Hello, everyone. Thank you for joining us and welcome to the RJet fourth quarter 2025 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Keely Mitchell. Please go ahead.
Thank you, Warren, and thank you everyone for joining Republic's first earnings call subsequent to the Mesa merger. On with me today are David Grizzle, Chairman and Chief Executive Officer, Matt Koscal, President and Chief Commercial Officer, and Joe Allman, Senior Vice President and Chief Financial Officer. I will kick off our call today reading the safe harbor disclosure, and then I will turn the call over to David for some opening remarks to discuss the strengths of Republic and our position within the regional airline industry. Following David, Matt will walk us through the Mesa merger and integration, key differentiating investments that have positioned Republic for the long term and our focus on long-term strategy. Following Matt, Joe will take us through the financial results, the fleet and provide guidance for 2026. We will then open the call for Q&A.
In the investor relations section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This call is being recorded and will be available for replay on our investor relations website. Today's discussion will include forward-looking statements regarding Republic Airways future performance, strategic initiatives and market outlook. These statements reflect our current expectations and beliefs based on information available to us today, but they are subject to various risks and uncertainties that could cause actual results to differ materially from our projections. The aviation industry operates in a dynamic environment with inherent risks, including regulatory changes, economic fluctuations, weather-related disruptions, and evolving market conditions that can significantly impact our operations and financial performance. Additionally, our business is subject to the operational and financial health of our major airline partners, labor market conditions, aircraft availability, and other factors beyond our direct control.
For a comprehensive understanding of the specific risks and uncertainties that may affect our business and financial results, I encourage all participants to review our detailed disclosure in our filings with the Securities and Exchange Commission, including our Form 10-K to be filed with the SEC. These documents provide important context and detailed information that supplement today's discussion and are or will be available on both the SEC's website and in the investor relations section of our company website at rjet.com. Throughout this webcast, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, appear in today's earnings press release and presentation, which are available on our investor relations website. Now I will turn the call over to David.
Thank you, Keely. Good morning, everyone, and thank you for joining us on the call today. Before I dive into our presentation, I would like to give a thank you to our more than 8,400 Republic and Mesa associates across the network. These aviation professionals persevered through a challenging quarter, navigating the longest U.S. government shutdown in history and significant winter weather disruptions which have extended into the new year. Moreover, our associates who support our frontline associates have done extraordinary work to bring our merger with Mesa to the finish line and to set us up for success in the future. In the midst of all of this, we delivered strong results for the quarter and full year 2025. Let's start with the key messages about Republic Airways we will discuss today.
Republic is a leader in operational excellence, and we have a highly experienced senior leadership team with 100+ years of collective aviation industry experience. The leadership and vision of our executive team is focused on continuing to position the airline for long-term sustainable performance. We have made targeted investments in training infrastructure, technology and fleet growth that enhance reliability and expand our ability to support partners at scale. Our vertically integrated workforce pipeline gives us a structural advantage in a constrained labor environment. We maintain a strong balance sheet with an improving debt profile supporting financial resilience. In 2026, as we execute the Mesa integration, we expand our scale, increase strategic relevance and position the company for greater breadth and long-term value creation.
We reported Q4 results to date with an adjusted EPS of $0.54 and total revenue of $464 million, up 21% in Q4 versus the similar period in the prior year. With the closing of the transformational merger with Mesa, Republic Airways is now back in the market as a publicly traded company. For those who are new to the Republic story, we are the largest Embraer jet operator with 306 E170 and E175 aircraft, which as a single fleet type drives operational simplicity. We maintain long-standing partnerships with American, Delta, and United, with our fleet diversified across those key partners. We operate 12 crew bases, mostly in the Eastern U.S., and carried 21 million passengers in 2025, supporting 800 daily departures and more than 370,000 safe arrivals.
Our operational performance remains our most important differentiator, as evidenced by our delivering nearly 100% controllable completion and approaching 10 hours per day of utilization for each contract aircraft. In fact, in 2025, we had 349 days of perfect controllable operations, which is no small feat. Our 2026 financial projections reflect that execution, with revenue reaching a $2 billion run rate with Mesa included on a full year basis. Projected adjusted EBITDAR strengthened to $380 million, underscoring operational leverage and improving profitability. Our business model is built on contractual revenue streams that significantly mitigate demand risk. Under these agreements, our partners are responsible for ticket pricing and demand management, while we are responsible for providing safe, reliable, and cost-efficient operations. Our customers also bear 100% of the fuel risk.
This structure allows us to focus relentlessly on operational performance and cost discipline, which are the core drivers of value in our model. Over the past three decades, Republic has consistently evolved its fleet, scale, and structure while remaining anchored in operational excellence and the CPA business model. We transitioned from a turboprop-focused operator in the late 1990s to an early adopter of larger regional jets, expanded through strategic acquisitions and ultimately sharpened our focus exclusively on contract regional flying. Today with a unified E170, E175 fleet and the Mesa merger positioning us for greater scale and market share, we enter our next chapter as a stronger, more focused and strategically relevant regional partner.
Regional airlines are the backbone of the U.S. Air Transportation System, serving 95% of the nation's airports that provide scheduled passenger service and providing the only source of scheduled air service to 64% of those communities. Regional airlines operate seamlessly behind the major airline brands and have undergone significant consolidation over the past decade and a half. In 2009, there were 16 top independent regional airlines competing in the market. Today, that number has narrowed to just 4 fully scaled independent operators. This consolidation highlights Republic's position as one of the few independent regionals supporting the largest brands in commercial aviation. Now I'd like to turn the call over to Matt, who has been a standout leader at Republic for over a decade and a great partner to me. As we announced in December, the board expects to promote Matt to CEO within this calendar year.
He has been instrumental in building our culture, strengthening relationships with our valued customers, and driving operational excellence. In addition to his responsibilities as President and Chief Commercial Officer, Matt is also spearheading the Mesa integration. Matt?
Thank you, David. Republic is a high-density operator in the most competitive and capacity-constrained markets in the country. In the New York City area, Republic records the highest number of arrivals, surpassing even several mainline carriers. We also rank among the top three operators in both the Washington D.C. region and Boston. This scale demonstrates Republic's ability to operate reliably and efficiently in some of the densest and most operationally complex airspace in the U.S. Our presence in these core hubs underscores our strategic importance to our major airline partners. It also means that our flights can be more impacted by air traffic control issues than others, and therefore, the geography where we operate is an important factor when comparing our performance to others in the industry. This slide shows our current routes and reinforces the prior slide that we are highly concentrated in the Northeast Corridor.
With the Mesa merger, we enter our next chapter with greater scale, adding a new hub in Houston, providing new access to international markets in Mexico. On the right side of the slide, we show our history of operational excellence over a 3-year period. Despite our concentration in heavily congested markets, Republic consistently delivered an industry-leading number of days with a 100% controllable completion factor. Republic Airways's long-term business plan is anchored in stable multi-year capacity purchase agreements or CPAs. Built on the Embraer platform, we operate 275 Embraer aircraft with an average age of 13 years. Plus, we have 31 aircraft in non-operating leasing relationships, bringing the total committed fleet to 306 aircraft.
The fleet is diversified across American, Delta, and United under a mix of debt finance, partner-controlled, and owned aircraft structures, demonstrating flexibility and shared investment with our major airline partners. Our contract exposure is also well staggered, with average expirations extending to late 2028 for Delta, 2030 for American, and into 2034 for United. Overall, we have long duration revenue visibility and balance sheet optionality embedded within Republic's partnership-driven model. Of the 306 committed aircraft, 31% are debt-financed, with obligations generally aligned to the CPA contract terms, reducing refinancing risk, underscoring a fleet strategy that supports long-term balance sheet strength and flexibility. 34% of the aircraft are owned outright with no encumbrances, providing significant collateral and financial optionality. The remaining 35% are partner-controlled, meaning they operate without carrying the associated financial burden.
Overall, nearly 70% of the fleet is either unencumbered or operated without direct financing obligations, underscoring a more conservative capital structure and reduced financial risk profile. Our team of aviation professionals deliver exceptional operational safety and reliability and truly demonstrate trust, respect, and care for our passengers and partners. Republic is a company rooted in a distinctive culture of employee engagement and operational excellence. Our strong culture positions us as an employer of choice in the regional airline industry. Combined with our industry-leading Workforce Development Academy, LIFT, we have created a differentiated talent pipeline that supports long-term staffing stability and operational consistency. We have made targeted investments in training infrastructure, technology, and fleet growth that enhance reliability and expand our ability to support partners at scale. Our vertically integrated workforce pipeline gives us a structural advantage in a constrained labor environment.
The combination of Republic and Mesa creates a scaled regional platform with approximately 8,400 associates producing in excess of 865,000 block hours on a fleet of 306 aircraft. The combined company will operate 12 crew bases and serve 142 destinations, expanding scale, network breadth, and scheduling flexibility. Together, the merger enhances scale, opportunities for our associates, and operational relevance across our major airline partners. Let's talk about the Mesa integration. The Mesa integration is structured around 4 clear work streams designed to deliver operational, financial, and regulatory alignment over 2026 and 2027. First, we are consolidating back-office operations, including HR, compliance, finance, and supply chain. This work is well underway, and we expect it to be substantially completed by Q3 of 2026. Second, we're consolidating strategic operations and IT systems into a single cohesive infrastructure.
We expect this work stream to be complete, except for our dedicated IT ops systems, by the end of 2026, with strengthened internal controls. Third, we are focused on fleet health restoration and full E175 harmonization to drive maximum utilization, compliance consistency, and improved maintenance and inventory management across the combined fleet. This is a 2-year project. We expect to complete 40% of this work by the end of the year and finish the fleet harmonization by year-end 2027. Fourth, we are pursuing harmonization of the operating certificates in order to align manuals, maintenance programs, and operational oversight so that we can create one unified airline from an FAA perspective at the optimal time. Finally, we are harmonizing labor agreements and seniority lists with a goal of implementing joint collective bargaining agreements with each of our organized labor groups.
As we execute these initiatives, we expect to align our workforce, fleet, and operations to compete more aggressively for future CPA flying. While integration costs are incurred during the transition, the end state supports stronger margins, greater efficiency, and enhanced long-term value creation. I'd like to turn the call over to Joe to walk us through Q4 and full year 2025 results, which include the 36 days of Mesa results since the merger close. Joe?
Thanks, Matt, and good morning, everyone. It's great to be here with you. This morning, we reported fourth quarter GAAP net income of $5 million on 42.6 million weighted average diluted shares or $0.12 per diluted share. Our effective tax rate was 70% for the quarter, which is well above what we would consider normal. The effective tax rate for the quarter and the full year of 2025 was negatively impacted by the nondeductibility of certain items. Total revenue for the quarter was $464 million, up 21% year-over-year, supported by a 23% increase in block hours and an 8% increase in overall average daily utilization per scheduled aircraft. This strong financial performance was despite the 3% lower completion factor for the quarter.
During the quarter, we experienced 3,200 more non-controllable cancellations over Q4 2024 due to a combination of factors: the government shutdown, severe winter weather, and air traffic control staffing. During Q4, we incurred $15 million in merger-related items. We expect integration activities to continue throughout 2026 and to be substantially completed by the end of 2027. Q4 net income, excluding the merger-related items and with an adjusted tax rate of approximately 29%, was $23 million or $0.54 per diluted share. Pre-tax income adjusted for merger-related items was $32 million, up 14% year-over-year. Adjusted EBITDAR for the quarter was $83 million, up 27% over the same period.
The improved year-over-year financial performance is attributable to the growth in Republic's fleet through the addition of new E175 aircraft at United and the removal and transition of some of those aircraft to a long-term operating agreement at American. In addition, the average daily utilization per scheduled aircraft increased, and the quarter included the 36 days of Mesa's operations. Moving to the full year 2025 financial performance highlights, which again only includes the 36 days of Mesa contribution, I'm going to talk to adjusted results which exclude non-recurring costs related to the separation of our prior CEO and merger-related items. Please see our reconciliations for details. GAAP net income was $76 million on 40.7 million weighted average diluted shares or $1.87 per diluted share. Adjusted net income was $114 million.
Adjusted pre-tax for the year was $161 million, and adjusted EBITDAR was $342 million, up 31% from $260 million in 2024. Total operating revenues for the year were $1.7 billion, up $200 million or 13% year-over-year. Our adjusted effective tax rate was 29%. The company's overall fleet growth of 67 aircraft increased demand for higher fleet utilization, and the 36 days of contribution from Mesa are the primary drivers of the improved financial performance, combined with our disciplined cost management. Our financial performance reflects not only strong operational execution but also the continued trust our airline partners place in our services. Now turning to the balance sheet. We generated $322 million in cash from operations, up $226 million in 2024.
After a step down in CapEx in 2024, investment increased in 2025 to support fleet growth. Despite increased investment, leverage improved meaningfully from 3.2 times at the end of 2024 to 2.7 times as of December 31, 2025, reflecting a healthier leverage profile. Our goal is to be below 2.2 times by the end of year 2026, with a long-term target below 1.5 times. Net debt trends demonstrate active balance sheet management and strong growth, with flexibility to prioritize additional paydowns as integration progresses. Our improving financial foundation supports a defined Embraer delivery schedule through 2029, with 26 future unallocated deliveries after the last three United placements are taken for this year. These aircraft provide visible capital-efficient growth opportunities for us in the future.
Overall, the combination of lower leverage and committed fleet deliveries enhances our strategic flexibility and long-term value creation, and we remain focused on maintaining our balance sheet strength. Now let's turn to guidance. For 2026, our guidance centers on block-hour production, total revenues, and Adjusted EBITDAR as the primary operating and financial performance indicators. Block hours are expected to grow to 865,000 or more, reflecting a full year of Mesa flying and improved fleet utilization as maintenance harmonization progresses and we have the full year effect of the aircraft added to our American relationship in 2025. This block hour growth should lead to revenues in the range of $2 billion, driven by higher aircraft availability and a full year of combined operations. Adjusted EBITDAR is positioned to expand to $380 million as utilization improves and integration activities begin to taper.
Capital allocation remains a key focus, with defined expectations for CapEx of about $90 million net of new financings tied to scheduled aircraft deliveries and other necessary operational and infrastructure CapEx and disciplined debt extinguishment of $165 million. We see 2026 as a transition year, balancing integration execution and debt reduction while positioning the platform for stronger earnings power into 2027 and beyond. Now I'd like to turn the call back to David.
Thank you, Joe. Republic's return to the public markets highlights a company with established market share and a clear path to continued growth. Our business is supported by a diversified set of long-term CPAs, a unified and efficient fleet, and industry-leading operational reliability. Our proprietary workforce development model and employer of choice culture provide a structural advantage in a constrained labor environment. Strengthened financial positioning and balance sheet discipline further enhance flexibility for expansion. Our integration of Mesa will position Republic as an airline of choice as participants in the regional airline industry continue to further consolidate. Backed by a seasoned leadership team, Republic is well-positioned to execute on multiple growth levers and drive sustained profitability. We appreciate the support of our employees, our partners, and our shareholders, and we look forward to delivering on the commitments we have outlined today.
Thank you again for joining us today and for your interest in Republic. Warren, we are ready to open the line for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Savanthi Syth with Raymond James. Your line is open. Please go ahead.
Hey, good morning, everyone. Thanks for taking the question. I was wondering with the transition this year and next, if you could quantify, you know, either the drag that you expect as a result of it or maybe put another way, you know, how much you can unlock once the transition is completed on the other side?
Hey, good morning, Sabi. It's Matt. Great to hear you on the call. We aren't breaking that out specifically in our guidance. I can tell you though our guidance for 2026 includes what we anticipate the drag to be. Where it could be accelerated is if we're able to achieve some of the milestones more quickly than we have planned. We absolutely would do that just to unlock the benefits of the enhanced operation. As we go through the year, you know, what we've got baked into our model is what we anticipated based off of the work streams that I outlined in the prepared remarks. As we go through the year, we'll give you updates on how we're tracking towards those milestones.
If we think we're going, you know, ahead of schedule, we'll let you know what we think that increased drag looks like.
That's helpful. On the pilot side, you know, you called out the kind of unique tools that you have from a pilot supply building side. I was curious what, you know, what you're seeing in terms of attrition, supply, and then also just, I guess, during this transition period, are you seeing kind of elevated training or other things that we should take into account?
Yeah. No. As we look at the pilot supply side, first and foremost, we feel really good about where we sit with our vertically integrated strategy, starting with LIFT, looking at the infrastructure that we've built out over the last several years with our Cadet and Ambassador programs. You know, both of those initiatives have provided us with a really deep bench of folks who are waiting for class dates today. As we look at, you know, the opportunity that we've had here with the training center, it's made us a clear employer of choice in the regional space. It's definitely been a magnet for us being, you know, the place that pilots want to come and begin their career and continue to move on and experience the opportunity to upgrade to captain.
As we look at the attrition trend, last year, we had abnormally low attrition. As we come into 2026, and we look at the hiring forecast from our mainline partners, we're expecting what we would call pre-COVID normal levels of attrition, which is healthy for us. It allows us to get back to a normal level of upgrades, which provides for that healthy career progression for our pilots, and we feel really good about what the trend looks like right now for 2026 and going into 2027.
Appreciate it. Thank you.
Absolutely.
Your next question comes from the line of Michael Linenberg with Deutsche Bank. Your line is open. Please go ahead.
Oh, yeah. Hey, good morning, everyone. I just have two quick ones here. Joe, as I heard you talk about the future deliveries, I know you said that you have 3 left for United, then there's another 26 that's unallocated through 2029. I may have missed this, can you give us a sense of what that CapEx is for 2026, maybe 2027, if you have to break it out between aircraft CapEx, non-aircraft CapEx?
Yeah. We have slightly higher CapEx in 2026 related to just some of the build-out of the integration with Mesa Air Group, some completion of the construction here at the Carmel campus, and the 3 aircraft deliveries. We highlighted, I think, $90 million or so, net of new financings on a gross basis. That's about $170 million. As we look into 2027 and beyond, you know, I'll tell you on a steady run rate basis, the business probably needs about $45 million of investment just in rotable spare parts, IT infrastructure systems, and that's probably a conservative number.
I think when we look at the aircraft deliveries, I think it's a little, you know, premature at this stage, but I would tell you we're working with the airline partners to identify placement opportunities, and certainly, repleting or replacement aircraft is an option. The realities are we're working with all three airline partners and the OEM on the timing of those deliveries and when they'll occur. The first delivery, just, you know, to give you a sense, is really scheduled there in middle part of Q1 of 2027.
Okay. Okay, great. Then just, you know, my second question, just, you know, there was a lot of movement around, you know, with the integration and the ownership of your three partners. Now that the dust has settled, what are those positions? What are their percentages? Are they subject to change? Like, is there any sort of earn in or earn out? I'm just trying to get a feel for that. Thanks for taking my questions.
Yeah. There hasn't been any major change in our ownership structure from the, you know, pre-merger Republic shareholders. We've had a great working relationship with our existing shareholders while we were in the private sector. Had constant dialogue with them, and they've been great partners and very supportive of the investments we've made to put us in this position of strength as we sit here today. We'll continue dialogue, open dialogue with them to understand their needs long term and-
Mm-hmm
... and where they want to be, and we'll be prepared to respond accordingly. We don't have any further guidance on that sitting here today.
Okay. All right, great. Thanks, Dave, Matt, Joe. Thank you.
Thanks, Mike. Thank you for joining us.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Your line is open. Please go ahead.
Hey, good morning, everyone. Thanks so much for the time. I was just wondering, can you talk about how the conversations with partners on future growth opportunities have changed post-merger, you know, if at all? Just in general, how would you characterize the demand for your product this year versus maybe the last couple? You know, accelerating, stable, decelerating? Just trying to get a sense of the demand environment and how the merger might have changed some of the tenor of those conversations. Thanks.
Yeah, no, thank you for the question. The merger environment hasn't changed any of the conversation tones with our codeshare partners. We've got a long history of working with each one of our three codeshare partners. They've been incredibly supportive of our entire process as both a private company and through the merger. As you know, we actually provide service, as we talked about in my prepared remarks, in some really difficult environments of operation for them, and we do that better than anybody else has done in the past or we believe can do today. You know, there continues to be strong demand for, you know, what we do and, in particular, where we operate. We see really, you know, bullish signals as we went into building our plan for 2026 on demand.
You're seeing some of the same things, you know, we're seeing from our codeshare partners as they're building demand different markets, in particular Chicago this year. We're prepared to respond to the increased need there. You know, the tone hasn't changed at all as we transition from a private company into the public company sector.
Great. Maybe just one more quick one on growth. One of your competitors last year placed a prospective order for you on 75, you know, without having them signed up for partners at the time of the order. Is that something you would consider or you're looking to more move in lockstep with your partners as they commit to additional shelves potentially in the future? Thanks.
No, a great question. We actually do have, you know, flexibility in our future order book. As we look at our, you know, our skyline of deliveries today, we take the last three deliveries here for our United commitment this year. Then we've got 26, you know, flex aircraft in our order book that allows us to be in a position to respond to demand in a variable fashion as it develops for our codeshare partners. I think historically, if you had looked, that would be something that, you know, we would not have done.
Sitting here today, recognizing the, you know, strength of our balance sheet, the strength of our business portfolio, and the need of our codeshare partners, being variable, you know, we felt it's important to be able to respond to those demand signals when they develop. We remain confident that as we continue to work in conversation with our codeshare partners and our OEM, that we've got the flex to, you know, move that order queue around appropriately to align it with the demand.
That's great. Thanks so much for the time.
Thank you.
There are no further questions at this time. I will now turn the call back to David Grizzle, Chairman and Chief Executive Officer, for closing remarks.
Thank you very much, Warren. Hey, thank you all for joining us this morning. We are pleased to be back in the public markets, and we look forward to building our relationships with you going forward. Thank you all very much. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.