UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of January 26, 2022, the registrant had
TABLE OF CONTENTS
Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects", "intends," "plans," "predicts," "will," "would," “should,” "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 under the heading "Risk Factors." Unless otherwise stated, references to particular years, quarters, months, or periods refer to our fiscal years ended September 30 and the associated quarters, months, and periods of those fiscal years. Each of the terms "the Company," "Mesa Airlines," “Mesa,” "we," "us" and "our" as used herein refers collectively to Mesa Air Group, Inc. and its wholly owned subsidiaries, unless otherwise stated. We do not assume any obligation to revise or update any forward-looking statements.
The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
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public health epidemics or pandemics such as COVID-19; |
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the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of business’ and governments’ responses to the pandemic on our operations and personnel, and on demand for air travel; |
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the supply and retention of qualified airline pilots and mechanics; |
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the volatility of pilot and mechanic attrition; |
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dependence on, and changes to, or non-renewal of, our capacity purchase and flight services agreements; |
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failure to meet certain operational performance targets in our capacity purchase and flight services agreements, which could result in termination of those agreements; |
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increases in our labor costs; |
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reduced utilization (the percentage derived from dividing (i) the number of block hours actually flown during a given month under a particular capacity purchase agreement by (ii) the maximum number of block hours that could be flown during such month under the particular capacity purchase agreement) under our capacity purchase agreements; |
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the direct operation of regional jets by our major partners; |
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the financial strength of our major partners and their ability to successfully manage their businesses through the unprecedented decline in air travel attributable to the COVID-19 pandemic or any other public health epidemic; |
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limitations on our ability to expand regional flying within the flight systems of our major partners and those of other major airlines; |
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our significant amount of debt and other contractual obligations; |
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our compliance with ongoing financial covenants under our credit facilities and other agreements; and |
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our ability to keep costs low and execute our growth strategies. |
Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.
1
Part I – Financial Information
Item 1. Financial Statements
MESA AIR GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts) (Unaudited)
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December 31, |
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September 30, |
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2021 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Receivables, net |
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Expendable parts and supplies, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Lease and equipment deposits |
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Operating lease right-of-use assets |
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Deferred heavy maintenance, net |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term debt and finance leases |
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$ |
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$ |
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Current portion of deferred revenue |
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Current maturities of operating leases |
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Accounts payable |
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Accrued compensation |
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Other accrued expenses |
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Total current liabilities |
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Noncurrent liabilities: |
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Long-term debt and finance leases, excluding current portion |
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Noncurrent operating lease liabilities |
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Deferred credits |
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Deferred income taxes |
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Deferred revenue, net of current portion |
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Other noncurrent liabilities |
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Total noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 15) |
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Stockholders' equity: |
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Preferred stock of no par value, |
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Common stock of no par value and additional paid-in capital, (2021) shares issued and outstanding, |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
2
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts) (Unaudited)
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Three Months Ended December 31, |
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2021 |
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2020 |
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Operating revenues: |
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Contract revenue |
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$ |
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$ |
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Pass-through and other revenue |
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Total operating revenues |
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Operating expenses: |
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Flight operations |
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Fuel |
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Maintenance |
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Aircraft rent |
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Aircraft and traffic servicing |
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General and administrative |
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Depreciation and amortization |
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Government grant recognition |
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— |
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Total operating expenses |
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Operating income (loss) |
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Other income (expense), net: |
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Interest expense |
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Interest income |
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Loss on investments, net |
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— |
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Other income (expense), net |
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( |
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Total other expense, net |
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( |
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Income (loss) before taxes |
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Income tax expense (benefit) |
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Net income (loss) and comprehensive income (loss) |
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$ |
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$ |
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Net income (loss) per share attributable to |
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common shareholders |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average common shares outstanding |
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Basic |
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Diluted |
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See accompanying notes to these condensed consolidated financial statements.
3
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts) (Unaudited)
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Three Months Ended December 31, 2020 |
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Common |
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Stock and |
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Additional |
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Number of |
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Number of |
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Paid-In |
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Retained |
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Shares |
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Warrants |
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Capital |
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Earnings |
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Total |
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Balance at September 30, 2020 |
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— |
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$ |
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$ |
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$ |
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Stock compensation expense |
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— |
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— |
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— |
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Repurchased shares |
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( |
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— |
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( |
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— |
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( |
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Restricted shares issued |
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— |
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— |
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— |
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— |
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Issuance of warrants, net of issuance costs |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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Three Months Ended December 31, 2021 |
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Common |
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Stock and |
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Additional |
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Number of |
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Number of |
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Paid-In |
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Retained |
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Shares |
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Warrants |
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Capital |
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Earnings |
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Total |
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Balance at September 30, 2021 |
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$ |
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$ |
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$ |
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Stock compensation expense |
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— |
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— |
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— |
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Repurchased shares |
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( |
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— |
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( |
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— |
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( |
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Restricted shares issued |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
4
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
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Three Months Ended December 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: |
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Depreciation and amortization |
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Stock compensation expense |
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Loss on investments, net |
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— |
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Deferred income taxes |
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( |
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Amortization of deferred credits |
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( |
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( |
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Amortization of debt discount and issuance costs and accretion of interest into long-term debt |
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Gain on extinguishment of debt |
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— |
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Loss on disposal of assets |
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Provision for obsolete expendable parts and supplies |
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( |
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Changes in assets and liabilities: |
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Receivables |
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( |
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Expendable parts and supplies |
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( |
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Prepaid expenses and other operating assets and liabilities |
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Accounts payable |
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( |
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Deferred revenue |
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( |
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Accrued expenses and other liabilities |
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( |
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( |
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Operating lease right-of-use assets and liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Investments in equity securities |
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( |
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— |
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Payments of equipment and other deposits |
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( |
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— |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from long-term debt |
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Principal payments on long-term debt and finance leases |
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( |
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( |
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Payments of debt and warrant issuance costs |
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( |
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( |
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Repurchase of stock |
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( |
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( |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental cash flow information |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes, net |
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$ |
— |
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$ |
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Operating lease payments in operating cash flows |
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$ |
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$ |
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Supplemental non-cash operating activities |
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Right-of-use assets obtained in exchange for lease liabilities |
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$ |
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$ |
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Supplemental non-cash financing activities |
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Debt issuance costs related to loan agreement with U.S. Department of the Treasury |
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$ |
— |
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$ |
( |
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Investments in warrants to purchase common stock |
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$ |
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$ |
— |
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Accrued capital expenditures |
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$ |
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$ |
— |
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See accompanying notes to these condensed consolidated financial statements.
5
MESA AIR GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
Organization and Operations |
About Mesa Air Group, Inc.
Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is a holding company whose principal subsidiary, Mesa Airlines, Inc. ("Mesa Airlines"), operates as a regional air carrier providing scheduled flight service to
The capacity purchase agreements between us and our major partners involve a revenue-guarantee arrangement whereby the major partner pays fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services. The major partners also pay certain expenses directly to suppliers, such as fuel, ground operations, and landing fees. Under the terms of these capacity purchase agreements, the major partner controls route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices. Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo services. Ground support expenses including fueling and airport fees are paid directly by DHL.
American Capacity Purchase Agreement
As of December 31, 2021, we operated
Our American CPA is subject to termination prior to its expiration in various circumstances including:
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If either American or we become insolvent, file for bankruptcy, or fail to pay the debts as they become due, the non-defaulting party may terminate the agreement; |
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If either we or American fail to perform the covenants, conditions or provisions of the American CPA, subject to certain notice and cure rights, the non-defaulting party may terminate the agreement; |
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If, at any time during the term of the American CPA, the number of covered aircraft is less than twenty (20); |
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If we are required by the FAA or the DOT to suspend operations and we have not resumed operations within three business days, except as a result of an emergency airworthiness directive from the FAA affecting all similarly equipped aircraft; |
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If our CCF or CD0 fall below certain levels for a specified period of time; |
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Upon the occurrence of a force majeure event (as defined in the American CPA) that lasts for a specified period of consecutive days and affects our ability to operate scheduled flights, including a future epidemic or pandemic; |
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If a labor dispute affects our ability to operate over a specified number of days or we operate in violation of any existing American collective bargaining agreement; or |
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Upon a change in our ownership or control without the written approval of American. |
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Under the American CPA, American has the option in its sole discretion to withdraw up to: (i)
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If our CCF falls below certain levels for a specified period of time, American may withdraw |
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If our CD0 falls below certain levels for a specified period of time, American may withdraw one aircraft; |
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If we fail to satisfactorily complete established cabin interior program requirements by certain deadlines, American may withdraw one aircraft; or |
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If our block hour utilization falls below certain levels for a specified period of time, American may withdraw a specified number of aircraft. |
United Capacity Purchase Agreement
As of December 31, 2021, we operated
Under our United CPA, United owns
Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine (9) years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement, and as of December 31, 2021, had entered into agreements to lease
Our United CPA is subject to termination rights prior to its expiration, including:
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If certain operational performance factors fall below a specified percentage for a specified time, subject to notice under certain circumstances; |
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If we fail to perform the material covenants, agreements, terms or conditions of our United CPA or similar agreements with United, subject to thirty (30) days' notice and cure rights; |
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If either United or we become insolvent, file bankruptcy, or fail to pay debts when due, the non-defaulting party may terminate the agreement; |
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If we merge with, or if control of us is acquired by another air carrier or a corporation directly or indirectly owning or controlling another air carrier; |
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If United elects to terminate our United CPA in its entirety or permanently remove select aircraft from service, we are permitted to return any of the affected E-175 aircraft leased from United at no cost to us; and |
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DHL Flight Services Agreement
On December 20, 2019, we entered into a Flight Services Agreement with DHL (the “DHL FSA”). Under the terms of the DHL FSA, we operate two (
Under our DHL FSA, DHL leases
Our DHL FSA expires five (5) years from the commencement date of the first aircraft placed into service, which was in October 2020.
Our DHL FSA is subject to the following termination rights prior to its expiration:
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If either party fails to comply with the obligations, warranties, representations, or undertakings under the DHL FSA, subject to certain notice and cure rights. |
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If either party is declared bankrupt or insolvent. |
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If we are unable to legally operate the aircraft under the DHL FSA for a specified number of days. |
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If we fail to comply with performance standards for three consecutive measurement periods. |
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If we are subject to a labor incident that materially and adversely affects our ability to perform services under the DHL FSA for a specified number of days. |
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Upon a change in our control or ownership. |
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DHL may terminate the agreement for a specific aircraft if it is subject to a total loss and we do not provide alternate services at our expense, or if the aircraft becomes unavailable for more than 30 days due to unscheduled maintenance. |
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Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and its wholly owned operating subsidiaries. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). All intercompany accounts and transactions have been eliminated in consolidation. Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.
These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended September 30, 2021 included in the Company's Annual Report on Form 10-K for the year ended September 30, 2021 on file with the U.S. Securities and Exchange Commission (the "SEC"). Information and footnote disclosures normally included in financial statements have been condensed or omitted in these condensed consolidated financial statements pursuant to the rules and regulations of the SEC and GAAP. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented.
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The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act,") and may remain an emerging growth company until the last day of its fiscal year following the fifth anniversary of the Company’s initial public offering (“IPO”), subject to specified conditions. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Segment Reporting
As of December 31, 2021, our chief operating decision maker was the Chief Executive Officer. While we operate under two separate capacity purchase agreements and a flight services agreement, we do not manage our business based on any performance measure at the individual contract level. Our chief operating decision maker uses consolidated financial information to evaluate our performance and allocate resources, which is the same basis on which he communicates our results and performance to our Board of Directors. Accordingly, we have a single operating and reportable segment.
Use of Estimates
The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results could differ from those estimates.
Contract Revenue and Pass-through and Other Revenue
We recognize contract revenue when the service is provided under our capacity purchase agreements and flight services agreement. Under the capacity purchase agreements and flight services agreement, our major partners generally pay for each departure, flight hour or block hour incurred, and an amount per aircraft in service each month with additional incentives or penalties based on flight completion, on-time performance, and other operating metrics. Our performance obligation is met when each flight is completed, and revenue is recognized and reflected in contract revenue.
We recognize pass-through revenue when the service is provided under our capacity purchase agreements and flight services agreement. Pass-through revenue represents reimbursements for certain direct expenses incurred including passenger liability and hull insurance, property taxes, other direct costs defined within the agreements, and major maintenance on aircraft leased from our major partners at nominal rates. Our performance obligation is met when each flight is completed or as the maintenance services are performed, and revenue is recognized and reflected in pass-through and other revenue.
We record deferred revenue when cash payments are received or are due from our major partners in advance of our performance. During the three months ended December 31, 2021, we recognized $
The deferred revenue balance as of December 31, 2021 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows (in thousands):
Periods Ending September 30, |
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2022 (remainder of) |
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2023 |
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2024 |
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2025 |
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2026 |
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Thereafter |
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