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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38626

 

MESA AIR GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

85-0302351

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

410 North 44th Street, Suite 700

Phoenix, Arizona 85008

 

85008

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (602) 685-4000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

MESA

 

Nasdaq Global Select Market

 

 

 

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. Yes No

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). Yes No

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

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

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 No

 

As of May 1, 2023, the registrant had 40,619,274 shares of common stock, no par value per share, issued and outstanding.

 

 


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

4

 

 

Item 1. Financial Statements

4

 

 

Condensed Consolidated Balance Sheets

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

 

Condensed Consolidated Statements of Stockholders' Equity

6

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

42

 

 

Item 4. Controls and Procedures

43

 

 

PART II – OTHER INFORMATION

44

 

 

Item 1. Legal Proceedings

44

 

 

Item 1A. Risk Factors

44

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

Item 3. Defaults Upon Senior Securities

44

 

 

Item 4. Mine Safety Disclosures

44

 

 

Item 5. Other Information

44

 

 

Item 6. Exhibits

44

 

 

SIGNATURES

46

 


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 (the “Exchange Act”). 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 Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed with the Securities and Exchange Commission on December 29, 2022. 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:

public health epidemics or pandemics such as COVID-19;
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;
the supply and retention of qualified airline pilots and mechanics and associated costs;
the volatility of pilot and mechanic attrition;
dependence on, and changes to, or non-renewal of, our capacity purchase and flight services agreements;
failure to meet certain operational performance targets in our capacity purchase and flight services agreements, which could result in termination of those agreements;
increases in our labor costs;
reduced utilization - the percentage derived from dividing (i) the number of block hours actually flown during a given month by (ii) the maximum number of block hours that could be flown during such month under our capacity purchase agreements;
the direct operation of regional jets by our major partners;
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;
restrictions under our Amended and Restated United CPA to enter into new regional air carrier service agreements, excluding our existing Flight Services Agreement with DHL, which will remain in place until the earlier to occur of (i) January 1, 2026 and (ii) the Company’s satisfaction of certain Performance Milestones (as defined in the Amended and Restated United CPA);
our significant amount of debt and other contractual obligations;
our compliance with ongoing financial covenants under our credit facilities
our ability to keep costs low and execute our growth strategies; and
the effects of extreme or severe weather conditions that can impact our ability to complete scheduled flights.

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.

3


Part I – Financial Information

Item 1. Financial Statements

MESA AIR GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts) (Unaudited)

 

 

March 31,

 

 

September 30,

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,428

 

 

$

57,683

 

Restricted cash

 

 

3,144

 

 

 

3,342

 

Receivables, net ($5,957 and $85 from related party)

 

 

9,924

 

 

 

3,978

 

Expendable parts and supplies, net

 

 

26,754

 

 

 

26,715

 

Assets held for sale

 

 

19,530

 

 

 

 

Prepaid expenses and other current assets

 

 

6,341

 

 

 

6,616

 

Total current assets

 

 

117,121

 

 

 

98,334

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

868,027

 

 

 

865,254

 

Intangible assets, net

 

 

 

 

 

3,842

 

Lease and equipment deposits

 

 

1,686

 

 

 

6,085

 

Operating lease right-of-use assets

 

 

11,593

 

 

 

43,090

 

Deferred heavy maintenance, net

 

 

9,532

 

 

 

9,707

 

Assets held for sale

 

 

21,000

 

 

 

73,000

 

Other assets

 

 

26,398

 

 

 

16,290

 

Total assets

 

$

1,055,357

 

 

$

1,115,602

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and finance leases ($10,500 and $0 from related party)

 

$

145,046

 

 

$

97,218

 

Current portion of deferred revenue

 

 

5,174

 

 

 

385

 

Current maturities of operating leases

 

 

5,562

 

 

 

17,233

 

Accounts payable ($0 and $22,290 from related party)

 

 

48,480

 

 

 

59,386

 

Accrued compensation

 

 

9,745

 

 

 

11,255

 

Other accrued expenses

 

 

28,081

 

 

 

29,000

 

Total current liabilities

 

 

242,088

 

 

 

214,477

 

Noncurrent liabilities:

 

 

 

 

 

 

Long-term debt and finance leases, excluding current portion ($30,630 and $0 from related party)

 

 

463,646

 

 

 

502,517

 

Noncurrent operating lease liabilities

 

 

8,459

 

 

 

16,732

 

Deferred credits ($1,965 and $2,193 from related party)

 

 

3,300

 

 

 

3,082

 

Deferred income taxes

 

 

14,512

 

 

 

17,719

 

Deferred revenue, net of current portion

 

 

19,306

 

 

 

23,682

 

Other noncurrent liabilities

 

 

28,829

 

 

 

29,219

 

Total noncurrent liabilities

 

 

538,052

 

 

 

592,951

 

Total liabilities

 

 

780,140

 

 

 

807,428

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 40,619,274 (2023) and 36,376,897 (2022) shares issued and outstanding, 4,899,497 (2023) and 4,899,497 (2022) warrants issued and outstanding

 

 

270,432

 

 

 

259,177

 

Retained earnings

 

 

4,785

 

 

 

48,997

 

Total stockholders' equity

 

 

275,217

 

 

 

308,174

 

Total liabilities and stockholders' equity

 

$

1,055,357

 

 

$

1,115,602

 

See accompanying notes to these condensed consolidated financial statements.

4


MESA AIR GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts) (Unaudited)

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue (2023—$52,399 and $111,769 and 2022—$48,295 and $110,880 from related party)

 

$

103,782

 

 

$

111,988

 

 

$

232,232

 

 

$

248,882

 

Pass-through and other revenue

 

 

18,052

 

 

 

11,225

 

 

 

36,776

 

 

 

22,088

 

Total operating revenues

 

 

121,834

 

 

 

123,213

 

 

 

269,008

 

 

 

270,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Flight operations

 

 

54,830

 

 

 

42,410

 

 

 

113,150

 

 

 

90,008

 

Maintenance

 

 

45,985

 

 

 

47,357

 

 

 

94,272

 

 

 

106,338

 

Aircraft rent

 

 

835

 

 

 

9,434

 

 

 

4,918

 

 

 

19,020

 

General and administrative

 

 

13,538

 

 

 

7,860

 

 

 

27,526

 

 

 

20,438

 

Depreciation and amortization

 

 

16,541

 

 

 

20,747

 

 

 

31,744

 

 

 

41,775

 

Asset impairment

 

 

16,743

 

 

 

39,475

 

 

 

20,462

 

 

 

39,475

 

Other operating expenses

 

 

233

 

 

 

685

 

 

 

1,359

 

 

 

2,657

 

Total operating expenses

 

 

148,705

 

 

 

167,968

 

 

 

293,431

 

 

 

319,711

 

Operating loss

 

 

(26,871

)

 

 

(44,755

)

 

 

(24,423

)

 

 

(48,741

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(13,030

)

 

 

(8,120

)

 

 

(24,306

)

 

 

(16,050

)

Interest income

 

 

49

 

 

 

42

 

 

 

120

 

 

 

93

 

Gain/(Loss) on investments, net

 

 

2,095

 

 

 

(2,261

)

 

 

416

 

 

 

(8,723

)

Other income (expense), net

 

 

538

 

 

 

(71

)

 

 

955

 

 

 

(130

)

Total other expense, net

 

 

(10,348

)

 

 

(10,410

)

 

 

(22,815

)

 

 

(24,810

)

Loss before taxes

 

 

(37,219

)

 

 

(55,165

)

 

 

(47,238

)

 

 

(73,551

)

Income tax benefit

 

 

(2,097

)

 

 

(12,382

)

 

 

(3,027

)

 

 

(16,494

)

Net loss and comprehensive loss

 

$

(35,122

)

 

$

(42,783

)

 

$

(44,211

)

 

$

(57,057

)

Net loss per share attributable to

 

 

 

 

 

 

 

 

 

 

 

 

common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.88

)

 

$

(1.19

)

 

$

(1.16

)

 

$

(1.58

)

Diluted

 

$

(0.88

)

 

$

(1.19

)

 

$

(1.16

)

 

$

(1.58

)

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,932

 

 

 

36,048

 

 

 

38,135

 

 

 

36,005

 

Diluted

 

 

39,932

 

 

 

36,048

 

 

 

38,135

 

 

 

36,005

 

See accompanying notes to these condensed consolidated financial statements.

5


MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)

 

 

Six Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Number of

 

 

Number of

 

 

Paid-In

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Warrants

 

 

Capital

 

 

Earnings

 

 

Total

 

Balance at September 30, 2021

 

 

35,958,759

 

 

 

4,899,497

 

 

$

256,372

 

 

$

231,675

 

 

$

488,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

716

 

 

 

 

 

 

716

 

Repurchased shares

 

 

(2,275

)

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Restricted shares issued

 

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,274

)

 

 

(14,274

)

Balance at December 31, 2021

 

 

35,963,984

 

 

 

4,899,497

 

 

$

257,073

 

 

$

217,401

 

 

$

474,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

671

 

 

 

 

 

 

671

 

Repurchased shares

 

 

(13,421

)

 

 

 

 

 

(60

)

 

 

 

 

 

(60

)

Restricted shares issued

 

 

122,594

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee share purchases

 

 

53,567

 

 

 

 

 

 

239

 

 

 

 

 

 

239

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(42,783

)

 

 

(42,783

)

Balance at March 31, 2022

 

 

36,126,724

 

 

 

4,899,497

 

 

$

257,923

 

 

$

174,618

 

 

$

432,541

 

 

 

 

Six Months Ended March 31, 2023

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Number of

 

 

Number of

 

 

Paid-In

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Warrants

 

 

Capital

 

 

Earnings

 

 

Total

 

Balance at September 30, 2022

 

 

36,376,897

 

 

 

4,899,497

 

 

$

259,177

 

 

$

48,997

 

 

$

308,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

688

 

 

 

 

 

 

688

 

Repurchased shares

 

 

(847

)

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Restricted shares issued

 

 

2,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,090

)

 

 

(9,090

)

Balance at December 31, 2022

 

 

36,378,550

 

 

 

4,899,497

 

 

$

259,864

 

 

$

39,907

 

 

$

299,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

668

 

 

 

 

 

 

668

 

Repurchased shares

 

 

(29,276

)

 

 

 

 

 

(30

)

 

 

 

 

 

(30

)

Restricted shares issued

 

 

175,661

 

 

 

 

 

 

 

 

 

 

 

 

 

United Stock Issuance

 

 

4,042,061

 

 

 

 

 

 

9,782

 

 

 

 

 

 

9,782

 

Employee share purchases

 

 

52,278

 

 

 

 

 

 

148

 

 

 

 

 

 

148

 

Net loss