Sky Harbour Group Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance sheet compared with December 31, 2023. Unless noted otherwise, financial amounts below are in millions of dollars. Sky Harbour develops, leases and manages general aviation hangars for business aircraft. Its operations remain in a growth and construction phase.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Rental and total revenue | $2.4 | $1.1 | Up $1.3, or 117% |
| Operating expenses | $7.6 | $5.8 | Up $1.8 |
| Operating loss | $(5.2) | $(4.7) | Loss widened $0.5 |
| Net loss | $(21.2) | $(8.8) | Loss widened $12.4 |
| Net loss attributable to Sky Harbour shareholders | $(18.9) | $(6.2) | Loss per share: $(0.78) vs. $(0.41) |
| Cash used in operating activities | $(4.4) | $(4.6) | Improved by about $0.1 |
Revenue growth mainly reflected higher occupancy and additional leases at the BNA and OPF campuses; fuel-delivery revenue also increased. At March 31, the three operating campuses had 375,241 rentable square feet and 93.6% weighted-average occupancy.
- General and administrative expense increased 38% to $4.9 million, mainly from higher headcount, compensation and equity-based compensation.
- Q1 net loss included a $16.2 million noncash unrealized loss from remeasuring warrants, versus $4.2 million in Q1 2023. This fair-value item was the main reason net loss rose substantially more than operating loss.
- Investing activities provided $33.9 million, largely reflecting movements in Treasury investments; financing activities provided $0.3 million, including warrant exercise proceeds.
Financial position and liquidity
- At March 31, cash was $2.6 million, restricted cash $99.5 million, investments $37.0 million and restricted investments $20.2 million. Combined, these totaled $159.2 million, but much of the balance was restricted or invested; it should not be treated as unrestricted cash.
- Net bonds payable were $162.5 million; loans and finance lease liabilities were $8.9 million. Operating lease liabilities were $116.4 million. The Series 2021 bonds have $166.3 million principal, stated interest rates of 4.00%–4.25% and maturities in 2036, 2041 and 2054.
- Future minimum operating lease payments totaled $369.1 million before imputed interest; the recorded operating lease liability was $116.4 million. Contractual obligations, including debt principal and interest and lease commitments, totaled $691.7 million.
- Management said liquidity was sufficient to support operations for more than one year after issuance of the financial statements. The company reported compliance with debt covenants at March 31; the bonds’ 1.25 debt-service coverage test begins with the quarter ending December 31, 2024.
Material changes, outlook and risks
- During Q1, Sky entered ground leases at San Jose Mineta International Airport (SJC) and Orlando Executive Airport (ORL). The SJC lease includes an existing hangar and land for further development; ORL’s initial phase requires $30 million of improvements within 24 months of the lease’s effective date.
- Management identified a significant design defect in prototype hangars planned for APA Phase I, DVT Phase I and ADS Phase I. Expected retrofits could cost an aggregate $26–$28 million and add three to five months to each affected project. In March, the company transferred $27 million of corporate cash to the bond subsidiary, restricting it to the Series 2021 bond project scope.
- The development table estimated total construction costs of $386.3–$428.9 million for listed projects, but those estimates are subject to change. In May 2024, management said it updated estimates to reflect a larger hangar prototype; the filing does not provide a clear revised total cost for the affected program.
- Management expects ongoing operating losses and continued investment in development. Its longer-term plan targets up to 20 airport campuses; it estimates that plan would cost approximately $1.2 billion, with 65%–75% expected from bonds or other long-term debt and the remainder from equity or equity-linked financing. Funding is not assured.
- Sky opened a $100 million at-the-market equity facility in March; no shares had been sold under it as of the filing. Sales are discretionary and may dilute existing shareholders. Management also cited inflation, higher interest rates, construction-cost and schedule uncertainty, tenant demand, and access to capital as risks.
- The company said it has no material legal proceedings and no material changes to the risk factors in its 2023 Form 10-K. Management reported disclosure controls and procedures were effective as of March 31.
Most important facts for investors to verify
- Whether the $26–$28 million retrofit estimate and projected construction delays change as designs and project budgets are finalized.
- How much of the reported $159.2 million in cash and investments is available for general corporate use, given restricted balances and bond indenture requirements.
- Construction progress, lease-up and occupancy at existing campuses, and the timing and cost of development at ADS, APA, DVT, SJC and ORL.
- Future funding needs and terms, including potential debt issuance, use of the $100 million ATM facility, and resulting dilution or borrowing costs.
- Warrant fair-value volatility and its effect on reported earnings, separately from operating performance and cash flow.