Sky Harbour Group Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company develops, leases and manages business-aircraft hangars. It completed its business combination on January 25, 2022; comparative 2021 results are those of predecessor Sky Harbour LLC, so the periods are not fully comparable.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.409m | $0.394m | $0.805m | $0.784m |
| Operating expenses | $5.536m | $2.790m | $11.508m | $4.517m |
| Net income (loss) | $10.263m | ($2.778m) | ($9.251m) | ($4.824m) |
| Net income (loss) attributable to SHG shareholders | $12.665m | ($2.778m) | ($3.098m) | ($4.824m) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | ($24.304m) | ($2.445m) |
Amounts are in U.S. dollars; financial statement amounts above are converted from thousands. Revenue increased about 4% year over year in both periods, primarily from additional Sugar Land tenant leases. The filing does not report a gross margin. Operating expenses substantially exceeded revenue.
- Q2 net income included a $15.390m noncash unrealized gain from revaluing warrants. Excluding that gain, the company had a loss before tax of approximately $5.127m. The gain also drove a marked divergence between reported basic EPS of $0.85 and diluted EPS of ($0.09); six-month basic and diluted EPS were both ($0.24).
- General and administrative expense rose to $4.031m in Q2 from $1.569m, mainly due to higher staffing and incentive costs, public-company professional fees, and other administrative expenses. Six-month G&A was $8.714m versus $2.159m.
- Cash and restricted cash totaled $42.188m at June 30, 2022, including $38.392m of restricted cash. The company also held $29.913m of investments and $138.072m of restricted investments. These restricted balances are not freely available for general operating needs.
- Six-month investing cash outflow was $189.312m, largely reflecting purchases of Treasury securities and construction spending; financing cash inflow was $51.869m, including $45m from the BOC PIPE and $15.691m from the Yellowstone trust, partly offset by issuance costs.
- Net bonds payable were $160.832m (principal $166.340m); operating lease liabilities were $52.252m. Bonds carry fixed rates of 4.00%–4.25%, with maturities in 2036, 2041 and 2054. Interest was capitalized during the 2022 periods, so reported interest expense was zero.
Changes, outlook and risks
- Cost of construction increased to $54.288m from $25.034m at year-end 2021. The company reported six airport campuses in development or operation and estimated $210.3m in total construction costs for its listed portfolio.
- The company expects recurring operating losses and negative operating cash flows in the near term, but stated that available liquidity was sufficient to support operations for more than one year after issuance of the statements.
- Management estimated annual public-company G&A of approximately $15m. Its longer-term plan contemplated 20 airport sites at an estimated cumulative cost of approximately $930m, with about 75% expected to be funded through long-term private activity bonds. Future expansion is discretionary and depends on securing sites, permits and financing; this is not a near-term earnings forecast.
- Management cited inflation, construction-material availability and contractor delays as pressures on project budgets and schedules, with no assurance that higher costs can be recovered through rents. Other key risks include attracting tenants at sufficient rental rates, tenant concentration (two tenants generated 88% of Q2 revenue), future access to debt and equity capital, and interest-rate and credit-spread changes.
- Ground-lease covenants impose project spending and completion requirements, including commitments at SGR Phase II, BNA, DVT and ADS; failure to meet certain requirements could trigger lease termination, additional rent or a shorter lease term. The company reported compliance with bond covenants at June 30, 2022; the debt-service coverage test begins in 2024.
- Unusual items included a $0.248m impairment of abandoned smart-hangar software and an OPF ground-lease transaction involving approximately $8.5m to acquire the underlying lease interest and $1.0m in assignment fees. Management expects the OPF transaction to reduce undiscounted ground-lease cash payments by at least $30m over the lease term.
- No material legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective and reported no materially significant change in internal control during the quarter.
Important facts for investors to verify
- How much of reported Q2 profitability depends on the noncash warrant remeasurement, and how warrant dilution affects future per-share results.
- Unrestricted liquidity and the timing and availability of construction funding, given restricted cash and investment balances and continuing operating cash outflows.
- Construction budgets, project milestones, permitting status and tenant pre-leasing at OPF, BNA, APA, DVT, ADS and SGR Phase II.
- Tenant concentration, contracted rents and occupancy needed to support future operating costs and bond coverage.
- Ability to raise the additional debt and equity contemplated by the expansion plan without materially higher borrowing costs or shareholder dilution.
- The filing’s MD&A narrative gives a six-month 2021 G&A figure of $2.075m in one passage, while the financial statements and comparison table show $2.159m; confirm the intended comparator.