SEC Filing | Mesa Air Group

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mesa-10q_20200630.htm

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 June 30, 2020

☐	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 of 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 June 30, 2020, the registrant had 35,414,284 shares of common stock, no par value per share, issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets	2

Condensed Consolidated Statements of Operations	3

Condensed Consolidated Statements of Stockholders' Equity	4

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	40

Item 4. Controls and Procedures	41

PART II – OTHER INFORMATION	42

Item 1. Legal Proceedings	42

Item 1A. Risk Factors	42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3. Defaults Upon Senior Securities	45

Item 4. Mine Safety Disclosures	45

Item 5. Other Information	45

Item 6. Exhibits	45

SIGNATURES	47

Where You Can Find More Information

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (http://investor.mesa-air.com/), SEC filings, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with our members and public about our company, our products, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

Cautionary Notes 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.

In some cases, you can identify forward-looking statements by terms such as "may", "should", "expects", "might", "plans", "anticipates", "could", "intends", "target", "projects", "contemplates", "believes", "estimates", "predicts", "potential", "seek", "would", "continue", or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the "Risk Factors" section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. 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;

▪

the volatility of pilot attrition;

▪

dependence on, and changes to, or non-renewal of, our capacity purchase 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 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;

▪

direct operation of regional jets by our major airline partners;

▪

the financial strength of our major airline partners and their ability to successfully manage their businesses through the unprecedented decline in air travel attributable to the COVID-19 pandemic;

▪

limitations on our ability to expand regional flying within the flight systems of our major airline partners' and those of other major airlines;

▪

our significant amount of debt and other contractual obligations;

▪

our compliance with ongoing financial covenants under our credit facilities; and

▪

our ability to keep costs low and execute our growth strategies.

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.

Part I – Financial Information

Item 1. Financial Statements

MESA AIR GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts) (Unaudited)

	June 30,		September 30,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	64,934	$	68,855
Restricted cash		3,444		3,646
Receivables, net		14,618		23,080
Expendable parts and supplies, net		22,418		21,337
Prepaid expenses and other current assets		7,143		40,923
Total current assets		112,557		157,841

Property and equipment, net		1,233,727		1,273,585
Intangibles, net		8,407		9,532
Lease and equipment deposits		2,121		2,167
Operating lease right-of-use assets		131,480		—
Other assets		7,021		8,792
Total assets	$	1,495,313	$	1,451,917

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing leases	$	176,896	$	165,900
Current maturities of operating leases		43,219		—
Accounts payable		39,918		49,930
Accrued compensation		10,350		11,988
Other accrued expenses		37,663		28,888
Total current liabilities		308,046		256,706
Noncurrent liabilities:
Long-term debt and financing leases, excluding current portion		586,877		677,423
Noncurrent operating lease liabilities		71,068		—
Deferred credits		9,355		12,134
Deferred income taxes		61,203		55,303
Deferred revenue, net of current portion		12,240		—
Other noncurrent liabilities		1,030		24,483
Total noncurrent liabilities		741,773		769,343
Total liabilities		1,049,819		1,026,049
Commitments and contingencies (Note 15 and Note 16)
Stockholders' equity:
Preferred stock of no par value, 5,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 35,414,284 (2020) and 31,413,287 (2019) shares issued and outstanding, 0 (2020) and 3,600,953 (2019) warrants issued and outstanding		241,782		238,504
Retained earnings		203,712		187,364
Total stockholders' equity		445,494		425,868
Total liabilities and stockholders' equity	$	1,495,313	$	1,451,917

See accompanying notes to these condensed consolidated financial statements.

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,
	2020			2019			2020			2019
Operating revenues:
Contract revenue	$	71,648		$	170,366		$	409,228		$	510,586
Pass-through and other		1,451			9,858			27,802			24,941
Total operating revenues		73,099			180,224			437,030			535,527

Operating expenses:
Flight operations		29,664			53,025			135,199			155,636
Fuel		146			211			504			433
Maintenance		22,591			54,322			145,021			139,504
Aircraft rent		15,582			12,875			39,196			41,104
Aircraft and traffic servicing		538			978			2,938			2,977
General and administrative		11,737			12,435			39,233			38,121
Depreciation and amortization		20,635			19,761			61,656			57,528
Lease termination		—			9,540			—			9,540
CARES Act grant recognition		(43,018	)		—			(43,018	)		—
Total operating expenses		57,875			163,147			380,729			444,843
Operating income		15,224			17,077			56,301			90,684
Other (expenses) income, net:
Interest expense		(10,368	)		(13,496	)		(34,668	)		(42,110	)
Interest income		1			733			95			1,188
Loss on extinguishment of debt		—			—			—			(3,616	)
Other income (expense), net		79			(451	)		720			82
Total other (expense), net		(10,288	)		(13,214	)		(33,853	)		(44,456	)
Income before taxes		4,936			3,863			22,448			46,228
Income tax expense		1,517			856			6,359			10,891
Net income	$	3,419		$	3,007		$	16,089		$	35,337
Net income per share attributable to
common shareholders
Basic	$	0.10		$	0.09		$	0.46		$	1.02
Diluted	$	0.10		$	0.09		$	0.46		$	1.01
Weighted-average common shares outstanding
Basic		35,299			34,835			35,154			34,683
Diluted		35,299			35,112			35,248			35,051

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)

	Nine Months Ended June 30, 2019
							Common
							Stock and
							Additional
	Number of			Number of			Paid-In			Retained
	Shares			Warrants			Capital			Earnings		Total
Balance at September 30, 2018		23,902,903			10,614,990		$	234,683		$	139,784	$	374,467

Stock compensation expense		—			—			1,454			—		1,454
Stock issuance costs		—			—			157			—		157
Net income		—			—			—			19,081		19,081

Balance at December 31, 2018		23,902,903			10,614,990		$	236,294		$	158,865	$	395,159

Stock compensation expense		—			—		$	1,298			—	$	1,298
Repurchased shares		(52,967	)		—			(449	)		—		(449	)
Stock issuance costs		—			—			28			—		28
Warrants converted to common stock		3,834,693			(3,834,693	)		—			—		—
Restricted shares issued		284,846			—			—			—		—
Net Income		—			—			—			13,249		13,249

Balance at March 31, 2019		27,969,475			6,780,297		$	237,171		$	172,114	$	409,285

Stock compensation expense		—			—		$	1,507			—	$	1,507
Repurchased shares		(116,757	)		—			(1,065	)		—		(1,065	)
Warrants converted to common stock		2,176,964			(2,176,964	)		—			—		—
Restricted shares issued		331,486			—			—			—		—
Net Income		—			—			—			3,007		3,007

Balance at June 30, 2019		30,361,168			4,603,333		$	237,613		$	175,121	$	412,734

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)

Nine Months Ended June 30, 2020

Common

Stock and

Additional

Number of

Paid-In

Retained

Warrants

Capital

Earnings

Total

Balance at September 30, 2019

31,413,287

3,600,953

238,504