Sky Harbour Group Corp. — Form 10-Q Summary
Business context and reporting period
Reports the quarter and nine months ended September 30, 2022. Sky Harbour develops, leases and manages hangars for business aircraft. Six airport campuses were in development or operation. The January 2022 business combination created a public-company Up-C structure; the 2021 comparative results are those of Sky Harbour LLC before the combination, so comparisons reflect a changed reporting entity.
Key financial metrics
Amounts below are in millions except per-share data. Balance-sheet comparisons are with December 31, 2021.
| Metric | Q3 2022 / Sep. 30, 2022 | Prior comparable / year-end |
|---|---|---|
| Revenue | $0.431; up 7% year over year | $0.402 |
| Net loss | $3.092 | $3.539 in Q3 2021 |
| Net loss attributable to SHG shareholders; loss per share | $0.613; $0.04 | $3.539 in Q3 2021; per-share comparison not presented |
| Nine-month revenue | $1.236 | $1.187 in 2021 |
| Nine-month net loss; SHG-attributable loss per share | $12.343; $0.27 | $8.362 in 2021; per-share comparison not presented |
| Cash and investments | $0.730 cash; $29.765 investments; $17.164 restricted cash; $145.322 restricted investments | $6.805 cash and $197.130 restricted cash |
| Debt and lease liabilities | $162.156 bonds, net; $52.464 operating lease liabilities | $160.679 bonds, net; $61.289 lease liabilities |
| Total assets; total liabilities | $334.640; $235.451 | $303.887; $232.927 |
For the nine months, operating cash use was $25.282 million, investing cash use $213.549 million, and financing cash provided $52.790 million. Investing outflows included Treasury purchases as well as $35.597 million of construction payments. Cash plus restricted cash ended at $17.894 million; much of the company’s cash and investments was restricted under bond arrangements. No positive profit or operating margin was reported.
Material changes versus prior comparable periods
- Q3 revenue rose $29,000, primarily as additional Sugar Land tenant leases began. Nine-month revenue increased $49,000.
- Q3 general and administrative expense increased $1.259 million to $3.599 million, reflecting higher staffing, public-company and administrative costs, and growth-related marketing and pursuit expenses. Nine-month G&A increased $7.705 million to $12.136 million.
- Q3 net loss narrowed by $447,000, mainly because of a $1.452 million noncash warrant fair-value gain and lower reported interest expense. Nine-month net loss widened by $3.981 million; the $2.904 million warrant gain partly offset higher operating expenses.
- Interest was capitalized during 2022 while projects were under construction: $5.433 million of nine-month interest incurred was capitalized. Thus, reported interest expense was zero for 2022 periods shown.
- Construction costs in progress rose to $66.654 million from $25.034 million. The company recorded a $248,000 impairment for abandoned software development.
Outlook, management commentary, risks and unusual items
- No formal revenue or earnings guidance is provided. Management expects operating losses and investment in development to continue in the near term and states liquidity is sufficient for more than one year after issuance of the statements.
- The company estimated total direct construction costs of $261.4–$295.1 million for the listed portfolio, comprising 80 planned hangars. Its longer-term plan targets 20 campuses, estimated at approximately $1.1 billion, funded primarily through future private activity bonds and equity or equity-linked financing; these plans depend on site, lease, permit and financing availability.
- Management reported materially higher revised construction bids for APA Phase I and DVT Phase I because of material and labor cost increases and reduced labor availability. Cost mitigation includes guaranteed-maximum-price contracts and a strategic vendor partnership, but management cautions these efforts may not prevent overruns or delays.
- BNA Phase II was substantially completed on October 27, 2022, after the reporting date; tenant leases were expected to commence in November 2022. OPF Phase I was expected to complete in November 2022.
- Principal risks include attracting tenants at rents sufficient to meet obligations, construction inflation and delays, rising financing costs, and the need to raise additional capital. Two tenants accounted for 82% of Q3 revenue and 87% of nine-month revenue; their leases expire in December 2023 and November 2025.
- The $166.34 million face-value Series 2021 bonds bear fixed rates of 4.00%–4.25%, with maturities in 2036, 2041 and 2054. Principal payments begin in 2032. Debt-service coverage testing starts in December 2024; the company reported covenant compliance at September 30, 2022.
- The company has long-term ground-lease obligations, with $205.739 million of undiscounted future payments and a $52.464 million recorded liability. Certain leases impose development deadlines and minimum-spend requirements; failure may lead to lease termination, reduced lease term or other consequences.
- Warrant remeasurement generated a $2.904 million nine-month noncash gain. The B. Riley agreement permits, but does not require, sale of up to 10 million Class A shares over 36 months at 97% of the applicable VWAP, subject to conditions and limits.
Most important facts for investors to verify
- Whether construction schedules, budgets and tenant lease commencements at BNA, OPF, APA, DVT and ADS proceed as planned, including the effects of revised bids.
- How much of reported cash and investments is unrestricted and available for corporate operations, versus subject to bond-trust restrictions.
- Tenant concentration, lease renewal prospects and realized rents as additional hangar capacity opens.
- Availability and terms of future bond or equity financing, including potential dilution under the B. Riley purchase agreement.
- Compliance with bond covenants as testing begins in 2024 and the ability of campus cash flows to cover long-term debt and lease obligations.
- Whether construction-cost mitigation, the vendor partnership and management’s campus expansion assumptions deliver the expected savings and returns.