expense covers leased engines and aircraft[145] - General and administrative expense includes insurance, taxes (mostly pass-through), administrative wages, building rents, utilities, legal, and audit expenses[146] Other (Expense) Income, Net 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] - Interest income is from cash and cash equivalent balances[149] Segment Reporting 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][152] Cautionary Statement Regarding Non-GAAP Measures 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] - 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] - Adjusted EBITDAR further adjusts Adjusted EBITDA by excluding aircraft rent[155] - 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] Results of Operations 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 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][162] - Maintenance expense increased significantly (130.1%) due to higher C-check events, component contracts, pass-through maintenance, and labor[166] - Aircraft rent expense decreased (38.1%) due to fewer leased engines and the purchase of a previously leased aircraft[167] - Other expense decreased (16.7%) due to lower interest expense from reduced principal balances and lower interest rates on the Treasury Loan[172] Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020 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][179][180] - 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] - Government grant recognition increased by 117.1% to $93.4 million, reflecting funds from PSP2 and PSP3[189] 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 Discusses the Company's financial liquidity, capital needs, and sources of cash, including government support and debt Sources and Uses of Cash 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] - Key factors affecting cash sources include operational results, demand for services, competitive pricing, operating expense reductions, and access to financing/capital markets[201] Restricted Cash 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] Cash Flows 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] - Investing activities used $17.0 million, primarily for inventory, aircraft purchases, tools, and equipment[210] - Financing activities used $33.3 million, including $195.0 million from the Treasury Loan, offset by $225.8 million in debt repayments[212] Off-Balance Sheet Arrangements 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] - 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] Critical Accounting Policies and Estimates 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] Recently Issued Accounting Pronouncements Refers to Note 3 for information on recently issued accounting pronouncements - Refers to Note 3 for a description of recently issued accounting pronouncements[219] Item 3. Quantitative and Qualitative Disclosures About Market Risk Assesses the Company's exposure to market risks, including interest rate, foreign currency, and fuel price risks Interest Rate Risk 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][222] - 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] - 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][225] Foreign Currency Risk 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] - Foreign currency transaction gains and losses have been not material, and no formal hedging program is in place[226] Fuel Price Risk 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] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and acknowledges inherent limitations of internal controls Evaluation of Disclosure Controls and Procedures 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] Inherent Limitations on Effectiveness of Controls 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] PART II – OTHER INFORMATION Presents other required information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings 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][231] - 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][232] Item 1A. Risk Factors 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] - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the business[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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][234] - The purpose of the repurchases was to cover income tax obligations on vested employee equity awards and warrant conversions[116][234] Item 3. Defaults Upon Senior Securities Confirms that there were no defaults upon senior securities during the reported period - None[235] Item 4. Mine Safety Disclosures States that this item is not applicable to the Company's operations - Not applicable[235] Item 5. Other Information Indicates that there is no other information to report under this item - None[236] Item 6. Exhibits 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] 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]