MESA AIR GROUP, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements, the accompanying notes, and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forwardlooking statements that involve risks and uncertainties such as our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the sections titled "Cautionary Notes Regarding Forward-Looking Statements" above and "Risk Factors" below. OverviewMesa Airlines is a regional air carrier providing scheduled flight service to 144 cities in 41 states, theDistrict of Columbia ,Canada ,Mexico ,Cuba and theBahamas . All of our flights are operated as either American Eagle or United Express flights pursuant to the terms of capacity purchase agreements we entered into withAmerican Airlines, Inc. ("American") andUnited Airlines, Inc. ("United") (each, our "major airline partner"). We have a significant presence in several of our major airline partners' key domestic hubs and focus cities, includingDallas ,Houston ,Phoenix andWashington -Dulles. As ofDecember 31, 2019 , we operated a fleet of 145 aircraft with approximately 742 daily departures. We operate 60 CRJ-900 aircraft under our capacity purchase agreement with American (our "American Capacity Purchase Agreement") and 20 CRJ-700 and 60 E-175 aircraft under our capacity purchase agreement with United (our "United Capacity Purchase Agreement"). For the three months endedDecember 31, 2019 , approximately 55.2% of our aircraft in scheduled service were operated for United and approximately 44.8% were operated for American. All of our operating revenue in our fiscal year endedSeptember 30, 2019 (our "2019 fiscal year") and the three months endedDecember 31, 2019 was derived from operations associated with our American and United Capacity Purchase Agreements. Our long-term capacity purchase agreements provide us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour (the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination) and flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying on behalf of our major airline partners. Our capacity purchase agreements also shelter us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers. In providing regional flying under our capacity purchase agreements, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of our major airline partners. Our major airline partners control route selection, pricing, seat inventories, marketing and scheduling, and provide us with ground support services, airport landing slots and gate access.
Components of Results of Operations
The following discussion summarizes the key components of our condensed consolidated statements of operations.
Operating Revenues
Our condensed consolidated operating revenues consist primarily of contract revenue flight services as well as pass-through and other revenues.
Contract Revenue. Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our capacity purchase agreements with our major airline partners, along with the additional amounts received based on the number of flights and block hours flown. Contract revenues we receive from our major airline partners are paid and recognized by us on a weekly basis. Pass-Through and Other. Pass-through and other revenue consists of passenger and hull insurance, aircraft property taxes, and certain maintenance costs related to our E-175 aircraft. Operating Expenses
Our operating expenses consist of the following items:
Flight Operations. Flight operations expense includes costs related to salaries,
bonuses and benefits earned by our pilots, flight attendants, and dispatch
personnel, as well as costs related to technical publications, lodging of our
flight crews and pilot training expenses.
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Fuel. Fuel expense includes fuel and related fueling costs for flying we
undertake outside of our capacity purchase agreements, including aircraft
repositioning and maintenance. All aircraft fuel and related fueling costs for
flying under our capacity purchase agreements were directly paid and supplied by
our major airline partners. Accordingly, we do not record an expense or the
related revenue for fuel supplied by American and United for flying under our
capacity purchase agreements.
Maintenance. Maintenance includes costs related to engine overhauls, airframe,
landing gear and normal recurring maintenance, which includes pass-through
maintenance costs related to our E-175 aircraft, as well as maintenance lease
return obligations on our leased aircraft when the expense is probable and can
be reasonably estimated. We record these expenses using the direct expense
method of accounting, wherein the expense is recognized when the maintenance
work is completed, or over the repair period, if materially different. Our
maintenance policy is determined by fleet when major maintenance is incurred. As
a result of using the direct expense method, the timing of maintenance expense
reflected in the financial statements may vary significantly period to period.
Aircraft Rent. Aircraft rent includes costs related to leased engines and aircraft.
Aircraft and Traffic Servicing. Aircraft and traffic servicing includes expenses related to our capacity purchase agreements, including aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major airline partners. General and Administrative. General and administrative expense includes insurance and taxes, the majority of insurance and taxes are pass-through costs, non-operational administrative employee wages and related expenses, building rents, real property leases, utilities, legal, audit and other administrative expenses.
Depreciation and Amortization. Depreciation expense is a periodic non-cash charge primarily related to aircraft, engine and equipment depreciation. Amortization expense is a periodic non-cash charge related to our customer relationship intangible asset.
Other (Expense) Income, Net
Interest Expense. Interest expense is interest on our debt to finance purchases of aircraft, engines, equipment as well as debt financing costs amortization.
Interest Income. Interest income includes interest income on our cash and cash equivalent balances.
Other Expense. Other expense includes expense derived from activities not classified in any other area of the condensed consolidated statements of income, including write-offs of miscellaneous third-party fees.
Segment Reporting
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing operating performance. In consideration of ASC 280, "Segment
Reporting," we are not organized around specific services or geographic regions.
We currently operate in one service line providing scheduled flight services in
accordance with our capacity purchase agreements.
While we operate under two separate capacity purchase agreements, we do not
manage our business based on any performance measure at the individual contract
level. Additionally, our chief operating decision maker ("CODM") uses condensed
consolidated financial information to evaluate our performance, which is the
same basis on which he communicates our results and performance to our Board of
Directors. The CODM bases all significant decisions regarding the allocation of
our resources on a consolidated basis. Based on the information described above
and in accordance with the applicable literature, management has concluded that
we are organized and operated as one operating and reportable segment.
Cautionary Statement Regarding Non-GAAP Measures
We present EBITDA and EBITDAR in this Quarterly Report on Form 10-Q, which are
not recognized financial measures under GAAP, as supplemental disclosures
because our senior management believes that they are well recognized valuation
metrics in the airline industry that are frequently used by companies,
investors, securities analysts and other interested parties in comparing
companies in our industry.
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EBITDA. We define EBITDA as net income or loss before interest, income taxes, and depreciation and amortization.
EBITDAR. We define EBITDAR as net income or loss before interest, income taxes, depreciation and amortization, and aircraft rent.
EBITDA and EBITDAR have limitations as analytical tools. Some of the limitations applicable to these measures include: (i) EBITDA and EBITDAR do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; (ii) EBITDA and EBITDAR do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (iii) EBITDA and EBITDAR do not reflect changes in, or cash requirements for, our working capital needs; (iv) EBITDA and EBITDAR do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future; and (vi) EBITDA and EBITDAR do not reflect any cash requirements for such replacements and other companies in our industry may calculate EBITDA and EBITDAR differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA and EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, EBITDAR should not be viewed as a measure of overall performance because it excludes aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. For the foregoing reasons, each of EBITDA and EBITDAR has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information. Results of Operations
Three Months Ended
We had operating income of$27.2 million in our three months endedDecember 31, 2019 compared to operating income of$39.2 million in our three months endedDecember 31, 2018 . In our three months endedDecember 31, 2019 , we had net income of$10.8 million compared to net income of$19.1 million in our three months endedDecember 31, 2018 . Our operating results for the three months endedDecember 31, 2019 reflected an increase in contract revenue primarily related to additional flying on our E-175 fleets and an increase in pass-through and other revenues primarily due to an increase in maintenance pass-through expense. Our maintenance expense increased primarily due to more C-check and engine heavy maintenance events due to timing of events. Our aircraft rent decreased in the three months endedDecember 31, 2019 compared to the same period in 2018 mainly as a result of purchasing ten CRJ-700 aircraft that were previously leased under our GECAS Lease Facility. We also had an increase in depreciation expense primarily due to the purchase of ten CRJ-700 aircraft that were previously leased under our GECAS Lease Facility. Operating Revenues Three Months Ended December 31, 2019 2018 Change Operating revenues ($ in thousands): Contract$ 171,800 $ 170,449 $ 1,351 0.8 % Pass-through and other 12,236 7,707 4,529 58.8 % Total operating revenues$ 184,036 $ 178,156 $ 5,880 3.3 % Operating data: Available seat miles-ASMs (thousands) 2,735,386 2,708,899 26,487 1.0 % Block hours 115,562 115,000 562 0.5 % Revenue passenger miles-RPMs (thousands) 2,151,593 2,111,193 40,400 1.9 % Average stage length (miles) 573 578 (5 ) (0.9 )% Contract revenue per available seat mile-CRASM (in cents) ¢ 6.28 ¢ 6.29 ¢ (0.01) (0.2 )% Passengers 3,697,138 3,620,115 77,023 2.1 %
"Available seat miles" or "ASMs" means the number of seats available for passengers multiplied by the number of miles the seats are flown.
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"Average stage length" means the average number of statute miles flown per flight segment.
"Block hours" means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.
"CRASM" means contract revenue divided by ASMs.
"RPM" means the number of miles traveled by paying passengers.
Total operating revenue increased by$5.9 million , or 3.3%, to$184.0 million for our three months endedDecember 31, 2019 as compared to our three months endedDecember 31, 2018 . Contract revenue increased by$1.4 million , or 0.8%, to$171.8 million primarily due to an increase in flying on our E-175 fleet offset by a reduction in credits given to our major airline partners based on contractual utilization levels and decrease in AA ownership revenue due to removal of four aircraft. Our block hours flown during our three months endedDecember 31, 2019 increased 0.5% compared to the three months endedDecember 31, 2018 primarily due to increased flying on our E-175 fleet. Our pass-through and other revenue increased during our three months endedDecember 31, 2019 by$4.5 million , or 58.8%, to$12.2 million primarily due to pass-through maintenance revenue related to our E-175 fleet. Operating Expenses Three Months Ended December 31, 2019 2018 Change Operating expenses ($ in thousands): Flight operations $ 52,644 $ 53,245$ (601 ) (1.1 )% Fuel 169 121 48 39.7 % Maintenance 58,095 39,802 18,293 46.0 % Aircraft rent 11,329 14,119 (2,790 ) (19.8 )% Aircraft and traffic servicing 1,064 934 130 13.9 % General and administrative 12,996 12,214 782 6.4 % Depreciation and amortization 20,552 18,491 2,061 11.1 % Total operating expenses$ 156,849 $ 138,926 $ 17,923 12.9 % Operating data: Available seat miles-ASMs (thousands) 2,735,386 2,708,899 26,487 1.0 % Block hours 115,562 115,000 562 0.5 % Average stage length (miles) 573 578 (5 ) (0.9 )% Departures 62,725 61,534 1,191 1.9 % Flight Operations. Flight operations expense decreased$0.6 million , or 1.1%, to$52.6 million for our three months endedDecember 31, 2019 compared to the same period in 2018. The decrease was primarily driven by a decrease in pilot training wages and related training costs, partially offset by an increase in pilot and flight attendant wages as staffing levels have improved. Fuel. Fuel expense increased$0.05 million , or 39.7%, to$0.2 million for our three months endedDecember 31, 2019 compared to the same period in 2018. The increase was primarily driven by an increase in ferry flight fuel. All fuel costs related to flying under our capacity purchase agreements during our three months endedDecember 31, 2019 and 2018 were directly paid to suppliers by our major airline partners. Maintenance. Aircraft maintenance costs increased$18.3 million , or 46.0%, to$58.1 million for our three months endedDecember 31, 2019 compared to the same period in 2018. This increase was primarily driven by an increase in engine overhaul expense, c-check expense, and labor and other expense. Total pass-through maintenance expenses reimbursed by our major airline partners increased by$3.5 million during our three months endedDecember 31, 2019 . 24
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The following table presents information regarding our maintenance costs during
our three months ended
Three Months Ended December 31,
2019 2018 Change
Engine overhaul $ 8,751 $ 2,621 $ 6,130 233.9 %
Pass-through engine overhaul 1,851 1,541 310 20.1 %
C-check 6,051 1,511 4,540 300.5 %
Pass-through C-check 1,220 - 1,220 100.0 %
Component contracts 9,687 9,196 491 5.3 %
Rotable and expendable parts 7,405 7,184 221 3.1 %
Other pass-through 4,337 2,368 1,969 83.2 %
Labor and other 18,793 15,381 3,412 22.2 %
Total $ 58,095 $ 39,802 $ 18,293 46.0 %
Aircraft Rent. Aircraft rent expense decreased $2.8 million , or 19.8%, to $11.3
million for our three months ended December 31, 2019 compared to the same period
in 2018. The decrease is attributable to a $3.9 million decrease in aircraft
lease expense as a result of purchasing ten CRJ-700 aircraft which were
previously leased under the GECAS Lease Facility in June 2019 , offset by a $1.1
million increase in engine rent due to leasing additional engines.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expense increased
$0.1 million , or 13.9%, to $1.1 million for our three months ended December 31,
2019 compared to the same period in 2018. The increase is primarily due to an
increase in interrupted trip expense, offset partially by pass-through
regulatory charges. For our three months ended December 31, 2019 and 2018, 42.2%
and 53.4%, respectively, of our aircraft and traffic servicing expenses were
reimbursed by our major airline partners.
General and Administrative. General and administrative expense increased $0.8
million , or 6.4%, to $13.0 million for our three months ended December 31, 2019
compared to the same period in 2018. The increase is primarily due to an
increase in pass-through insurance expenses. For our three months ended December
31, 2019 and 2018, $4.4 million and $3.1 million , respectively, of our insurance
and property tax expenses were reimbursed by our major airline partners.
Depreciation and Amortization. Depreciation and amortization expense increased
$2.1 million , or 11.1%, to $20.6 million for our three months ended December 31,
2019 compared to the same period in 2018. The increase is primarily attributable
to an increase in depreciation expense related to the purchase of ten CRJ-700
aircraft which were previously leased under the GECAS Lease Facility. The
increase was also partially related to the purchase of spare engines and rotable
inventory, partially offset by a decrease in aircraft enhancement depreciation.
Other Expense
Other expense decreased$1.3 million , or 9.4%, to$12.9 million for our three months endedDecember 31, 2019 , compared to the same period in 2018. The decrease is primarily a result of a decrease in interest expense due to lower interest rates on our new Spare Engine Facility and a decrease in outstanding aircraft principal balances. Additionally, our loss on disposal increased in the three months endedDecember 31, 2019 , compared to the same period in 2018.
Income Taxes
The Company's effective tax rate (ETR) from continuing operations was 24.7% for the three months endedDecember 31, 2019 and 23.8% for the three months endedDecember 31, 2018 . The Company's current year effective tax rate increased compared to the prior year tax rate as a result of an increase to permanent differences between book and taxable income in the deductibility of meals, employer provided parking, and compensation of officers. In addition, the Company's rate varied from the prior year's as a result of the vesting of stock compensation where the tax deduction differed from the book expense, state taxes, changes in the valuation allowance against state net operating losses, and changes in state statutory rates. The income tax provision for the three months endedDecember 31, 2019 results in an effective tax rate of 24.7% which differs from theU.S. federal statutory rate of 21% primarily due to permanent book and tax deductible expense differences, state taxes, changes in the valuation allowance against state net operating losses, routine stock vestings and exercises, and changes in state apportionment and state statutory rates. 25
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We continue to maintain a valuation allowance on a portion of our state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.
As ofSeptember 30, 2019 , we had aggregate federal and state net operating loss carryforwards of$478.3 million and$228.3 million , respectively, which expire in 2027-2037 and 2020-2039, respectively. Approximately$2.7 million of state net operating loss carryforwards are expected to expire in 2020.
EBITDA and EBITDAR
The following table presents a reconciliation of net income to estimated EBITDA and EBITDAR for the period presented (in thousands):
Three Months Ended December 31,
2019 2018
Reconciliation:
Net income $ 10,785 $ 19,081
Income tax expense 3,535 5,949
Income before taxes 14,320 25,030
Interest expense 12,628 14,842
Interest income (58 ) (156 )
Depreciation and amortization 20,552 18,491
EBITDA $ 47,442 $ 58,207
Aircraft rent 11,329 14,119
EBITDAR $ 58,771 $ 72,326 Liquidity and Capital Resources
Sources and Uses of Cash
We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent and to pay debt service obligations, including principal and interest payments. Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events. Our principal sources of liquidity are cash on hand, cash generated from operations and funds from external borrowings. In the near term, we expect to fund our primary cash requirements through cash generated from operations and cash and cash equivalents on hand. We also have the ability to utilize our credit and guaranty agreement (the "CIT Revolving Credit Facility") pursuant to which the CIT Lenders committed to lend toMesa Airlines andMesa Air Group-Airline Inventory Management, LLC , ("MAG-AIM") revolving loans in the aggregate principal amount of up to$35.0 million , which remains available until the facility matures onAugust 12, 2022 .
We believe that the key factors that could affect our internal and external sources of cash include:
? Factors that affect our results of operations and cash flows, including
the impact on our business and operations as a result of changes in demand
for our services, competitive pricing pressures, and our ability to
achieve further reductions in operating expenses; and
? Factors that affect our access to bank financing and the debt and equitycapital markets that could impair our ability to obtain needed financing
on acceptable terms or to respond to business opportunities and
developments as they arise, including interest rate fluctuations,
macroeconomic conditions, sudden reductions in the general availability of
lending from banks or the related increase in cost to obtain bank
financing, and our ability to maintain compliance with covenants under our
debt agreements in effect from time to time.
Our ability to service our long-term debt obligations, including our equipment
notes, to remain in compliance with the various covenants contained in our debt
agreements and to fund working capital, capital expenditures and business
development efforts will depend on our ability to generate cash from operating
activities, which is subject to, among other things, our future operating
performance, as well as to other factors, some of which may be beyond our
control.
If we fail to generate sufficient cash from operations, we may need to raise
additional equity or borrow additional funds to achieve our longer-term
objectives. There can be no assurance that such equity or borrowings will be
available or, if available, will be at rates or prices acceptable to us.
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We believe that cash flow from operating activities coupled with existing cash
and cash equivalents, short-term investments and existing credit facilities will
be adequate to fund our operating and capital needs, as well as enable us to
maintain compliance with our various debt agreements, through at least the next
12 months. To the extent that results or events differ from our financial
projections or business plans, our liquidity may be adversely impacted.
During the ordinary course of business, we evaluate our cash requirements and,
if necessary, adjust operating and capital expenditures to reflect the current
market conditions and our projected demand. Our capital expenditures are
primarily directed toward our aircraft fleet and flight equipment. Our capital
expenditures, net of purchases of rotable spare parts and aircraft and spare
engine financing for three months ending December 31,2019 is approximately 4.6%
which is higher compared to our historical expense of approximately 1.2% to 1.5%
of annual revenues due to expenses incurred related to aircraft enhancements. We
expect to continue to incur capital expenditures to support our business
activities. Future capital expenditures may be impacted by events and
transactions that are not currently forecasted.
As of December 31, 2019 , our principal sources of liquidity were cash and cash
equivalents of $57.8 million . In addition, we had restricted cash of $3.4
million as of December 31, 2019 . Restricted cash includes certificates of
deposit that secure letters of credit issued for particular airport authorities
as required in certain lease agreements. Primary uses of liquidity are capital
expenditures, and debt repayments. As of December 31, 2019 , we had
$164.1 million of short-term debt, excluding financing leases, and $641.0
million of long-term debt excluding financing leases.
Sources of cash for the three months ended December 31, 2019 were primarily cash
flows from operations of $38.2 million . This positive cash flow was primarily
driven by receipts from performance under our capacity purchase agreements.
Restricted Cash
As ofDecember 31, 2019 , we had$3.4 million in restricted cash. We have an agreement with a financial institution for a$6.0 million letter of credit facility and to issue letters of credit for landing fees, worker's compensation insurance and other business needs. Pursuant to the agreement,$3.5 million of outstanding letters of credit are required to be collateralized by amounts on deposit. Cash Flows
The following table presents information regarding our cash flows for each of
the three months ended
Three Months Ended December 31,
2019 2018
Net cash provided by operating activities $ 38,230 $ 44,145
Net cash used in investing activities (12,828 ) (20,329 )
Net cash used in by financing activities (36,692 ) (38,706 )
Net decrease in cash and cash equivalents (11,290 ) (14,890 )
Cash and cash equivalents at beginning of period 72,501 107,134
Cash and cash equivalents at end of period $ 61,211 $ 92,244
Net Cash Flow Provided By Operating Activities
During our three months endedDecember 31, 2019 , cash flow provided by operating activities of$38.2 million . We had net income of$10.8 million adjusted for the following significant non-cash items: depreciation and amortization of$20.6 million , stock-based compensation of$1.3 million , deferred income taxes of$3.2 million , amortization of deferred credits of$(1.1) million , amortization of debt financing costs and accretion of interest on non-interest bearing subordinated notes of$1.1 million ,$0.4 million loss on disposal of assets and$0.1 million provision of obsolete expendable parts and supplies. We had a net change of$1.9 million within other net operating assets and liabilities largely driven by an increase in accrued liability during our three months endedDecember 31, 2019 .
Net Cash Flows Used In Investing Activities
During our three months endedDecember 31, 2019 , net cash flow used in investing activities totaled$(12.8) million . We invested$2.8 million in two spare engines,$5.0 million in aircraft improvements,$4.5 million in inventory, and$0.6 million in miscellaneous projects. 27
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Net Cash Flows Used In Financing Activities
During our three months ended December, 2019, net cash flow used in financing activities was$(36.7) million . We made$36.5 million of principal repayments on long-term debt during the period. We incurred$0.2 million of costs related to debt financing and$0.04 million of costs related to the repurchase of shares of our common stock.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) a retained or a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission (the "SEC"). A majority of our leased aircraft are leased through trusts formed for the sole purpose of purchasing, financing and leasing aircraft to us. Because these are single-owner trusts in which we do not participate, we are not at risk for losses and we are not considered the primary beneficiary. We believe that our maximum exposure under the leases are the remaining lease payments and any return condition obligations.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss below. The accompanying discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated interim financial statements included elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted inthe United States . We believe certain of our accounting policies are critical to understanding our financial position and results of operations. Except with respect to our revenue recognition practices included in Note 2: "Summary of Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, there have been no changes to the critical accounting policies as explained in Part 1, Item 7 of the 2018 Form 10-K under the heading "Critical Accounting Policies."
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3: "Summary of Significant Accounting Policies" to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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