Mesa Air Group Announces Third Quarter Fiscal 2018 Results

August 27, 2018

PHOENIX--(BUSINESS WIRE)--Aug. 27, 2018-- Mesa Air Group, Inc. (NASDAQ: MESA) today reported third quarter Fiscal Year 2018 financial results.

Highlights for Third Quarter (ending June 30, 2018)

Mesa’s third quarter results reflect a GAAP loss before taxes of ($14.6) million, which includes $26.2 million of non-cash one-time expenses* related to the termination of nine leased aircraft, subsequently purchased, and the revaluation of the Company’s common stock in connection with filing the S-1** registration statement associated with the recent IPO. Excluding these two items, Mesa earned $11.6 million pre-tax*. The range set forth in the Company’s S-1 was $10.2 million to $11.2 million. In addition, Adjusted EBITDA* was $41.7 million compared to the range set forth in the S-1 of $40.3 million to $41.3 million. Similarly, Adjusted EBITDAR* was $59.7 million compared to the range of $58.2 to $59.2 million.

During the third fiscal quarter Mesa refinanced six CRJ-900 aircraft with $27.5 million of debt resulting in net proceeds of $10.4 million after transaction related fees. The Company also purchased nine previously leased CRJ-900 aircraft for $76.5 million. Mesa financed the purchase with $69.6 million of new debt and proceeds from the refinancing. As stated in the S-1, these transactions are expected to increase pre-tax earnings by approximately $4.5 million per year.

During the third quarter Mesa added 101 pilots allowing the Company to operate 102,939 block hours, an increase of 5.2% from the second quarter of 97,853 and up 5.4% from the first quarter of 97,705.

“We are delighted to return Mesa to the public market and welcome our newest shareholders to the company,” said Jonathan Ornstein, Chairman and Chief Executive Officer of Mesa Air Group. “We would also like to thank our pre-IPO shareholders, airline partners, stakeholders, and employees for their support over the last seven years while we operated as a private company.”

“There were a number of positive developments in the quarter, most notably the progress we have made increasing the utilization of our aircraft through a combination of strong hiring and declining attrition among our pilots, reduced training backlog, and improved utilization of existing resources,” stated Ornstein. “We appreciate the hard work and dedication of all of our employees for their very important and meaningful contribution to our improving operational capabilities.”

Mike Lotz, President and Chief Financial Officer continued, “On August 14, 2018, we successfully completed our IPO which raised approximately $104 million and subsequently paid down $25.6 million outstanding on our revolving credit facility, reducing annual interest expense by $1.2 million per year. We are currently negotiating the purchase of ten additional currently leased aircraft and hope to complete the transaction by the end of our fiscal year. In addition, we have entered negotiations to refinance our high-cost debt primarily associated with spare engine purchases by the end of the calendar year. This is expected to result in a further reduction of interest expense going forward,” said Lotz.

* See Reconciliation of non-GAAP financial measures

** The Company filed a Form S-1 Registration Statement (File no. 333-226173) in connection with its IPO, which was declared effective by the Securities and Exchange Commission on August 9, 2018.This filing included a low and high range of preliminary third quarter financial results.

Outlook

The Company is providing the following guidance for the fourth quarter of FY 2018:

Fleet, Block Hours, Engine Expense - Actual and Forecast for Q4 FY 2018
                           
FY '18 Q1       FY '18 Q2       FY '18 Q3           FY '18 Q4
Qtr Ended Qtr Ended Qtr Ended Qtr Ended
Dec '17 Mar '18 Jun '18 Sep '18

Fleet Count

       (Actual)       (Actual)       (Actual)           (Forecast)
E-175 56 58 58 60
CRJ-900 64 64 64 64
CRJ-700 20 20 20 20
CRJ-200

1

       1       1           1
Total 141 143 143 145
 

Production
Block Hours 97,705 97,853 102,939 112,000
Block Hours per day per Aircraft 7.6 7.7 8.0 8.5
 
 

Non Pass-Through Engine Expense

 $17.2 $10.8 $8.5 $3.0
 

Reconciliation of non-GAAP financial measures

Although these financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), certain non-GAAP financial measures may provide investors with useful information regarding the underlying business trends and performance of Mesa’s ongoing operations and may be useful for period-over-period comparisons of such operations. The table below reflects supplemental financial data and reconciliations to GAAP financial statements for the three months and nine months ended June 30, 2018. Readers should consider these non-GAAP measures in addition to, not a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all items that may affect the Company’s net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.

Reconciliation of GAAP versus Non-GAAP Disclosures (unaudited)
(In thousands, except for per diluted share)
                             
Three months ended June 30, 2018
Income Tax Net Income Net Income per
(Loss) Income Expense Net per Diluted Pro Forma Diluted
Before Taxes (Benefit) Income Share IPO Shares
GAAP Income (14,630 ) (3,495 ) (11,135 ) $ (0.89 ) $ (0.49 )
 

Q3 FY18 Adjustments (1)

26,193   7,934   18,259   $ 0.76   $ 0.53  
 
Non-GAAP Income 11,563   4,439   7,124   $ 0.30   $ 0.21  
 
Interest Expense 14,118
Depreciation and Amortization 16,013  
Adjusted EBITDA 41,694  
 
Aircraft Rent 17,975  
Adjusted EBITDAR 59,669  
 
 
Weighted-average Shares Outstanding
 
Three months ended June 30, 2018
Basic Diluted
GAAP weighted-average common shares outstanding 12,462 12,462
 
Non-GAAP weighted-average common shares outstanding (2) 12,462 24,041
 
Non-GAAP weighted-average common shares outstanding including pro forma shares issued upon IPO (3) 22,744 34,323
 

Third fiscal quarter special items:

         

1)

    Includes one-time non-GAAP adjustments of $11.1 million in General and Administrative expense related to an increase in accrued compensation as a result of the increase in the fair value of the Company’s common stock due to the S-1 filing and $15.1 million related to the acquisition of nine CRJ-900 aircraft previously leased

2)

Weighted-average diluted shares outstanding adjusted for anti-dilutive effect

3)

Weighted-average pro forma shares outstanding including the impact of 9,630,000 shares issued upon IPO and 651,824 net shares issued under the Company’s 2018 Equity Incentive Plan upon IPO
 

Mesa Air Group will host a conference call with analysts on Tuesday, August 28 at 11:15am EST/8:15am PST. The conference call number is 888-989-9719 (Passcode: Phoenix). The conference call can also be accessed live via the web by visiting https://edge.media-server.com/m6/p/wkyrq2n9. A recorded version will be available on Mesa’s website approximately two hours after the call for approximately 14 days.

About Mesa Air Group, Inc.

Headquartered in Phoenix, Arizona, Mesa is a regional air carrier providing scheduled passenger service to 115 cities in 38 states, the District of Columbia, Canada, Mexico, Cuba and The Bahamas. As of June 30, 2018, Mesa operated a fleet of 145 aircraft with approximately 600 daily departures and 3,400 employees. Mesa operates all of its flights as either American Eagle or United Express flights pursuant to the terms of capacity purchase agreements entered into with American Airlines, Inc. and United Airlines, Inc.

Forward-Looking Statements

This news release contains forward looking statements, including, but not limited to, (i) the fleet and block hours forecast of Mesa for the fourth quarter of fiscal 2018, (ii) the major non pass-through engine overhaul expense forecast for the same fiscal periods, (iii) the expectation that refinancing of six CRJ-900 aircraft and the purchase of nine leased CRJ-900 aircraft is expected to increase pre-tax earnings in future periods, (iv) the Company’s expectations regarding completing the purchase of ten additional GECAS leased aircraft by the end of fiscal 2018, and (v) the refinancing of high-cost debt associated with spare engines by the end of fiscal 2018 and the impact thereof on the Company’s future interest expense.These forward-looking statements are based on Mesa’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond Mesa’s control. Any forward-looking statement in this release speaks only as of the date of this release. Mesa undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

                       
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
 
Three Months Ended June 30, Nine Months Ended June 30,
2018 2017 2018 2017
Operating revenues:
Contract revenue $ 159,916 $ 157,410 $ 470,820 $ 467,121
Pass-through and other   11,823     9,542     33,243     19,161  
Total operating revenues   171,739     166,952     504,063     486,282  
 
Operating expenses:
Flight operations 51,795 37,953 155,602 110,302
Fuel 151 214 349 614
Maintenance 48,290 46,817 154,046 164,239
Aircraft rent 17,975 18,274 54,557 54,334
Aircraft and traffic servicing 848 1,178 2,592 2,758
General and administrative 22,066 10,534 43,333 31,210
Depreciation and amortization 16,013 15,620 47,611 45,220
Lease termination   15,109     -     15,109     -  
Total operating expenses   172,247     130,590     473,199     408,677  
Operating (loss) income   (508 )   36,362     30,864     77,605  
 
Other (expenses) income, net:
Interest expense (14,118 ) (11,819 ) (41,592 ) (33,659 )
Interest income 11 8 30 23
Other expense   (15 )   (53 )   (117 )   (447 )
Total other (expense), net   (14,122 )   (11,864 )   (41,679 )   (34,083 )
 
(Loss) income before taxes (14,630 ) 24,498 (10,815 ) 43,522
Income tax (benefit) expense   (3,495 )   9,065     (24,676 )   16,175  
Net (loss) income $ (11,135 ) $ 15,433   $ 13,861   $ 27,347  
 

Net (loss) income per share attributable to common shareholders

Basic $ (0.89 ) $ 1.40   $ 1.18   $ 2.52  
Diluted $ (0.89 ) $ 0.66   $ 0.58   $ 1.18  
 
Weighted-average common shares outstanding
Basic   12,462     10,993     11,782     10,852  
Diluted   12,462     23,223     24,052     23,242  
 
 
                         
MESA AIR GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands) (Unaudited)
 
June 30, September 30,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 41,731 $ 56,788
Restricted cash 3,823 3,559
Receivables, net 21,596 8,853
Expendable parts and supplies, net 15,716 15,114
Prepaid expenses and other current assets   39,502   61,525
Total current assets 122,368 145,839
 
Property and equipment, net 1,239,548 1,192,448
Intangibles, net 11,437 11,724
Lease and equipment deposits 4,618 1,945
Other assets   11,611   5,693
Total assets $ 1,389,582 $ 1,357,649
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 149,936 $ 140,466
Accounts payable 44,654 44,738
Accrued compensation 23,638 9,080
Other accrued expenses   28,649   23,929
Total current liabilities 246,877 218,213
 
Long-term debt, excluding current portion 828,487 803,874
Deferred credits 14,657 17,189
Deferred income taxes 33,632 56,436
Other noncurrent liabilities   33,306   39,713
Total noncurrent liabilities   910,082   917,212
Total liabilities   1,156,959   1,135,425
 
Commitments and contingencies (Note 13 and Note 14)
Stockholders' equity:
Common stock 112,732 114,456
Retained earnings   119,891   107,768
Total stockholders' equity   232,623   222,224
Total liabilities and stockholders' equity $ 1,389,582 $ 1,357,649
 
 
                             
Operating Highlights (unaudited)
 
Three months ended June 30
2018           2017           Change
Available Seat Miles - ASMs (thousands) 2,440,276 2,384,960 2.3 %
Block Hours 102,939 100,671 2.3 %
Departures 57,782 57,054 1.3 %
Average Stage Length (miles) 555 550 0.9 %
Passengers 3,490,710 3,364,121 3.8 %
 

Source: Mesa Air Group, Inc.

Mesa Air Group, Inc.
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or
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