Spirit Airlines Reports Second Quarter 2017 Results

MIRAMAR, Fla., July 27, 2017 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported second quarter 2017 financial results.

  • GAAP net income for the second quarter 2017 was $78.1 million ($1.12 per diluted share), or $79.1 million ($1.14 per diluted share)1 excluding special items.
  • GAAP operating margin for the second quarter 2017 was 18.9 percent, or 19.1 percent excluding special items1.
  • Spirit ended the second quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $969.6 million.
  • Spirit's return on invested capital (non-GAAP, before taxes and excluding special items) for the twelve months ended June 30, 2017 was 20.3 percent2.

“The progress we made with our revenue initiatives, as well as the underlying revenue trends as we headed into the June quarter, were encouraging. Unfortunately, given the level of operational disruptions and the associated financial impact, the second quarter 2017 performance overall was disappointing. We sincerely apologize to our customers who were affected by the flight disruptions during the quarter,” said Bob Fornaro, Spirit’s President and Chief Executive Officer. “Despite our financial and operational challenges in the second quarter 2017, the changes in our pricing and revenue management strategies helped to drive year-over-year improvement in passenger and non-ticket revenue per segment -- this is the first time in over two and a half years either of these metrics increased year over year.”

Revenue Performance
For the second quarter 2017, Spirit's total operating revenue was $701.7 million, an increase of 20.1 percent compared to the second quarter 2016, driven by a 9.3 percent increase in flight volume and a 7.1 percent increase in operating yields.

Total revenue per available seat mile (TRASM) for the second quarter 2017 increased 5.7 percent compared to the same period last year. During the second quarter 2017, the Company's results benefited from the calendar shift of Easter, as well as Company driven revenue initiatives and a strong underlying demand environment.

On a per passenger flight segment basis, total revenue for the second quarter 2017 increased 8.5 percent year over year to $113.07 with ticket revenue per passenger flight segment increasing 13.4 percent to $59.93 and non-ticket per passenger flight segment increasing 3.5 percent to $53.14.

Cost Performance
For the second quarter 2017, total GAAP operating expense, including special items of $1.5 million3, increased 23.1 percent, or $106.6 million, year over year to $568.9 million. Adjusted operating expense for the second quarter 2017 increased 25.1 percent, or $113.7 million to $567.5 million4. The increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume, higher passenger re-accommodation expense (recorded within other operating expenses), and higher fuel rates.

Aircraft fuel expense increased in the second quarter 2017 by 25.7 percent, or $29.1 million, compared to the same period last year, due to a 12.9 percent increase in the cost of fuel per gallon and a 11.1 percent increase in fuel gallons consumed.

Spirit reported second quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.83 cents4, an increase of 10.0 percent compared to the same period last year, driven primarily by higher passenger re-accommodation expense per ASM and higher depreciation and amortization per ASM.

Pilot-Related Cancellations
During the second quarter 2017, the Company had over 850 pilot-related flight cancellations. The Company estimates these pilot-related cancellations adversely impacted its second quarter 2017 results by approximately $45 million (approximately $25 million of revenue loss and $20 million of additional operating costs, primarily related to higher passenger re-accommodation expense). The Company estimates that had these cancellations not occurred, TRASM for the second quarter would have been up approximately 6.5 percent year over year (with the Easter shift accounting for approximately 400 basis points of the year over year increase) and Adjusted CASM ex-fuel would have been up approximately 2.0 percent year over year.

“While our cost performance for the second quarter was not satisfactory, we do not believe it materially changes our long-term cost outlook and are confident that we will continue to maintain, or grow, our relative cost advantage,” said Ted Christie, Spirit’s Executive Vice President and Chief Financial Officer.

Spirit and its pilots, represented by the Air Line Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.

Spirit took delivery of three new A320ceo aircraft and one new A321ceo aircraft during the second quarter 2017, ending the quarter with 104 aircraft in its fleet.

Recent New Service Announcements
Hartford - Orlando (4/27/17)
Hartford - Myrtle Beach (4/27/17)*
Akron-Canton - Las Vegas (4/27/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Newark - Houston (4/27/17)
Houston - Seattle (4/27/17)*
Baltimore - New Orleans (5/25/17)
Baltimore - Oakland (5/25/17)*
Baltimore - San Diego (5/25/17)
Baltimore - Seattle (5/25/17)
Cleveland - New Orleans (5/25/17)
Detroit - Oakland (5/25/17)*
Detroit - Seattle ( 5/25/17)*
Orlando - New Orleans (5/25/17)
Pittsburgh - Dallas (5/25/17)
Pittsburgh - Myrtle Beach (5/25/17)*
Hartford - Fort Lauderdale (6/15/17)
Pittsburgh - Fort Lauderdale (6/16/17)
Pittsburgh - Las Vegas (6/22/17)
Pittsburgh - Orlando (6/22/17)
Pittsburgh - Los Angeles (7/13/17)
Pittsburgh - Houston (7/13/17)
Pittsburgh - Fort Myers (11/9/17)**
Pittsburgh - Tampa (11/9/17)**
Hartford - Fort Myers (11/9/17)**
Hartford - Tampa (11/9/17)**
Baltimore - Cancun (11/9/17)
Chicago - Cancun (11/9/17)

* Seasonal Summer Service
** Seasonal Winter Service

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, July 27, 2017, at 9:00 a.m. ET. A live audio webcast of the conference call will be available to the public on a listen-only basis at http://ir.spirit.com. An archive of the webcast will be available under Webcasts & Presentations for 60 days.

About Spirit Airlines:
Spirit Airlines (NASDAQ:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major U.S. airline, we operate more than 470 daily flights to 60 destinations in the U.S., Latin America and the Caribbean. Come save with us at www.spirit.com.

Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1) See "Reconciliation of Adjusted Net Income, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(2) See "Calculation for Return on Invested Capital, non-GAAP" table below for more details.
(3) See "Special Items" table for more details.
(4) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. References in this report to “Spirit,” “we,” “us,” “our,” or the “Company” shall mean Spirit Airlines, Inc., unless the context indicates otherwise. Additional information concerning certain factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

Statement of Operations
(unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, Percent June 30, Percent
2017 2016 Change 2017 2016 Change
Operating revenues:
Passenger$371,922 $296,401 25.5 $671,684 $569,027 18.0
Non-ticket329,760 287,732 14.6 621,744 553,249 12.4
Total operating revenues701,682 584,133 20.1 1,293,428 1,122,276 15.3
Operating expenses:
Salaries, wages and benefits129,892 112,930 15.0 257,030 229,340 12.1
Aircraft fuel142,294 113,192 25.7 282,076 199,174 41.6
Aircraft rent52,566 49,864 5.4 109,636 102,066 7.4
Landing fees and other rents45,592 39,944 14.1 86,040 74,751 15.1
Depreciation and amortization35,331 24,957 41.6 66,840 48,066 39.1
Maintenance, materials and repairs 28,985 20,627 40.5 55,297 41,567 33.0
Distribution29,908 24,692 21.1 56,406 47,625 18.4
Special charges 8,052 nm 4,776 24,254 nm
Loss on disposal of assets1,493 529 nm 2,598 743 nm
Other operating102,885 67,511 52.4 180,588 131,556 37.3
Total operating expenses568,946 462,298 23.1 1,101,287 899,142 22.5
Operating income132,736 121,835 8.9 192,141 223,134 (13.9)
Other (income) expense:
Interest expense13,746 10,166 35.2 26,219 18,226 43.9
Capitalized interest(3,342) (2,771) 20.6 (6,922) (6,096) 13.5
Interest income(1,828) (1,447) 26.3 (3,141) (3,013) 4.2
Other expense104 157 (33.8) 107 227 (52.9)
Total other (income) expense8,680 6,105 42.2 16,263 9,344 74.0
Income before income taxes124,056 115,730 7.2 175,878 213,790 (17.7)
Provision for income taxes45,913 42,646 7.7 65,800 78,786 (16.5)
Net income$78,143 $73,084 6.9 $110,078 $135,004 (18.5)
Basic earnings per share$1.13 $1.03 9.7 $1.59 $1.90 (16.3)
Diluted earnings per share$1.12 $1.03 8.7 $1.58 $1.89 (16.4)
Weighted average shares, basic69,370 70,770 (2.0) 69,359 71,173 (2.5)
Weighted average shares, diluted69,561 70,913 (1.9) 69,576 71,347 (2.5)

Statements of Comprehensive Income
(unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Net income $78,143 $73,084 $110,078 $135,004
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($6), $0, ($14) and $0 (11) (24)
Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $62 and $65
53 56 107 113
Other comprehensive income (loss) $42 $56 $83 $113
Comprehensive income $ 78,185 $ 73,140 $ 110,161 $ 135,117

Balance Sheets
(unaudited, in thousands)
June 30, December 31,
2017 2016
Current assets:
Cash and cash equivalents$ 869,153 $700,900
Short-term investment securities100,464 100,155
Accounts receivable, net47,996 41,136
Aircraft maintenance deposits155,093 87,035
Prepaid expenses and other current assets57,798 46,619
Total current assets1,230,504 975,845
Property and equipment:
Flight equipment1,809,747 1,461,525
Ground property and equipment140,954 126,206
Less accumulated depreciation(161,191) (122,509)
1,789,510 1,465,222
Deposits on flight equipment purchase contracts317,867 325,688
Long-term aircraft maintenance deposits146,162 199,415
Deferred heavy maintenance, net75,858 75,534
Other long-term assets114,444 110,223
Total assets$3,674,345 $3,151,927
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$33,186 $15,193
Air traffic liability312,587 206,392
Current maturities of long-term debt95,428 84,354
Other current liabilities244,629 226,011
Total current liabilities685,830 531,950
Long-term debt, less current maturities1,089,159 897,359
Deferred income taxes372,998 308,143
Deferred gains and other long-term liabilities 18,125 19,868
Shareholders’ equity:
Common stock7 7
Additional paid-in-capital555,704 551,004
Treasury stock, at cost(219,909) (218,692)
Retained earnings1,173,711 1,063,633
Accumulated other comprehensive loss(1,280) (1,345)
Total shareholders’ equity1,508,233 1,394,607
Total liabilities and shareholders’ equity$3,674,345 $3,151,927

Statement of Cash Flows
(unaudited, in thousands)
Six Months Ended June 30,
2017 2016
Operating activities:
Net income$ 110,078 $135,004
Adjustments to reconcile net income to net cash provided by operations:
Losses reclassified from other comprehensive income167 178
Equity-based compensation4,671 3,905
Allowance for doubtful accounts (recoveries)(51) 221
Amortization of deferred gains and losses and debt issuance costs4,761 2,810
Depreciation and amortization66,840 48,066
Deferred income tax expense64,789 45,810
Loss on disposal of assets2,598 743
Lease termination costs4,777 24,254
Changes in operating assets and liabilities:
Accounts receivable(6,808) (12,662)
Aircraft maintenance deposits(17,940) (29,721)
Prepaid income taxes(1,598) 69,444
Long-term deposits and other assets(44,900) (22,055)
Accounts payable16,388 3,024
Air traffic liability105,486 66,531
Other liabilities14,234 25,269
Net cash provided by operating activities323,730 360,821
Investing activities:
Purchase of available-for-sale investment securities(68,459)
Proceeds from the maturity of available-for-sale investment securities 67,857
Proceeds from sale of property and equipment 50
Pre-delivery deposits for flight equipment, net of refunds(79,357) (60,772)
Capitalized interest(6,375) (4,554)
Purchase of property and equipment(269,519) (303,175)
Net cash used in investing activities(355,853) (368,451)
Financing activities:
Proceeds from issuance of long-term debt255,827 300,547
Proceeds from stock options exercised29 92
Payments on debt and capital lease obligations(50,099) (19,665)
Excess tax (deficiency) benefit from equity-based compensation (511)
Repurchase of common stock(1,217) (62,278)
Debt issuance costs(4,164) (107)
Net cash provided by financing activities200,376 218,078
Net (decrease) increase in cash and cash equivalents168,253 210,448
Cash and cash equivalents at beginning of period700,900 803,632
Cash and cash equivalents at end of period$869,153 $1,014,080
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest$16,869 $21,804
Income taxes paid, net of refunds$4,340 $(36,142)
Non-cash transactions:
Capital expenditures funded by capital lease borrowings$(1,370) $(31)

Selected Operating Statistics (unaudited)
Three Months Ended June 30,
Operating Statistics2017 2016 Change
Available seat miles (ASMs) (thousands)7,294,578 6,419,419 13.6%
Revenue passenger miles (RPMs) (thousands)6,219,638 5,549,411 12.1%
Load factor (%)85.3 86.4 (1.1) pts
Passenger flight segments (thousands)6,206 5,606 10.7%
Block hours109,296 98,399 11.1%
Departures41,563 38,025 9.3%
Total operating revenue per ASM (TRASM) (cents)9.62 9.10 5.7%
Average yield (cents)11.28 10.53 7.1%
Average ticket revenue per passenger flight segment ($)59.93 52.87 13.4%
Average non-ticket revenue per passenger flight segment ($) 53.14 51.32 3.5%
Total revenue per passenger flight segment ($)113.07 104.19 8.5%
CASM (cents)7.80 7.20 8.3%
Adjusted CASM (cents) (1)7.78 7.07 10.0%
Adjusted CASM ex-fuel (cents) (2)5.83 5.30 10.0%
Fuel gallons consumed (thousands)85,533 77,013 11.1%
Average economic fuel cost per gallon ($)1.66 1.47 12.9%
Aircraft at end of period104 87 19.5%
Average daily aircraft utilization (hours)11.7 12.7 (7.9)%
Average stage length (miles)982 971 1.1%

Six Months Ended June 30,
Operating Statistics2017 2016 Change
Available seat miles (ASMs) (thousands)14,170,478 12,402,423 14.3%
Revenue passenger miles (RPMs) (thousands)11,833,060 10,619,724 11.4%
Load factor (%)83.5 85.6 (2.1) pts
Passenger flight segments (thousands)11,775 10,594 11.1%
Block hours213,332 191,943 11.1%
Departures80,893 73,185 10.5%
Total operating revenue per ASM (TRASM) (cents)9.13 9.05 0.9%
Average yield (cents)10.93 10.57 3.4%
Average ticket revenue per passenger flight segment ($)57.04 53.71 6.2%
Average non-ticket revenue per passenger flight segment ($) 52.80 52.22 1.1%
Total revenue per passenger flight segment ($)109.84 105.93 3.7%
CASM (cents)7.77 7.25 7.2%
Adjusted CASM (cents) (1)7.72 7.05 9.5%
Adjusted CASM ex-fuel (cents) (2)5.73 5.44 5.3%
Fuel gallons consumed (thousands)164,597 147,563 11.5%
Average economic fuel cost per gallon ($)1.71 1.35 26.7%
Average daily aircraft utilization (hours)11.8 12.8 (7.8)%
Average stage length (miles)983 983 %

(1) Excludes special items.
(2) Excludes economic fuel expense and special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis. These non-GAAP financial measures have limitations as analytical tools. Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Special Items

Three Months Ended
June 30,
(in thousands)2017 2016
Operating special items include the following (1):
Loss on disposal of assets1,493 529
Special charges 8,052
Total operating special items$1,493 $8,581

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense

Three Months Ended
June 30,
(in thousands, except CASM data in cents)2017 2016
Total operating expenses, as reported$ 568,946 $ 462,298
Less operating special items (1)1,493 8,581
Adjusted operating expenses, non-GAAP (2)567,453 453,717
Less: Economic fuel expense142,294 113,192
Adjusted operating expenses excluding fuel, non-GAAP (3) $425,159 $340,525
Available seat miles7,294,578 6,419,419
CASM (cents)7.80 7.20
Adjusted CASM (cents) (2)7.78 7.07
Adjusted CASM ex-fuel (cents) (3)5.83 5.30

(1) Special items include loss on disposal of assets and special charges. Special charges are primarily related to lease termination costs.
(2) Excludes operating special items.
(3) Excludes operating special items and economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below.

Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income to GAAP Net Income

Three Months Ended
June 30,
(in thousands, except per share data)2017
Net income, as reported$78,143 $73,084
Add: Provision for income taxes 45,913 42,646
Income before income taxes, as reported 124,056 115,730
Pre-tax margin, GAAP 17.7% 19.8%
Add operating special items (1)$1,493 $8,581
Adjusted income before income taxes, non-GAAP (2) 125,549 124,311
Adjusted pre-tax margin, non-GAAP (2) 17.9% 21.3%
Add: Total other (income) expense 8,680 6,105
Adjusted operating income, non-GAAP(2) 134,229 130,416
Adjusted operating margin, non-GAAP(2) 19.1% 22.3%
Provision for adjusted income taxes (3) 46,466 45,808
Adjusted net income, non-GAAP (2)(3)$79,083 $78,503
Weighted average shares, diluted 69,561 70,913
Adjusted net income per share, diluted (2)(3) $1.14
Total operating revenues$701,682 $584,133

(1) See "Special Items" for more details.
(2) Excludes operating special items.
(3) Assumes same marginal tax rate as is applicable to GAAP net income.

The Company tracks a non-GAAP calculation of Return on Invested Capital, or ROIC, as a way of measuring our efficiency in delivering returns and in allocating capital. We calculate ROIC as Adjusted Operating Income (non-GAAP), divided by Total Invested Capital (non-GAAP), on a pre-tax and after-tax basis, expressed as a percentage.

Because a substantial portion of our aircraft fleet is held under operating leases, which do not appear on the balance sheet, a GAAP-based calculation of our total capital deployed may be considered understated (which would have the effect of overstating ROIC, if calculated solely using GAAP line items). Accordingly, we adjust our total capital, the denominator of the ROIC measurement, by capitalizing operating leases at a level equal to seven times our aircraft rent expense, a measure used commonly in the airline industry and by analysts.

To calculate Adjusted Operating Income (non-GAAP), we add back aircraft rent to GAAP operating income, in keeping with the adjustment to total capital discussed above. In order to remove the effects of non-recurring gains and losses that may affect GAAP operating income we also exclude special items from Adjusted Operating Income (non-GAAP). We present Adjusted Operating Income (non-GAAP) on a pre-tax basis and present Adjusted Operating Income (non-GAAP) on an after-tax basis, using our effective tax rate for the period.

Calculation of Return on Invested Capital, non-GAAP

Twelve Months Ended
(in thousands)June 30, 2017
Operating income$412,668
Add operating special items (1)23,753
Adjustment for aircraft rent209,245
Adjusted operating income, non-GAAP645,666
Tax (37.1%) (2)239,542
Adjusted operating income, after-tax, non-GAAP$406,124
Invested capital:
Total debt$1,184,587
Book equity1,508,233
Less: Unrestricted cash, cash equivalents & short-term investments 969,617
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,464,715
Total invested capital, non-GAAP$3,187,918
Return on invested capital (ROIC), pre-tax, non-GAAP20.3%
Return on invested capital (ROIC), after-tax, non-GAAP (2)12.7%

(1) See "Special Items" for more details.
(2) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended June 30, 2017.

Investor Relations Contact: DeAnne Gabel InvestorRelations@spirit.com 954-447-7920 Media Contact: Paul Berry Paul.Berry@spirit.com 954-628-4827

Source:Spirit Airlines, Inc.