HRBR filed its 10-Q this morning. Overall, the company did well in Q3 considering all the issues around the transition to American Air and the various labor shortage issues.
I will summarize the main points:
The company reported $1.4M in EBITDA for the qtr and spent $2.7M on legal expenses in the UAL dispute. Stripping this amount out EBITDA was $4.1M. I am quite happy with that number considering the factors discussed above.
The resolution of the arbitration with UAL over $53M has now been pushed out to Q1 2024. This is taking a lot longer than expected and given Rich Bartlett is as sharp a legal mind as there is, I keep thinking he knows what he is doing here. (you don’t graduate from Yale Law at the top of your class and become a Supreme Court clerk out of school being a dummy)
The company seems to have initiated a dispute with its lenders who declared a default. The company said it has now started negotiating the full prepayment of its $48M in debt in exchange for a discount. This is quite reasonable for the lender, US Bank, who would like to get the 4% loan off its books and will likely agree to a haircut to get it done. This clears the way for HRBR to perhaps sell the 19 unused CRJ200 jets it currently has. At $1.5M each, those excess planes could generate ~$25MM in net proceeds. I believe they can purchase 10 newer CRJ700 planes at $2.5M. This was the price MESA sold CRJ700 11 months ago. The company clearly seems to be gearing up for this if you examine their hiring plans on its website.
The stock buyback continued at an impressive pace considering the poor trading volume of the shares. As of August 7th they had 43.7MM shares out and the recent Q has 43.3MM shares as of November 7th. So they managed to purchase ~400K shares in approximately 60 trading days of ~6,600 a day. That’s probably right at the maximum 25% of ADV restriction. Not bad at all.
The company is also now eligible for bonus payments for performance from AAL and this should help profitability going forward.
The company has fully worked through its deferred revenue balance which should improve cash flow going forward as well.
These are the main points I have gathered on a first read of the Q. The thesis here seems to be on track. Shares can be purchased at negative EV in my opinion, assuming you believe like I do, each CRJ200 is worth $1.5M or so. At a negative EV you get $15-$25MM in annual EBITDA with no I and probably $7M of real D&A. So $10MM of average FCF. Meanwhile, the company is gearing up to purchase newer planes that will extend the company’s terminal value. All the while Bartlett continues to buy back shares increasing his ownership which is 60% including the convertible pfds a negative EV.