Mesa Airlines(MESA) - 2022 Q1 - Quarterly Report

PART I Financial Statements This section presents the unaudited condensed consolidated financial statements for Mesa Air Group, Inc. for the quarterly period ended December 31, 2021, including balance sheets, statements of operations, and cash flows Condensed Consolidated Balance Sheets Mesa Air Group's balance sheet as of December 31, 2021, shows a slight decrease in total assets, liabilities, and stockholders' equity compared to the prior quarter Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $102,332 | $120,517 | | Total current assets | $138,295 | $158,386 | | Property and equipment, net | $1,157,922 | $1,151,891 | | Total assets | $1,434,495 | $1,456,597 | | Total current liabilities | $250,376 | $258,192 | | Long-term debt and finance leases | $547,409 | $539,700 | | Total liabilities | $960,021 | $968,550 | | Total stockholders' equity | $474,474 | $488,047 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss for the three months ended December 31, 2021, primarily due to increased operating expenses and the absence of prior-year government grant recognition Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total operating revenues | $147,757 | $150,371 | | Total operating expenses | $151,743 | $123,399 | | Operating income (loss) | $(3,986) | $26,972 | | Net income (loss) | $(14,274) | $14,118 | | Diluted EPS | $(0.40) | $0.39 | - The prior year's operating expenses were significantly reduced by an $11.3 million government grant recognition, which was absent in the current quarter[13] - A loss on investments of $6.5 million contributed to the net loss in the current quarter, compared to zero in the prior-year period[13] Condensed Consolidated Statements of Cash Flows The company's cash flow statement for the quarter shows a significant decrease in net cash provided by operating activities, alongside increased cash used in investing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,751 | $79,273 | | Net cash used in investing activities | $(26,929) | $(1,773) | | Net cash provided by financing activities | $3,993 | $4,593 | | Net change in cash | $(18,185) | $82,093 | Notes to Condensed Consolidated Financial Statements The notes detail the company's operations, accounting policies, significant debt, strategic investments in electric aircraft, and a critical subsequent event regarding performance failures under its American CPA - As of December 31, 2021, Mesa operated 167 aircraft under CPAs with American (40 CRJ-900s) and United (80 E-175s), and an FSA with DHL (2 Boeing 737-400Fs)[22][24][27] - The company has a significant concentration of credit risk, with American and United accounting for 45% and 49% of total revenue, respectively, for the quarter[63] - The company holds investments in electric aircraft companies Archer Aviation and Heart Aerospace, and reported a $6.5 million loss on its Archer investment during the quarter[73][74] - Subsequent to the quarter's end, the company failed to meet minimum performance levels under its American CPA for three consecutive months, but American waived the resulting default and termination right[118] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the quarter, attributing the shift to an operating loss to increased costs and the non-recurrence of a prior-year government grant, while detailing liquidity and non-GAAP measures - The company's shift to a net loss of $14.3 million from a net income of $14.1 million in the prior year was primarily due to higher operating costs and the non-recurrence of an $11.3 million government grant[142][143] Operating Revenue Comparison (in thousands) | Revenue Type | Q1 FY2022 | Q1 FY2021 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Contract | $136,894 | $127,158 | $9,736 | 7.7% | | Pass-through and other | $10,863 | $23,213 | $(12,350) | (53.2)% | | Total | $147,757 | $150,371 | $(2,614) | (1.7)% | - Maintenance expense increased by 11.6% to $59.0 million, driven by more C-checks and higher costs for components, parts, and labor due to increased flying[149] Reconciliation to Adjusted EBITDA and Adjusted EBITDAR (in thousands) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net income (loss) | $(14,274) | $14,118 | | Adjusted EBITDA | $16,983 | $47,415 | | Aircraft rent | $9,586 | $10,048 | | Adjusted EBITDAR | $26,569 | $57,463 | - As of December 31, 2021, the company had $102.3 million in unrestricted liquidity (cash and cash equivalents)[166][171] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its significant variable-rate debt, with minimal exposure to foreign currency and fuel price risks due to contractual agreements - The company is exposed to interest rate risk with $499.6 million of variable-rate debt outstanding as of December 31, 2021[185] - A hypothetical 50 basis point change in market interest rates would have affected interest expense by approximately $0.6 million in the quarter[185] - The company is managing the transition away from LIBOR, as the majority of its debt arrangements are indexed to it and its publication is set to cease after June 2023[187] - Fuel price risk is largely mitigated as fuel is directly paid for and supplied by major partners under the CPA and FSA agreements[190] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, ensuring timely and accurate financial reporting - Based on their evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[191] PART II Legal Proceedings The company is a defendant in two putative class action lawsuits alleging securities law violations related to its IPO, which management believes will not materially affect its financial position - Mesa is subject to two putative class action lawsuits alleging securities law violations in connection with its IPO[193] - Management believes these legal matters are not likely to have a material adverse effect on the company's financial condition or results of operations[194] Risk Factors This section refers readers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 - The report refers to "Item 1A. Risk Factors" in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for a discussion of important risk factors[195] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company repurchased 2,275 shares of common stock for $0.1 million to cover income tax obligations from vested employee equity awards - The company repurchased 2,275 shares of its common stock for $0.1 million to cover tax obligations on vested employee equity awards[196]