Mesa Airlines(MESA) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's analysis, market risk disclosures, and internal control effectiveness Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2022, including the Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, and Statements of Cash Flows, with a significant net loss of $42.8 million primarily due to an impairment charge and absence of government grant recognition Condensed Consolidated Balance Sheets Presents the company's financial position, highlighting changes in assets, liabilities, and equity between reporting periods Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items (In thousands) | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $75,896 | $120,517 | | Total current assets | $119,959 | $158,386 | | Property and equipment, net | $1,064,349 | $1,151,891 | | Assets held for sale | $36,528 | $0 | | Total assets | $1,353,356 | $1,456,597 | | Liabilities & Equity | | | | Current portion of long-term debt | $111,671 | $111,710 | | Total current liabilities | $249,371 | $258,192 | | Long-term debt and finance leases, net | $521,457 | $539,700 | | Total liabilities | $920,815 | $968,550 | | Total stockholders' equity | $432,541 | $488,047 | | Total liabilities and stockholders' equity | $1,353,356 | $1,456,597 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Details the company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations (Unaudited, In thousands, except per share amounts) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $123,213 | $97,280 | $270,970 | $247,651 | | Total operating expenses | $167,968 | $80,519 | $319,711 | $203,918 | | Impairment of assets held for sale | $39,475 | $0 | $39,475 | $0 | | Government grant recognition | $0 | $(55,967) | $0 | $(67,278) | | Operating income (loss) | $(44,755) | $16,761 | $(48,741) | $43,733 | | Net income (loss) | $(42,783) | $5,689 | $(57,057) | $19,807 | | Diluted EPS | $(1.19) | $0.14 | $(1.58) | $0.52 | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including net income, share repurchases, and other comprehensive income - Total stockholders' equity decreased from $488.0 million at September 30, 2021, to $432.5 million at March 31, 2022. The decrease was primarily driven by a net loss of $57.1 million for the six-month period[16] Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities over the reporting period Condensed Consolidated Statements of Cash Flows (Unaudited, In thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,958 | $78,574 | | Net cash used in investing activities | $(30,004) | $(11,675) | | Net cash used in financing activities | $(24,574) | $(18,522) | | Net change in cash, cash equivalents and restricted cash | $(44,620) | $48,377 | | Cash, cash equivalents and restricted cash at end of period | $79,247 | $151,218 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of the accounting policies, significant transactions, and other financial information supporting the consolidated financial statements - Mesa operates under revenue-guarantee Capacity Purchase Agreements (CPAs) with American Airlines and United Airlines, and a Flight Services Agreement (FSA) with DHL, reducing exposure to passenger traffic and fuel price fluctuations[22][23] - For November 2021, December 2021, and January 2022, Mesa did not meet minimum operational performance levels under the American CPA, but American waived its termination right for this period[27] - During the quarter ended March 31, 2022, management committed to a plan to sell certain CRJ-900 and CRJ-200 aircraft, resulting in their reclassification as 'held for sale' and an impairment loss of $39.5 million[74] - As of March 31, 2022, American and United accounted for approximately 46% and 47% of total revenue, respectively, for the quarter, indicating that termination of either CPA would have a material adverse effect[70] - The company has forward purchase commitments for electric vertical takeoff and landing (eVTOL) aircraft from Archer ($200.0 million base commitment) and fully electric aircraft from Heart ($1,200.0 million maximum base commitment), subject to future agreements[133][134] - In March and April 2022, the company amended its CIT revolving credit facility and its Treasury Loan agreement to lower minimum financial covenant ratios, ensuring compliance as of the reporting date[98][105][136] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 2022 net loss of $42.8 million to a $39.5 million impairment charge on CRJ aircraft held for sale and the absence of $56.0 million in government grant recognition that benefited the prior-year quarter, despite a 26.7% increase in operating revenues due to normalized contract rates Results of Operations Analyzes the key drivers of changes in operating revenues and expenses, including the impact of impairment charges and government grants Operating Revenue Comparison (Three Months Ended March 31) | Revenue Type ($ in thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract | $111,988 | $81,712 | $30,276 | 37.1% | | Pass-through and other | $11,225 | $15,568 | $(4,343) | (27.9)% | | Total operating revenues | $123,213 | $97,280 | $25,933 | 26.7% | - The 37.1% increase in contract revenue for the quarter was primarily due to normalized contractual rates, partially offset by an 11.3% decrease in block hours flown[163] Operating Expense Comparison (Three Months Ended March 31) | Expense Type ($ in thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $42,410 | $37,403 | $5,007 | 13.4% | | Maintenance | $47,357 | $51,773 | $(4,416) | (8.5)% | | Impairment of assets held for sale | $39,475 | $0 | $39,475 | 100.0% | | Government grant recognition | $0 | $(55,967) | $55,967 | (100.0)% | | Total operating expenses | $167,968 | $80,519 | $87,449 | 108.6% | - Flight operations expense increased by 13.4% due to higher pilot and flight attendant wages, lodging, and training costs, while maintenance expense decreased by 8.5% due to a lower volume of C-checks and engine overhauls[164][165] Adjusted EBITDA and EBITDAR Reconciliation (Three Months Ended March 31, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income (loss) | $(42,783) | $5,689 | | Adjustments (Impairment, etc.) | $39,843 | $4,508 | | Adjusted EBITDA | $15,764 | $41,468 | | Aircraft rent | $9,434 | $9,992 | | Adjusted EBITDAR | $25,198 | $51,460 | Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations, detailing cash sources, uses, and changes in liquidity - As of March 31, 2022, the company's principal sources of liquidity were cash and cash equivalents of $75.9 million, a significant decrease from $120.5 million at September 30, 2021[204][11] - Net cash provided by operating activities for the six months ended March 31, 2022, was $10.0 million, a sharp decline from $78.6 million in the prior-year period, driven by the net loss and changes in working capital[207][209][210] - Net cash used in investing activities for the six-month period was $30.0 million, primarily for capital expenditures on spare engines and rotable parts[212] - Net cash used in financing activities was $24.6 million, reflecting $53.1 million in principal debt repayments partially offset by $30.8 million in new long-term debt proceeds[215] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its $484.5 million in variable-rate debt, which is based on LIBOR, with fuel price risk largely mitigated through CPA structures and foreign currency risk considered de minimis - The company is exposed to interest rate risk on $484.5 million of variable-rate debt, where a hypothetical 50 basis point change in market interest rates would have affected interest expense by approximately $1.2 million in the six months ended March 31, 2022[221][222] - The company is monitoring the planned cessation of LIBOR after June 2023, as the majority of its debt is indexed to it, and its replacement could cause interest payable to be different or higher than expected[224][225] - Fuel price risk is largely sheltered by agreements where major partners directly pay for and supply fuel, and foreign currency risk is minimal as revenue is U.S. dollar denominated and foreign expenses are not material[226][227] Controls and Procedures Based on an evaluation as of the end of the quarter, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter ended March 31, 2022 - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[228] - No changes in internal control over financial reporting occurred during the three months ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[229] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures Legal Proceedings The company has reached an agreement in principle to settle two putative class action lawsuits related to its IPO for a sum of $5.0 million, which is subject to court approval and will be paid by the company's directors' and officers' insurance carriers - On March 2, 2022, the company reached an agreement in principle to settle federal class action lawsuits related to its IPO for $5.0 million[232] - The settlement will be paid by the company's directors' and officers' insurance carriers and is subject to final documentation and court approval[232] Risk Factors This section directs investors to the detailed discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021, cautioning that these and other unknown risks could materially and adversely affect the company's business and financial results - 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 comprehensive list of important risk factors[234] Unregistered Sales of Equity Securities and Use of Proceeds During the six months ended March 31, 2022, the company repurchased 15,696 shares of its common stock for $0.1 million to cover income tax obligations arising from vested employee equity awards - The Company repurchased 15,696 shares of its common stock for $0.1 million to cover income tax obligations on vested employee equity awards during the six months ended March 31, 2022[235] Defaults Upon Senior Securities None - None[236] Mine Safety Disclosures Not applicable - Not applicable[237] Other Information None - None[238] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to capacity purchase agreements with United Airlines and American Airlines, and certifications by the Principal Executive Officer and Principal Financial Officer - Lists filed exhibits, including amendments to the United and American capacity purchase agreements and required officer certifications[240]