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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Delaware | 82-4092570 | |||||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) | ||||
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2005 Cargo Road |
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Minneapolis, Minnesota |
| 55450 | ||||
(Address of principal executive offices) |
| (Zip Code) | ||||
Registrant’s telephone number, including area code: (651) 681-3900 | ||||||
Registrant’s telephone number, including area code: (651) 681-3900
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Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Common Stock, par value $0.01 per share |
| SNCY |
| The Nasdaq Stock Market LLC |
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Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated | |||||||||||
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| Smaller reporting company ☐ |
| Emerging growth company ☑ | |||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
2022:
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Condensed Consolidated Statements of Changes in Stockholders’ Equity | 6 | ||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 57 | ||
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 70 | ||
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- 2 -
Page | ||||||||
thousands, except share amounts)
September 30, 2022 | December 31, 2021 | ||||||||||
(Unaudited) | |||||||||||
ASSETS | |||||||||||
Current Assets: | |||||||||||
Cash and Cash Equivalents | $ | 131,912 | $ | 309,338 | |||||||
Restricted Cash | 14,163 | 8,447 | |||||||||
Investments | 135,170 | 6,283 | |||||||||
Accounts Receivable, net of an allowance for credit losses of $175 and $250, respectively | 31,628 | 30,156 | |||||||||
Short-term Lessor Maintenance Deposits | 1,211 | 5,505 | |||||||||
Inventory, net of a reserve for obsolescence of $1,255 and $1,275, respectively | 7,280 | 5,405 | |||||||||
Prepaid Expenses | 11,692 | 8,511 | |||||||||
Other Current Assets | 4,684 | 1,798 | |||||||||
Total Current Assets | 337,740 | 375,443 | |||||||||
Property & Equipment, net: | |||||||||||
Aircraft and Flight Equipment | 628,375 | 447,319 | |||||||||
Ground Equipment and Leasehold Improvements | 33,809 | 20,876 | |||||||||
Computer Hardware and Software | 10,402 | 8,785 | |||||||||
Finance Lease Assets | 262,060 | 209,457 | |||||||||
Rotable Parts | 13,992 | 9,150 | |||||||||
Total Property & Equipment | 948,638 | 695,587 | |||||||||
Accumulated Depreciation & Amortization | (159,779) | (117,069) | |||||||||
Total Property & Equipment, net | 788,859 | 578,518 | |||||||||
Other Assets: | |||||||||||
Goodwill | 222,223 | 222,223 | |||||||||
Other Intangible Assets, net | 86,110 | 89,110 | |||||||||
Operating Lease Right-of-use Assets | 23,919 | 61,658 | |||||||||
Aircraft Deposits | 9,128 | 10,021 | |||||||||
Long-term Lessor Maintenance Deposits | 29,714 | 20,346 | |||||||||
Deferred Tax Asset | 14,734 | 17,608 | |||||||||
Other Assets | 9,017 | 5,495 | |||||||||
Total Other Assets | 394,845 | 426,461 | |||||||||
Total Assets | $ | 1,521,444 | $ | 1,380,422 |
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
| | (Unaudited) | | | | |
ASSETS | |
| | |
| |
| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and Cash Equivalents | | $ | 275,332 | | $ | 62,028 |
Restricted Cash | |
| 15,693 | |
| 8,335 |
Investments | |
| 5,997 | |
| 5,624 |
Accounts Receivable, net of an allowance for credit losses of $232 and $224, respectively | |
| 31,221 | |
| 28,690 |
Short-term Lessor Maintenance Deposits | |
| — | |
| 3,101 |
Inventory, net of a reserve for obsolescence of $1,257 and $996, respectively | |
| 5,496 | |
| 5,407 |
Prepaid Expenses | |
| 11,155 | |
| 8,002 |
Derivative Assets | |
| 248 | |
| — |
Other Current Assets | |
| 1,299 | |
| 5,553 |
Total Current Assets | |
| 346,441 | |
| 126,740 |
| | | | | | |
Property & Equipment, net: | |
|
| |
|
|
Aircraft and Flight Equipment | |
| 435,901 | |
| 331,685 |
Leasehold Improvements and Ground Equipment | |
| 19,005 | |
| 13,526 |
Computer Hardware and Software | |
| 8,459 | |
| 7,845 |
Finance Lease Assets | |
| 189,689 | |
| 117,833 |
Rotable Parts | |
| 9,331 | |
| 8,691 |
Property & Equipment | |
| 662,385 | |
| 479,580 |
Accumulated Depreciation & Amortization | |
| (101,356) | |
| (65,065) |
Total Property & Equipment, net | |
| 561,029 | |
| 414,515 |
| | | | | | |
Other Assets: | |
|
| |
|
|
Goodwill | |
| 222,223 | |
| 222,223 |
Other Intangible Assets, net | |
| 90,110 | |
| 93,110 |
Operating Lease Right-of-use Assets | |
| 65,215 | |
| 121,269 |
Aircraft Deposits | |
| 9,092 | |
| 10,253 |
Long-term Lessor Maintenance Deposits | |
| 23,226 | |
| 22,584 |
Deferred Tax Asset | |
| 19,149 | |
| 36,216 |
Other Assets | |
| 5,828 | |
| 6,357 |
Total Other Assets | |
| 434,843 | |
| 512,012 |
Total Assets | | $ | 1,342,313 | | $ | 1,053,267 |
- 3 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
| | (Unaudited) | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| | | | | | |
Current Liabilities: |
| |
|
| |
|
Accounts Payable | | $ | 35,676 | | $ | 34,035 |
Accrued Salaries, Wages, and Benefits | |
| 21,718 | |
| 16,368 |
Accrued Transportation Taxes | |
| 8,882 | |
| 5,883 |
Air Traffic Liabilities | |
| 105,048 | |
| 101,075 |
Derivative Liabilities | |
| — | |
| 1,174 |
Over-market Liabilities | |
| 4,309 | |
| 9,281 |
Finance Lease Obligations | |
| 9,740 | |
| 11,460 |
Loyalty Program Liabilities | |
| 10,175 | |
| 7,016 |
Operating Lease Obligations | |
| 17,353 | |
| 34,492 |
Current Maturities of Long-term Debt | |
| 19,835 | |
| 26,118 |
Other Current Liabilities | |
| 8,884 | |
| 6,841 |
Total Current Liabilities | |
| 241,620 | |
| 253,743 |
| | | | | | |
Long-term Liabilities: | |
|
| |
|
|
Over-market Liabilities | |
| 11,505 | |
| 28,128 |
Finance Lease Obligations | |
| 164,902 | |
| 95,710 |
Loyalty Program Liabilities | |
| 10,136 | |
| 15,053 |
Operating Lease Obligations | |
| 63,139 | |
| 112,707 |
Long-term Debt | |
| 266,985 | |
| 256,345 |
Income Tax Receivable Agreement Liability | |
| 95,400 | |
| — |
Other Long-term Liabilities | |
| 5,746 | |
| 7,764 |
Total Long-term Liabilities | |
| 617,813 | |
| 515,707 |
Total Liabilities | |
| 859,433 | |
| 769,450 |
| | | | | | |
Commitments and Contingencies | |
|
| |
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| | | | | | |
Stockholders' Equity: | |
|
| |
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Common Stock | |
| | |
| |
Common stock with $0.01 par value, 995,000,000 shares authorized, 57,551,741 and 46,839,659 issued and outstanding at September 30, 2021 and December 31, 2020, respectively. | |
| 576 | |
| 468 |
Preferred Stock | | | | | | |
Preferred stock with $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020. | | | — | | | — |
Loans to Stockholders | |
| — | |
| (3,500) |
Additional Paid In Capital | |
| 481,108 | |
| 248,525 |
Retained Earnings | |
| 1,196 | |
| 38,324 |
Total Stockholders' Equity | |
| 482,880 | |
| 283,817 |
Total Liabilities and Stockholders' Equity | | $ | 1,342,313 | | $ | 1,053,267 |
thousands, except share amounts)
September 30, 2022 | December 31, 2021 | ||||||||||
(Unaudited) | |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current Liabilities: | |||||||||||
Accounts Payable | $ | 49,969 | $ | 39,805 | |||||||
Accrued Salaries, Wages, and Benefits | 25,900 | 28,527 | |||||||||
Accrued Transportation Taxes | 11,000 | 12,736 | |||||||||
Air Traffic Liabilities | 132,830 | 118,562 | |||||||||
Over-market Liabilities | 1,535 | 4,309 | |||||||||
Finance Lease Obligations | 17,484 | 11,705 | |||||||||
Loyalty Program Liabilities | 13,045 | 11,451 | |||||||||
Operating Lease Obligations | 6,281 | 17,231 | |||||||||
Current Maturities of Long-term Debt | 45,535 | 29,412 | |||||||||
Income Tax Receivable Agreement Liability | 2,260 | — | |||||||||
Other Current Liabilities | 14,850 | 7,913 | |||||||||
Total Current Liabilities | 320,689 | 281,651 | |||||||||
Long-term Liabilities: | |||||||||||
Over-market Liabilities | 1,423 | 10,428 | |||||||||
Finance Lease Obligations | 237,644 | 180,450 | |||||||||
Loyalty Program Liabilities | 3,272 | 8,267 | |||||||||
Operating Lease Obligations | 21,508 | 58,810 | |||||||||
Long-term Debt | 324,662 | 248,014 | |||||||||
Income Tax Receivable Agreement Liability | 101,540 | 98,800 | |||||||||
Other Long-term Liabilities | 2,701 | 3,413 | |||||||||
Total Long-term Liabilities | 692,750 | 608,182 | |||||||||
Total Liabilities | 1,013,439 | 889,833 | |||||||||
Stockholders' Equity: | |||||||||||
Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,168,497 and 57,872,452 issued at September 30, 2022 and December 31, 2021, respectively | 582 | 579 | |||||||||
Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021 | — | — | |||||||||
Treasury stock, at cost, 1,823 shares held at September 30, 2022 and no shares held at December 31, 2021 | (52) | — | |||||||||
Additional Paid-In Capital | 493,493 | 485,638 | |||||||||
Retained Earnings | 14,764 | 4,372 | |||||||||
Accumulated Other Comprehensive Loss | (782) | — | |||||||||
Total Stockholders' Equity | 508,005 | 490,589 | |||||||||
Total Liabilities and Stockholders' Equity | $ | 1,521,444 | $ | 1,380,422 |
- 4 -
| | | | | | | | | | | | |
|
| Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Operating Revenues: |
| |
|
| |
| | |
|
| |
|
Passenger | | $ | 147,718 | | $ | 62,472 | | $ | 377,042 | | $ | 272,299 |
Cargo | |
| 24,400 | |
| 14,272 | | | 68,084 | |
| 17,491 |
Other | |
| 1,545 | |
| 1,229 | | | 5,338 | |
| 3,889 |
Total Operating Revenue | |
| 173,663 | |
| 77,973 | | | 450,464 | |
| 293,679 |
| | | | | | | | | | | | |
Operating Expenses: | |
|
| |
|
| |
|
| |
|
|
Aircraft Fuel | |
| 36,647 | |
| 13,139 | |
| 90,631 | |
| 69,377 |
Salaries, Wages, and Benefits | |
| 43,424 | |
| 36,348 | |
| 129,815 | |
| 106,923 |
Aircraft Rent | |
| 3,925 | |
| 6,410 | |
| 13,339 | |
| 23,376 |
Maintenance | |
| 9,660 | |
| 6,338 | |
| 30,170 | |
| 15,242 |
Sales and Marketing | |
| 5,470 | |
| 2,921 | |
| 16,402 | |
| 13,123 |
Depreciation and Amortization | |
| 14,029 | |
| 12,929 | |
| 40,103 | |
| 35,631 |
Ground Handling | |
| 7,873 | |
| 4,880 | |
| 19,654 | |
| 15,786 |
Landing Fees and Airport Rent | |
| 12,069 | |
| 8,596 | |
| 29,606 | |
| 22,377 |
Special Items, net | |
| (65) | |
| (32,852) | |
| (65,456) | |
| (64,333) |
Other Operating, net | |
| 18,629 | |
| 10,447 | |
| 50,026 | |
| 34,363 |
Total Operating Expenses | |
| 151,661 | |
| 69,156 | |
| 354,290 | |
| 271,865 |
Operating Income | |
| 22,002 | |
| 8,817 | |
| 96,174 | |
| 21,814 |
| | | | | | | | | | | | |
Non-operating Income (Expense): | |
|
| |
|
| |
|
| |
|
|
Interest Income | |
| 28 | |
| 26 | |
| 52 | |
| 340 |
Interest Expense | |
| (6,286) | |
| (5,157) | |
| (19,487) | |
| (16,215) |
Other, net | |
| 456 | |
| 164 | |
| 18,505 | |
| (331) |
Total Non-operating Income (Expense), net | |
| (5,802) | |
| (4,967) | |
| (930) | |
| (16,206) |
| | | | | | | | | | | �� | |
Income before Income Tax | |
| 16,200 | |
| 3,850 | |
| 95,244 | |
| 5,608 |
Income Tax Expense | |
| 2,297 | |
| 923 | |
| 17,172 | |
| 1,470 |
Net Income | | $ | 13,903 | | $ | 2,927 | | $ | 78,072 | | $ | 4,138 |
| | | | | | | | | | | | |
Net Income per share to common stockholders: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.24 | | $ | 0.06 | | $ | 1.44 | | $ | 0.09 |
Diluted | | $ | 0.23 | | $ | 0.06 | | $ | 1.33 | | $ | 0.09 |
Shares used for computation: | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 57,355,104 | |
| 46,805,950 | |
| 54,368,231 | |
| 46,805,950 |
Diluted | |
| 61,712,378 | |
| 48,350,943 | |
| 58,699,991 | |
| 48,350,943 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||
Passenger | $ | 195,360 | $ | 147,718 | $ | 592,753 | $ | 377,042 | |||||||||||||||
Cargo | 23,687 | 24,400 | 65,930 | 68,084 | |||||||||||||||||||
Other | 2,653 | 1,545 | 8,607 | 5,338 | |||||||||||||||||||
Total Operating Revenue | 221,700 | 173,663 | 667,290 | 450,464 | |||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||
Aircraft Fuel | 64,843 | 36,647 | 206,334 | 90,631 | |||||||||||||||||||
Salaries, Wages, and Benefits | 58,661 | 43,424 | 178,576 | 129,815 | |||||||||||||||||||
Aircraft Rent | 1,949 | 3,925 | 7,347 | 13,339 | |||||||||||||||||||
Maintenance | 11,018 | 9,660 | 35,794 | 30,170 | |||||||||||||||||||
Sales and Marketing | 6,827 | 5,470 | 23,336 | 16,402 | |||||||||||||||||||
Depreciation and Amortization | 17,181 | 14,710 | 49,364 | 41,532 | |||||||||||||||||||
Ground Handling | 8,669 | 7,873 | 24,838 | 19,654 | |||||||||||||||||||
Landing Fees and Airport Rent | 12,926 | 12,069 | 32,708 | 29,606 | |||||||||||||||||||
Special Items, net | — | (65) | — | (72,419) | |||||||||||||||||||
Other Operating, net | 24,235 | 18,629 | 68,401 | 50,026 | |||||||||||||||||||
Total Operating Expenses | 206,309 | 152,342 | 626,698 | 348,756 | |||||||||||||||||||
Operating Income | 15,391 | 21,321 | 40,592 | 101,708 | |||||||||||||||||||
Non-operating Income (Expense): | |||||||||||||||||||||||
Interest Income | 1,610 | 28 | 2,166 | 52 | |||||||||||||||||||
Interest Expense | (7,493) | (6,286) | (23,097) | (19,487) | |||||||||||||||||||
Other, net | 3,422 | 456 | (5,156) | 18,505 | |||||||||||||||||||
Total Non-operating Expense, net | (2,461) | (5,802) | (26,087) | (930) | |||||||||||||||||||
Income Before Income Tax | 12,930 | 15,519 | 14,505 | 100,778 | |||||||||||||||||||
Income Tax Expense | 2,253 | 2,140 | 4,113 | 18,444 | |||||||||||||||||||
Net Income | $ | 10,677 | $ | 13,379 | $ | 10,392 | $ | 82,334 | |||||||||||||||
Net Income per share to common stockholders: | |||||||||||||||||||||||
Basic | $ | 0.18 | $ | 0.23 | $ | 0.18 | $ | 1.51 | |||||||||||||||
Diluted | $ | 0.18 | $ | 0.22 | $ | 0.17 | $ | 1.40 | |||||||||||||||
Shares used for computation: | |||||||||||||||||||||||
Basic | 58,146,606 | 57,355,104 | 58,039,201 | 54,368,231 | |||||||||||||||||||
Diluted | 60,793,516 | 61,712,378 | 61,372,735 | 58,699,991 |
- 5 -
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net Income | $ | 10,677 | $ | 13,379 | $ | 10,392 | $ | 82,334 | |||||||||||||||
Other Comprehensive Loss: | |||||||||||||||||||||||
Net unrealized loss on Available-for-Sale securities, net of deferred tax benefit of $244, $—, $309 and $—, respectively | (562) | — | (782) | — | |||||||||||||||||||
Other Comprehensive Loss | (562) | — | (782) | — | |||||||||||||||||||
Comprehensive Income | $ | 10,115 | $ | 13,379 | $ | 9,610 | $ | 82,334 |
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||||||||||
| | | | Common Stock | | Loans to | | Additional | | Retained | | | | ||||||
|
| Warrants |
| Shares |
| Amount |
| Stockholders |
| Paid-in Capital |
| Earnings |
| Total | |||||
December 31, 2019 |
| 40,005,885 |
| 6,800,065 | | $ | 68 | | $ | (3,500) | | $ | 244,928 | | $ | 42,228 | | $ | 283,724 |
Exercise of Apollo Warrants |
| (40,005,885) |
| 40,005,885 | |
| 400 | |
| — | |
| (379) | |
| — | |
| 21 |
Net Income |
| — |
| — | |
| — | |
| — | |
| — | |
| 7,251 | |
| 7,251 |
Stock-based Compensation | | — | | — | | | — | | | — | | | 369 | | | — | | | 369 |
March 31, 2020 | | — | | 46,805,950 | | $ | 468 | | $ | (3,500) | | $ | 244,918 | | $ | 49,479 | | $ | 291,365 |
Net Loss | | — | | — | | | — | | | — | | | — | | | (6,040) | | | (6,040) |
Stock-based Compensation |
| — |
| — | |
| — | |
| — | |
| 388 | |
| — | |
| 388 |
June 30, 2020 | | — | | 46,805,950 | | $ | 468 | | $ | (3,500) | | $ | 245,306 | | $ | 43,439 | | $ | 285,713 |
Net Income | | — | | — | | | — | | | — | | | — | | | 2,927 | | | 2,927 |
Amazon Warrants | | — | | — | | | — | | | — | | | 933 | | | — | | | 933 |
Stock-based Compensation | | — | | — | | | — | | | — | | | 496 | | | — | | | 496 |
September 30, 2020 |
| — |
| 46,805,950 | | $ | 468 | | $ | (3,500) | | $ | 246,735 | | $ | 46,366 | | $ | 290,069 |
| | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | |||||||||||||||
| | | | | | | | | | | | | Retained | | | | |
|
| Common Stock | | Loans to |
| Additional |
| Earnings | | | | ||||||
| | Shares |
| Amount |
| Stockholders | | Paid-in Capital | | (Deficit) |
| Total | |||||
December 31, 2020 |
| 46,839,659 | | $ | 468 | | $ | (3,500) | | $ | 248,525 | | $ | 38,324 | | $ | 283,817 |
Shares Surrendered by Stockholders |
| (140,737) | |
| (1) | |
| 3,500 | |
| (3,499) | |
| — | |
| — |
Initial Public Offering |
| 10,454,545 | |
| 105 | |
| — | |
| 224,552 | |
| — | |
| 224,657 |
Net Income |
| — | |
| — | |
| — | |
| — | |
| 12,416 | |
| 12,416 |
Income Tax Receivable Agreement |
| — | |
| — | |
| — | |
| — | |
| (115,200) | |
| (115,200) |
Amazon Warrants |
| — | |
| — | |
| — | |
| 1,400 | |
| — | |
| 1,400 |
Stock-based Compensation |
| — | |
| — | |
| — | |
| 2,870 | |
| — | |
| 2,870 |
March 31, 2021 | | 57,153,467 | | $ | 572 | | $ | — | | $ | 473,848 | | $ | (64,460) | | $ | 409,960 |
Initial Public Offering Expense Adjustment | | — | | | — | | | — | | | 349 | | | — | | | 349 |
Exercise of Stock Options | | 5,000 | | | — | | | — | | | 27 | | | — | | | 27 |
Net Income | | — | | | — | | | — | | | — | | | 51,753 | | | 51,753 |
Amazon Warrants | | — | | | — | | | — | | | 1,400 | | | — | | | 1,400 |
Stock-based Compensation | | — | | | — | | | — | | | 744 | | | — | | | 744 |
June 30, 2021 | | 57,158,467 | | $ | 572 | | $ | — | | $ | 476,368 | | $ | (12,707) | | $ | 464,233 |
Exercise of Stock Options | | 393,274 | | | 4 | | | — | | | 2,376 | | | — | | | 2,380 |
Net Income | | — | | | — | | | — | | | — | | | 13,903 | | | 13,903 |
Amazon Warrants | | — | | | — | | | — | | | 1,400 | | | — | | | 1,400 |
Stock-based Compensation | | — | | | — | | | — | | | 964 | | | — | | | 964 |
September 30, 2021 |
| 57,551,741 | | $ | 576 | | $ | — | | $ | 481,108 | | $ | 1,196 | | $ | 482,880 |
Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
Common Stock | Loans to Stockholders | Additional Paid-in Capital | Retained Earnings (Deficit) | Total | |||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||
December 31, 2020 | 46,839,659 | $ | 468 | $ | (3,500) | $ | 248,525 | $ | 38,324 | $ | 283,817 | ||||||||||||||||||||||||
Shares Surrendered by Stockholders | (140,737) | (1) | 3,500 | (3,499) | — | — | |||||||||||||||||||||||||||||
Initial Public Offering, net | 10,454,545 | 105 | — | 224,552 | — | 224,657 | |||||||||||||||||||||||||||||
Net Income | — | — | — | — | 16,778 | 16,778 | |||||||||||||||||||||||||||||
Income Tax Receivable Agreement | — | — | — | — | (115,200) | (115,200) | |||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | 1,400 | — | 1,400 | |||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | 2,870 | — | 2,870 | |||||||||||||||||||||||||||||
March 31, 2021 | 57,153,467 | $ | 572 | $ | — | $ | 473,848 | $ | (60,098) | $ | 414,322 | ||||||||||||||||||||||||
Initial Public Offering Expense Adjustment | — | — | — | 349 | — | 349 | |||||||||||||||||||||||||||||
Exercise of Stock Options | 5,000 | — | — | 27 | — | 27 | |||||||||||||||||||||||||||||
Net Income | — | — | — | — | 52,177 | 52,177 | |||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | 1,400 | — | 1,400 | |||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | 744 | — | 744 | |||||||||||||||||||||||||||||
June 30, 2021 | 57,158,467 | $ | 572 | $ | — | $ | 476,368 | $ | (7,921) | $ | 469,019 | ||||||||||||||||||||||||
Exercise of Stock Options | 393,274 | 4 | — | 2,376 | — | 2,380 | |||||||||||||||||||||||||||||
Net Income | — | — | — | — | 13,379 | 13,379 | |||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | 1,400 | — | 1,400 | |||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | 964 | — | 964 | |||||||||||||||||||||||||||||
September 30, 2021 | 57,551,741 | $ | 576 | $ | — | $ | 481,108 | $ | 5,458 | $ | 487,142 |
Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
December 31, 2021 | 57,872,452 | $ | 579 | — | $ | — | $ | 485,638 | $ | 4,372 | $ | — | $ | 490,589 | |||||||||||||||||||||||||||||||||
Stock Option Exercises | 91,868 | 1 | — | — | 522 | — | — | 523 | |||||||||||||||||||||||||||||||||||||||
Net Income | — | — | — | — | — | 3,637 | — | 3,637 | |||||||||||||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | — | 1,400 | — | — | 1,400 | |||||||||||||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | — | 920 | — | — | 920 | |||||||||||||||||||||||||||||||||||||||
March 31, 2022 | 57,964,320 | $ | 580 | — | $ | — | $ | 488,480 | $ | 8,009 | $ | — | $ | 497,069 | |||||||||||||||||||||||||||||||||
Stock Issued for Stock-Based Awards | 181,404 | 1 | — | — | 1,037 | — | — | 1,038 | |||||||||||||||||||||||||||||||||||||||
Net Stock Settlement of Stock-Based Awards | — | — | 1,823 | (52) | — | — | — | (52) | |||||||||||||||||||||||||||||||||||||||
Net Loss | — | — | — | — | — | (3,922) | — | (3,922) | |||||||||||||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | — | 1,400 | — | — | 1,400 | |||||||||||||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | — | 575 | — | — | 575 | |||||||||||||||||||||||||||||||||||||||
Other Comprehensive Loss | — | — | — | — | — | — | (220) | (220) | |||||||||||||||||||||||||||||||||||||||
June 30, 2022 | 58,145,724 | $ | 581 | 1,823 | $ | (52) | $ | 491,492 | $ | 4,087 | $ | (220) | $ | 495,888 | |||||||||||||||||||||||||||||||||
Stock Issued for Stock-Based Awards | 22,773 | 1 | — | — | 114 | — | — | 115 | |||||||||||||||||||||||||||||||||||||||
Net Income | — | — | — | — | — | 10,677 | — | 10,677 | |||||||||||||||||||||||||||||||||||||||
Amazon Warrants | — | — | — | — | 1,400 | — | — | 1,400 | |||||||||||||||||||||||||||||||||||||||
Stock-based Compensation | — | — | — | — | 487 | — | — | 487 | |||||||||||||||||||||||||||||||||||||||
Other Comprehensive Loss | — | — | — | — | — | — | (562) | (562) | |||||||||||||||||||||||||||||||||||||||
September 30, 2022 | 58,168,497 | $ | 582 | 1,823 | $ | (52) | $ | 493,493 | $ | 14,764 | $ | (782) | $ | 508,005 |
- 6 -
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||||||||||||||||
Net Income | $ | 10,392 | $ | 82,334 | ||||||||||||||||||||||||||||||||||
Adjustments to reconcile Net Income to Cash from Operating Activities: | ||||||||||||||||||||||||||||||||||||||
Depreciation and Amortization | 49,364 | 41,532 | ||||||||||||||||||||||||||||||||||||
Tax Receivable Agreement Adjustment | 5,000 | (19,800) | ||||||||||||||||||||||||||||||||||||
Operating Lease Right-of-use Assets | (199) | 12,920 | ||||||||||||||||||||||||||||||||||||
Non-Cash (Gain) Loss on Asset Transactions, net | (318) | 2 | ||||||||||||||||||||||||||||||||||||
Unrealized (Gain) on Fuel Derivatives | — | (3,527) | ||||||||||||||||||||||||||||||||||||
Amortization of Over-market Liabilities | (2,453) | (4,159) | ||||||||||||||||||||||||||||||||||||
Deferred Income Taxes | 3,183 | 18,340 | ||||||||||||||||||||||||||||||||||||
Amazon Warrants Vested | 4,200 | 4,200 | ||||||||||||||||||||||||||||||||||||
Stock-based Compensation Expense | 1,981 | 4,577 | ||||||||||||||||||||||||||||||||||||
Amortization of Debt Issuance Costs and Debt Securities | 467 | 963 | ||||||||||||||||||||||||||||||||||||
Loss on Extinguishment of Debt | 1,557 | 1,224 | ||||||||||||||||||||||||||||||||||||
Changes in Operating Assets and Liabilities: | ||||||||||||||||||||||||||||||||||||||
Accounts Receivable | (88) | 34 | ||||||||||||||||||||||||||||||||||||
Inventory | (1,402) | (456) | ||||||||||||||||||||||||||||||||||||
Prepaid Expenses | (3,188) | (3,153) | ||||||||||||||||||||||||||||||||||||
Lessor Maintenance Deposits | (10,256) | (5,464) | ||||||||||||||||||||||||||||||||||||
Aircraft Deposits | (2,569) | 1,162 | ||||||||||||||||||||||||||||||||||||
Other Assets | (5,478) | 2,297 | ||||||||||||||||||||||||||||||||||||
Accounts Payable | 8,674 | 2,257 | ||||||||||||||||||||||||||||||||||||
Accrued Transportation Taxes | (1,736) | 2,999 | ||||||||||||||||||||||||||||||||||||
Air Traffic Liabilities | 14,269 | 3,972 | ||||||||||||||||||||||||||||||||||||
Loyalty Program Liabilities | (3,401) | (1,759) | ||||||||||||||||||||||||||||||||||||
Operating Lease Obligations | (61) | (32,651) | ||||||||||||||||||||||||||||||||||||
Other Liabilities | 3,733 | 8,514 | ||||||||||||||||||||||||||||||||||||
Net Cash Provided by Operating Activities | 71,671 | 116,358 | ||||||||||||||||||||||||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||||||||||||||||||||
Purchases of Property & Equipment | (177,658) | (118,016) | ||||||||||||||||||||||||||||||||||||
Proceeds from the Sale of Property & Equipment | 777 | — | ||||||||||||||||||||||||||||||||||||
Proceeds from Insurance Settlements | 8,865 | — | ||||||||||||||||||||||||||||||||||||
Purchases of Investments | (130,529) | (1,436) | ||||||||||||||||||||||||||||||||||||
Proceeds from the Sale of Investments | 935 | 1,062 | ||||||||||||||||||||||||||||||||||||
Net Cash Used in Investing Activities | (297,610) | (118,390) | ||||||||||||||||||||||||||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||||||||||||||||||||
Cash Received from Stock Offering | — | 235,894 | ||||||||||||||||||||||||||||||||||||
Costs of Stock Offering | — | (8,706) | ||||||||||||||||||||||||||||||||||||
Proceeds from Stock Option and Warrant Exercises | 1,656 | 2,407 | ||||||||||||||||||||||||||||||||||||
Taxes Paid for Net Stock Settlement of Stock-Based Awards | (31) | — | ||||||||||||||||||||||||||||||||||||
Proceeds from Borrowings | 188,277 | 80,500 | ||||||||||||||||||||||||||||||||||||
Repayment of Finance Lease Obligations | (37,842) | (9,113) | ||||||||||||||||||||||||||||||||||||
Repayment of Borrowings | (95,305) | (75,728) | ||||||||||||||||||||||||||||||||||||
Debt Issuance Costs | (2,526) | (2,560) | ||||||||||||||||||||||||||||||||||||
Net Cash Provided by Financing Activities | 54,229 | 222,694 | ||||||||||||||||||||||||||||||||||||
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | (171,710) | 220,662 | ||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Restricted Cash--Beginning of the Period | 317,785 | 70,363 | ||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Restricted Cash--End of the Period | $ | 146,075 | $ | 291,025 |
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Non-cash transactions: | |||||||||||
Lease Deposits Applied Against the Purchase of Aircraft | $ | 1,085 | $ | 3,296 | |||||||
Aircraft and Flight Equipment Acquired through Finance Leases | 40,480 | 71,856 | |||||||||
Finance Lease Asset Modifications | 46,311 | — | |||||||||
Aircraft Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation | 28,012 | — | |||||||||
Derecognition of Operating Lease Right-of-Use Assets, net | 8,674 | 41,135 | |||||||||
Derecognition of Operating Lease Obligations | 8,674 | 44,726 | |||||||||
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets: | |||||||||||
September 30, 2022 | September 30, 2021 | ||||||||||
Cash and Cash Equivalents | $ | 131,912 | $ | 275,332 | |||||||
Restricted Cash | 14,163 | 15,693 | |||||||||
Total Cash, Cash Equivalents and Restricted Cash | $ | 146,075 | $ | 291,025 |
| | | | | | |
|
| Nine Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
Net Income | | $ | 78,072 | | $ | 4,138 |
Adjustments to reconcile Net Income to Cash from Operating Activities: | |
| | |
|
|
Depreciation and Amortization | |
| 40,103 | |
| 35,631 |
Tax Receivable Agreement Adjustment | | | (19,800) | | | — |
Reduction in Operating Lease Right-of-use Assets | |
| 12,920 | |
| 19,685 |
Non-Cash (Gain) Loss on Asset Transactions, net | |
| (12,666) | |
| 381 |
Unrealized (Gain) Loss on Fuel Derivatives | |
| (3,527) | |
| 15,766 |
Amortization of Over-market Liabilities | |
| (4,159) | |
| (8,101) |
Deferred Income Taxes | |
| 17,068 | |
| 1,493 |
Amazon Warrants Vested | |
| 4,200 | |
| 933 |
Stock-based Compensation Expense | |
| 4,577 | |
| 1,253 |
Amortization of Debt Issuance Costs | |
| 2,187 | |
| 1,625 |
| | | | | | |
Changes in Operating Assets and Liabilities: | |
|
| |
|
|
Accounts Receivable | |
| 34 | |
| (3,141) |
Inventory | |
| (456) | |
| (696) |
Prepaid Expenses | |
| (3,153) | |
| (409) |
Lessor Maintenance Deposits | |
| (5,464) | |
| (8,293) |
Aircraft Lease Deposits | |
| 1,162 | |
| 1,290 |
Other Assets | |
| 2,297 | |
| (4,396) |
Accounts Payable | |
| 2,257 | |
| (9,092) |
Accrued Transportation Taxes | |
| 2,999 | |
| (10,527) |
Air Traffic Liabilities | |
| 3,972 | |
| (18,262) |
Loyalty Program Liabilities | |
| (1,759) | |
| (769) |
Reduction in Operating Lease Obligations | |
| (19,983) | |
| (19,078) |
Other Liabilities | |
| 8,514 | |
| 4,122 |
Net Cash Provided by Operating Activities | |
| 109,395 | |
| 3,553 |
| | | | | | |
Cash Flows from Investing Activities: | |
|
| |
|
|
Purchases of Property & Equipment | |
| (111,053) | |
| (94,307) |
Purchase of Investments | |
| (1,436) | |
| (427) |
Proceeds from the Sale of Investments | |
| 1,062 | |
| 523 |
Net Cash Used in Investing Activities | |
| (111,427) | |
| (94,211) |
| | | | | | |
Cash Flows from Financing Activities: | |
|
| |
|
|
Cash Received from Stock Offering | |
| 235,894 | |
| — |
Costs of Stock Offering | |
| (8,706) | |
| — |
Proceeds from Stock Option and Warrant Exercises | |
| 2,407 | |
| 21 |
Proceeds from Borrowings | |
| 80,500 | |
| 220,307 |
Repayment of Finance Lease Obligations | |
| (9,113) | |
| (84,742) |
Repayment of Borrowings | |
| (75,728) | |
| (55,594) |
Debt Issuance Costs | |
| (2,560) | |
| (3,279) |
Net Cash Provided by Financing Activities | |
| 222,694 | |
| 76,713 |
| | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | |
| 220,662 | |
| (13,945) |
| | | | | | |
Cash, Cash Equivalents and Restricted Cash--Beginning of the Period | |
| 70,363 | |
| 64,478 |
| | | | | | |
Cash, Cash Equivalents and Restricted Cash--End of the Period | | $ | 291,025 | | $ | 50,533 |
| | | | | | |
Supplemental information: | |
|
| |
|
|
Cash Payments for Interest | | $ | 14,521 | | $ | 12,027 |
Cash Payments for Income Taxes, net | | $ | 144 | | $ | 34 |
Non-cash transactions: | |
|
| |
|
|
Lease Deposits Applied Against the Purchase of Aircraft | | $ | 3,296 | | $ | — |
Aircraft and Flight Equipment Acquired through Finance Leases | | $ | 71,856 | | $ | — |
Purchases of Property & Equipment in Accounts Payable | | $ | — | | $ | 648 |
| | | | | | |
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets: | ||||||
| | September 30, 2021 | | September 30, 2020 | ||
Cash and Cash Equivalents | | $ | 275,332 | | $ | 44,288 |
Restricted Cash | |
| 15,693 | |
| 6,245 |
Total Cash, Cash Equivalents and Restricted Cash | | $ | 291,025 | | $ | 50,533 |
See accompanying Notes to Condensed Consolidated Financial Statements
- 7 -
(Unaudited)
|
| |
Stock Split
In March 2021,, certain investment funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, Inc. (“Apollo”) acquired Sun Country, Inc. For more information on the Company effected an approximately 18.8886 forCompany’s equity transactions, see
Approval of the Omnibus Incentive Plan
In March 2021, the stockholders approved the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan (the “Plan”). The Plan authorizes that no more than 3,600,000 shares of Common Stock may be deliveredincluded in Part II, Item 8 “Financial Statements” in the aggregate pursuant to Awards granted underCompany’s Annual Report on Form 10-K for the Plan. An “Award” means any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Other Stock-Based Award, or Other Cash-Based Award granted underyear ended December 31, 2021 as filed with the Plan.
Upon implementation of this new Plan, there were 0 more grants under the October 2018 equity incentive plan. Awards already issued under the 2018 plan are not impacted by the new Plan.
U.S. Securities and Exchange Commission (“2021 10-K”).
- 8 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
aggregate purchase price of $50,000 and a price per share equal to 94% of the initial public offering price of $24.00 per share.
In
In OctoberConsolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 the Apollo Stockholder and Jude Bricker, the Company’s Chief Executive Officer (together, the “Selling Stockholders”), sold a total10-K.
share amounts)
|
|
held by Amazon were 2,212,615 and 1,454,008, respectively. The exercise period of these warrants is through the eighth anniversary of the issue date.
Certain prior period Stockholders’ Equity amounts were reclassified to conform to the current period presentation. This involved reducing the Common Stock values to $0.01 times the shares outstanding and
- 9 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
reclassifying those dollars to Additional Paid-In Capital. These reclasses were $238,694 as of the end of each quarter in fiscal year 2020. The reclass as of December 31, 2019 was $239,073.
10-K. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. The Company reclassified certain prior period amounts to conform to the current period presentation. All material intercompany balances and transactions have been eliminated in consolidation.
During the nine months ended September 30, 2022, there were no significant changes to the Company’s critical accounting policies.
Recently Adopted Accounting Standards
Income Taxes-Simplifying the Accounting for Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptionserror related to the approach for intraperiod tax allocation, recognizing deferred tax liabilities for outside basis differences, and calculating income taxes in interim periods. The guidance also reduces complexity in certain areas, including franchise taxes that are partially based on income and accounting for tax law changes in interim periods. The standard was adopted prospectively effective January 1, 2021 and it did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
|
|
On March 11, 2020 the World Health Organization declared COVID-19 a global pandemic causing a massive market disruption to the aviation industry. While U.S. domestic passenger volumes have increased to date, those levels are still down when compared to the same time frame in 2019. The growth in the U.S. domestic air traffic since the trough in April 2020 has been led by leisure and visiting family and relatives (“VFR”) travelers as business travel remains more subdued with corporate workforces continuing to “work-from-home” and in-person meetings continuing to be conducted via videoconferencing and other virtual channels. Equity research analysts and other industry executives believe that the positive trends in leisure and VFR travel will continue as COVID-19 vaccines continue to become more widely distributed in 2021. COVID-19 vaccines have become widely available in the U.S. according to the Centers for Disease Control and Prevention (“the CDC”).
- 10 -
(Unaudited)
(Unaudited)
December 31, 2021 | |||||||||||||||||
As Previously Issued | Correction | As Revised | |||||||||||||||
Assets | |||||||||||||||||
Aircraft and Flight Equipment | $ | 440,356 | $ | 6,963 | $ | 447,319 | |||||||||||
Total Property & Equipment | 688,624 | 6,963 | 695,587 | ||||||||||||||
Accumulated Depreciation & Amortization | (115,013) | (2,056) | (117,069) | ||||||||||||||
Total Property & Equipment, net | 573,611 | 4,907 | 578,518 | ||||||||||||||
Deferred Tax Asset | 18,737 | (1,129) | 17,608 | ||||||||||||||
Total Other Assets | 427,590 | (1,129) | 426,461 | ||||||||||||||
Total Assets | 1,376,644 | 3,778 | 1,380,422 | ||||||||||||||
Stockholder's Equity | |||||||||||||||||
Retained Earnings | 594 | 3,778 | 4,372 | ||||||||||||||
Total Stockholders' Equity | 486,811 | 3,778 | 490,589 | ||||||||||||||
Total Liabilities and Stockholders' Equity | 1,376,644 | 3,778 | 1,380,422 |
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
As Previously Issued | Correction | As Revised | As Previously Issued | Correction | As Revised | ||||||||||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||||||||||
Depreciation and Amortization | $ | 14,029 | $ | 681 | $ | 14,710 | $ | 40,103 | $ | 1,429 | $ | 41,532 | |||||||||||||||||||||||
Special Items, net | (65) | — | (65) | (65,456) | (6,963) | (72,419) | |||||||||||||||||||||||||||||
Total Operating Expenses | 151,661 | 681 | 152,342 | 354,290 | (5,534) | 348,756 | |||||||||||||||||||||||||||||
Operating Income | 22,002 | (681) | 21,321 | 96,174 | 5,534 | 101,708 | |||||||||||||||||||||||||||||
Income Before Income Tax | 16,200 | (681) | 15,519 | 95,244 | 5,534 | 100,778 | |||||||||||||||||||||||||||||
Income Tax Expense | 2,297 | (157) | 2,140 | 17,172 | 1,272 | 18,444 | |||||||||||||||||||||||||||||
Net Income | 13,903 | (524) | 13,379 | 78,072 | 4,262 | 82,334 | |||||||||||||||||||||||||||||
Basic Income per share | $ | 0.24 | $ | (0.01) | $ | 0.23 | $ | 1.44 | $ | 0.07 | $ | 1.51 | |||||||||||||||||||||||
Diluted Income per share | $ | 0.23 | $ | (0.01) | $ | 0.22 | $ | 1.33 | $ | 0.07 | $ | 1.40 |
For the Three Months Ended June 30, 2021 | For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||
As Previously Issued | Correction | As Revised | As Previously Issued | Correction | As Revised | ||||||||||||||||||||||||||||||
Net Income | $ | 51,753 | $ | 424 | $ | 52,177 | $ | 12,416 | $ | 4,362 | $ | 16,778 |
As of March 31, 2022 | As of September 30, 2021 | ||||||||||||||||||||||||||||||||||
As Previously Issued | Correction | As Revised | As Previously Issued | Correction | As Revised | ||||||||||||||||||||||||||||||
Retained Earnings | $ | 4,231 | $ | 3,778 | $ | 8,009 | $ | 1,196 | $ | 4,262 | $ | 5,458 | |||||||||||||||||||||||
Total Stockholders' Equity | 493,291 | 3,778 | 497,069 | 482,880 | 4,262 | 487,142 | |||||||||||||||||||||||||||||
As of June 30, 2021 | As of March 31, 2021 | ||||||||||||||||||||||||||||||||||
As Previously Issued | Correction | As Revised | As Previously Issued | Correction | As Revised | ||||||||||||||||||||||||||||||
Retained Earnings (Deficit) | $ | (12,707) | $ | 4,786 | $ | (7,921) | $ | (64,460) | $ | 4,362 | $ | (60,098) | |||||||||||||||||||||||
Total Stockholders' Equity | 464,233 | 4,786 | 469,019 | 409,960 | 4,362 | 414,322 |
Nine Months Ended September 30, 2021 | |||||||||||||||||
As Previously Issued | Correction | As Revised | |||||||||||||||
Operating Activities | |||||||||||||||||
Net Income | $ | 78,072 | $ | 4,262 | $ | 82,334 | |||||||||||
Depreciation and Amortization | 40,103 | 1,429 | 41,532 | ||||||||||||||
Non-Cash (Gain) Loss on Asset Transaction, Net | (12,666) | 12,668 | 2 | ||||||||||||||
Deferred Income Taxes | 17,068 | 1,272 | 18,340 | ||||||||||||||
Operating Lease Obligations | (19,983) | (12,668) | (32,651) | ||||||||||||||
Net Cash Provided by Operating Activities | 109,395 | 6,963 | 116,358 | ||||||||||||||
Investing Activities | |||||||||||||||||
Purchases of Property & Equipment | (111,053) | (6,963) | (118,016) | ||||||||||||||
Net Cash Used in Investing Activities | (111,427) | (6,963) | (118,390) |
U.S. passenger airlines have taken significant measures in responserelated to the COVID-19 pandemic, which caused a material decline in 2021 revenues as compared to maintainpre-pandemic levels, and negatively impacted the healthCompany’s financial condition and safetyoperating results.
SinceCOVID-19 pandemic relative to demand in 2021, which may impact the beginningcomparability of results to prior periods. However, the ongoing impact of the COVID-19 pandemic theon overall demand for air cargo market has experienced solid growth both in terms of volumestravel remains uncertain and yields. While the pandemic has caused a worldwide economic recession, e-commerce has thrived due to a variety of factors. Air cargo operators have been in a unique position to meet e-commerce demands that require a high level of speed, reliability, and security.
cannot be predicted at this time.
On March 27,
funds awarded.
. The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. During the yearnine months ended December 31, 2020,September 30, 2021, the Company recorded $2,328$848 related to the CARES Employee Retention Credit within Special Items, net. In the three and nine months ended September 30, 2021, an additional $68 and $848, respectively, was recognized within Special Items, net. The $68 shown in the third quarter of 2021 relates to a true-up of the second quarter 2021 credit.
- 11 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Under the CARES Act Loan Program, the Company received a $45,000 loan (the “CARES Act Loan”) from the U.S. Treasury, on October 26, 2020, which was repaid in full on March 24, 2021.
2021 using proceeds from the IPO. For more information on funds awarded through the CARES Act, see Note 3 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.
|
|
As of September 30, 2022, the Company was in compliance with these provisions.
| | | | | | | | | | | | | |||||||||||||||||||||||
|
| Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||||||||||||||||||||||||
Scheduled service | | $ | 80,212 | | $ | 26,954 | | $ | 201,905 | | $ | 159,063 | |||||||||||||||||||||||
Charter service | |
| 33,809 | |
| 23,264 | |
| 88,511 | |
| 60,983 | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
Scheduled Service | Scheduled Service | $ | 102,200 | $ | 80,212 | $ | 334,679 | $ | 201,905 | ||||||||||||||||||||||||||
Charter Service | Charter Service | 42,899 | 33,809 | 118,526 | 88,511 | ||||||||||||||||||||||||||||||
Ancillary | |
| 33,697 | |
| 12,254 | |
| 86,626 | |
| 52,253 | Ancillary | 50,261 | 33,697 | 139,548 | 86,626 | ||||||||||||||||||
Passenger | |
| 147,718 | |
| 62,472 | |
| 377,042 | |
| 272,299 | Passenger | 195,360 | 147,718 | 592,753 | 377,042 | ||||||||||||||||||
Cargo | |
| 24,400 | |
| 14,272 | |
| 68,084 | |
| 17,491 | Cargo | 23,687 | 24,400 | 65,930 | 68,084 | ||||||||||||||||||
Other | |
| 1,545 | |
| 1,229 | |
| 5,338 | |
| 3,889 | Other | 2,653 | 1,545 | 8,607 | 5,338 | ||||||||||||||||||
Total Operating Revenue | | $ | 173,663 | | $ | 77,973 | | $ | 450,464 | | $ | 293,679 | Total Operating Revenue | $ | 221,700 | $ | 173,663 | $ | 667,290 | $ | 450,464 |
- 12 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Domestic | $ | 214,904 | $ | 167,660 | $ | 634,963 | $ | 429,508 | |||||||||||||||
Latin America | 6,756 | 5,447 | 32,182 | 19,870 | |||||||||||||||||||
Other | 40 | 556 | 145 | 1,086 | |||||||||||||||||||
Total Operating Revenue | $ | 221,700 | $ | 173,663 | $ | 667,290 | $ | 450,464 |
| | | | | | | | | | | | |
|
| Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Domestic | | $ | 167,660 |
| $ | 75,289 | | $ | 429,508 |
| $ | 270,062 |
Latin America | |
| 5,447 |
| | 2,500 | |
| 19,870 |
| | 23,289 |
Other | |
| 556 |
| | 184 | |
| 1,086 |
| | 328 |
Total Operating Revenue | | $ | 173,663 |
| $ | 77,973 | | $ | 450,464 |
| $ | 293,679 |
respectively.
Contract Assets and Liabilities are as follows:
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Contract Assets | |
| | |
| |
Costs to fulfill contract with Amazon | | $ | 2,995 | | $ | 3,614 |
Air Traffic Liabilities | | $ | 105,048 | | $ | 101,075 |
Loyalty Program Liabilities | |
| 20,311 | |
| 22,069 |
Amazon Deferred Up-front Payment | |
| 4,462 | |
| 5,240 |
Total Contract Liabilities | | $ | 129,821 | | $ | 128,384 |
The balance in the Air Traffic Liabilities fluctuates with seasonal travel patterns. Most tickets can be purchased no more than twelve months in advance, therefore any revenue associated with tickets sold for future travel will be recognized within that timeframe. For the nine months ended September 30, 2021, $89,044 of revenue was recognized in Passenger revenue that was included in the Air Traffic Liabilities as of December 31, 2020.
As part of the ATSA executed in December 2019, Amazon paid the Company $10,300 toward start-up costs. Upon signing the ATSA, Amazon received 632,183 fully vested warrants to purchase the Company’s common stock, with a fair value of $4,667. This fair value was assigned to a portion of the $10,300 cash received from Amazon and the remaining $5,633 was recorded in Other Liabilities on the Company’s Condensed Consolidated Balance Sheet.Sheets. This deferred up-front payment is being amortized into revenue on a pro-rata basis over the initial six years of the ATSA. For the three and nine months ended
- 13 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
September 30, 2021, $3102022, $225 and $779$699 was amortized into Cargo revenue, respectively. For the three and nine months ended September 30, 2020, $1462021, $310 and $184$779 was amortized into Cargo revenue, respectively.
September 30, 2022 | December 31, 2021 | ||||||||||
Contract Assets | |||||||||||
Costs to fulfill contract with Amazon | $ | 2,350 | $ | 2,819 | |||||||
Air Traffic Liabilities | 132,830 | 118,562 | |||||||||
Loyalty Program Liabilities | 16,317 | 19,718 | |||||||||
Amazon Deferred Up-front Payment | 3,501 | 4,200 | |||||||||
Total Contract Liabilities | $ | 152,648 | $ | 142,480 |
Due to these reasons, the timing of loyalty point redemptions can vary significantly.
| | | | | | | |||||||||||
|
| 2021 |
| 2020 | |||||||||||||
2022 | 2021 | ||||||||||||||||
Balance – January 1 | | $ | 22,069 | | $ | 22,892 | Balance – January 1 | $ | 19,718 | $ | 22,069 | ||||||
Loyalty Points Earned |
| | 3,058 |
| | 3,124 | Loyalty Points Earned | 5,125 | 3,058 | ||||||||
Loyalty Points Redeemed(1) |
| | (4,816) |
| | (3,892) | Loyalty Points Redeemed (1) | (8,526) | (4,816) | ||||||||
Balance – September 30 | | $ | 20,311 | | $ | 22,124 | Balance – September 30 | $ | 16,317 | $ | 20,311 |
(1) |
The timing of loyalty point redemptions can vary significantly, however most new points, that are not left to expire, are redeemed within two years. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and will adjust estimates in the future, which could be material.
|
|
Basic earnings per share, which excludes dilution, is computed by dividing Net Income available to common stockholders by the weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of incremental shares from the assumed issuance of shares relating to share based awards is calculated by applying the treasury stock method.
- 14 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table shows the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | |||||||||||||||||||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
Numerator: |
| |
|
| |
| | |
|
| |
| Numerator: | ||||||||||||||||||||||
Net Income | | $ | 13,903 | | $ | 2,927 | | $ | 78,072 | | $ | 4,138 | Net Income | $ | 10,677 | $ | 13,379 | $ | 10,392 | $ | 82,334 | ||||||||||||||
| | | | | | | | | | | | | |||||||||||||||||||||||
Denominator: | | |
| | |
| | |
| | |
| Denominator: | ||||||||||||||||||||||
Weighted Average Common Shares Outstanding - Basic | | | 57,355,104 | | | 46,805,950 | | | 54,368,231 | | | 46,805,950 | Weighted Average Common Shares Outstanding - Basic | 58,146,606 | 57,355,104 | 58,039,201 | 54,368,231 | ||||||||||||||||||
Dilutive effect of Stock Options, RSUs and Warrants (1) | | | 4,357,274 | | | 1,544,993 | | | 4,331,760 | | | 1,544,993 | Dilutive effect of Stock Options, RSUs and Warrants (1) | 2,646,910 | 4,357,274 | 3,333,534 | 4,331,760 | ||||||||||||||||||
Weighted Average Common Shares Outstanding - Diluted | | | 61,712,378 | | | 48,350,943 | | | 58,699,991 | | | 48,350,943 | Weighted Average Common Shares Outstanding - Diluted | 60,793,516 | 61,712,378 | 61,372,735 | 58,699,991 | ||||||||||||||||||
| | | | | | | | | | | | | |||||||||||||||||||||||
Basic earnings per share | | $ | 0.24 | | $ | 0.06 | | $ | 1.44 | | $ | 0.09 | Basic earnings per share | $ | 0.18 | $ | 0.23 | $ | 0.18 | $ | 1.51 | ||||||||||||||
Diluted earnings per share | | $ | 0.23 | | $ | 0.06 | | $ | 1.33 | | $ | 0.09 | Diluted earnings per share | $ | 0.18 | $ | 0.22 | $ | 0.17 | $ | 1.40 |
(1) | There were |
PriorThe Company's anti-dilutive shares for the periods presented were immaterial to their exercise on January 31, 2020, all 40,005,885 warrants held by the Apollo Stockholder were included in basic and diluted weighted average shares outstanding as they were equity classified, had an exercise price of approximately $0.0005, and all necessary conditions for issuance were met.
Condensed Consolidated Financial Statements.
|
|
Aircraft Fleet
As of September 30, 2021, Sun Country operated a fleet of 47 Boeing 737-NG aircraft, consisting of 46 Boeing 737-800s and 1 Boeing 737-700.
- 15 -
(Unaudited)
December 31, 2021 | Additions | Reclassifications | Removals | September 30, 2022 | |||||||||||||||||||||||||
Passenger: | |||||||||||||||||||||||||||||
Owned | 21 | 5 | 4 | (1) | 29 | ||||||||||||||||||||||||
Finance leases (1) | 9 | 2 | — | — | 11 | ||||||||||||||||||||||||
Operating leases | 6 | — | (4) | — | 2 | ||||||||||||||||||||||||
Sun Country Airlines’ Fleet | 36 | 7 | — | (1) | 42 | ||||||||||||||||||||||||
Cargo: | |||||||||||||||||||||||||||||
Aircraft Operated for Amazon | 12 | — | — | — | 12 | ||||||||||||||||||||||||
Total Aircraft Operated | 48 | 7 | — | (1) | 54 | ||||||||||||||||||||||||
December 31, 2020 | Additions | Reclassifications | Removals | September 30, 2021 | |||||||||||||||||||||||||
Passenger: | |||||||||||||||||||||||||||||
Owned | 14 | 1 | 6 | — | 21 | ||||||||||||||||||||||||
Finance leases | 5 | 3 | — | — | 8 | ||||||||||||||||||||||||
Operating leases | 12 | — | (6) | — | 6 | ||||||||||||||||||||||||
Sun Country Airlines’ Fleet | 31 | 4 | — | — | 35 | ||||||||||||||||||||||||
Cargo: | |||||||||||||||||||||||||||||
Aircraft Operated for Amazon | 12 | — | — | — | 12 | ||||||||||||||||||||||||
Total Aircraft Operated | 43 | 4 | — | — | 47 |
(1) | Two aircraft operating leases were reclassified into finance lease and two separate aircraft finance lease purchase options were exercised, resulting in a net change of zero finance lease reclassifications. |
Class B pass-through trust certificates (the "2022-1 EETC"), and two through finance lease arrangements. As of September 30, 2022, 26 of the owned aircraft were financed and three aircraft were unencumbered. For more information on the Company's financing arrangements, see
| | | | | | | | |
|
| December 31, 2020 |
| Additions |
| Removals |
| September 30, 2021 |
Passenger: | | | | | | | | |
Owned |
| 14 |
| 7 |
| — |
| 21 |
Finance leases |
| 5 |
| 3 |
| — |
| 8 |
Operating leases |
| 12 |
| — |
| (6) |
| 6 |
Sun Country Airlines’ Fleet |
| 31 |
| 10 |
| (6) |
| 35 |
Cargo: | | | | | | | | |
Aircraft Operated for Amazon |
| 12 |
| — |
| — |
| 12 |
Total Aircraft Operated |
| 43 |
| 10 |
| (6) |
| 47 |
| | | | | | | | |
|
| December 31, 2019 |
| Additions |
| Removals |
| September 30, 2020 |
Passenger: | | | | | | | | |
Owned |
| 5 |
| 9 |
| — |
| 14 |
Finance leases |
| 10 |
| — |
| (5) |
| 5 |
Operating leases |
| 14 |
| — |
| (2) |
| 12 |
Seasonal leases |
| 2 |
| — |
| (2) |
| — |
Sun Country Airlines’ Fleet |
| 31 |
| 9 |
| (9) |
| 31 |
Cargo: | | | | | | | | |
Aircraft Operated for Amazon | | — | | 10 | | — | | 10 |
Total Aircraft Operated | | 31 | | 19 | | (9) | | 41 |
The 9 passenger aircraft purchased during the nine months ended September 30, 2020 were financed through equipment trust certificates (see Note 7). NaN of these aircraft were previously under operating leases, 5 were previously under finance leases, and the other 2 aircraft were new to the Company’s fleet.
In addition to the 9 purchases discussed above, the Company refinanced 3 previously owned aircraft in January 2020 utilizing equipment trust certificates (see Note 7).
The 10 cargo aircraft added through September 30, 2020 relate to the Amazon Agreement (see Note 1).
During the nine months ended September 30, 2021, the Company executed lease agreements to add 3also acquired four incremental aircraft, to its passenger fleet. Theone of which was purchased, and three through finance lease expiration dates range from fiscal year 2026 to fiscal year 2029 and these leases have been classified as finance leases. During the first twelvearrangements. to eighteen months of the lease term, monthly lease payments are determined based on aircraft utilization, subject to limits set forth in the lease agreements. Monthly lease payments during the remainder of the lease term consist of fixed and variable amounts as set forth in the lease agreements.
- 16 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | ||||||||||||||||||||||||||
|
| |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||||||||||||||||
| | | | September 30, | | September 30, | ||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
Aircraft Status | | Expense Type | | 2021 | | 2020 | | 2021 | | 2020 | Aircraft Status | Expense Type | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
Owned |
| Depreciation | | $ | 8,603 | | $ | 7,835 | | $ | 25,085 | | $ | 17,469 | Owned | Depreciation | $ | 10,179 | $ | 9,284 | $ | 29,027 | $ | 26,514 | ||||||||||||||||
Finance Leased |
| Amortization | |
| 2,977 | |
| 2,478 | |
| 7,846 | |
| 10,917 | Finance Leased | Amortization | 4,419 | 2,977 | 12,533 | 7,846 | ||||||||||||||||||||
Operating Leased |
| Aircraft Rent | |
| 3,925 | |
| 6,410 | |
| 13,339 | |
| 23,376 | Operating Leased | Aircraft Rent (1) | 1,949 | 3,925 | 7,347 | 13,339 | ||||||||||||||||||||
| | | | $ | 15,505 | | $ | 16,723 | | $ | 46,270 | | $ | 51,762 | ||||||||||||||||||||||||||
$ | 16,547 | $ | 16,186 | $ | 48,907 | $ | 47,699 |
(1) | Aircraft Rent expense includes credits for the amortization of over-market liabilities established at the Acquisition Date. |
DuringMaintenance Deposits Contra-Assets
Aircraft Maintenance Deposits Contra-Assets
On April 11, 2018, the Company established a deposit contra-asset to the lessor for maintenance events. The contra-assets represent the Company’s obligation to perform planned maintenance events on leased aircraft held as of the Acquisition date. As reimbursable maintenance events are performed and Maintenance Expense is incurred, a portion of the contra-asset is recognized as a reduction to Maintenance Expense on the Condensed Consolidated Statements of Operations due to the fact that date.the previously acquired maintenance deposit is partially funding the maintenance event. As of September 30, 20212022 and December 31, 2020,2021, the remaining balance of the contra-asset was $22,348$13,211 and $36,729,$22,348, respectively. Of the $14,381$9,137 reduction in the contra-asset during the nine months ended September 30, 2021, $12,7492022, $8,362 is related to the purchase of 6two aircraft previously leased, whereuponunder operating leases. The contra-assets reduced the contra-assets and related maintenance deposits were written-off concurrentlyacquisition costs incurred to Aircraft lease buy-out expense in Special Items, net (see Note 11). Forpurchase the three months ended September 30, 2021 and 2020,aircraft off the Company recognized $444 and $864, respectively, of the contra-asset as a reduction to Maintenance expense on the accompanying Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2021 and 2020, the Company recognized $1,295 and $1,192, respectively, of the contra-asset as a reduction to Maintenance expense.
operating lease.
At the Acquisition Date, the Company acquired liabilities related to its over-market lease rates and over-market maintenance reserve payments.
- 17 -
(Unaudited)
of-Use Assets. During(Unaudited)
operating lease.
Aircraft Rent expense foroff the three months ended September 30, 2021 and 2020, includes credits of $1,618 and $3,140, respectively, for the amortization of over-market liabilities established at the Acquisition Date related to lease rates and maintenance reserves. The Aircraft Rent expense credits for the nine months ended September 30, 2021 and 2020 were $5,992 and $10,970, respectively.
operating lease.
|
|
Lines of CreditFacilities – On February 10, 2021, the Company executed a five-year credit agreement (the “Credit Agreement”) with a group of lenders that replaced the Company’s prior $25,000 asset-based revolving credit facility (the “ABL Facility”).facility. The agreement provides forCredit Agreement includes a $25,000 Revolving Credit Facility (the "Revolving Credit Facility") and a $90,000 Delayed Draw Term Loan Facility (“DDTL”), which are collectively referred to as the “Credit Facilities.” The interest rate on borrowings is determined by various alternative base rates plus an applicable margin ranging from 4% to 5%. The interest rate currently in effect on the Delayed Draw Term Loan facility is 6%, which is the minimum interest rate allowed under the Credit Facilities agreement. Borrowings on the Delayed Draw Term Loan Facility are subject to possible interest rate adjustment in February 2022. In addition, there is a commitment fee on the unused Revolving Credit Facility of 0.5%. The proceeds from the Revolving Credit Facility can be used for general corporate purposes. Thepurposes, whereas the proceeds from the Delayed Draw Term Loan Facility areDDTL were to be used solely to finance the acquisition of aircraft or engines to be registered in the U.S. During the six months ended June 30, 2021, the Company drew $80,500 on the Delayed Draw Term Loan Facility to purchase 6 aircraft, which were previously under operating leases. Principal payments of $1,006 are due on a quarterly basis. As of September 30, 2021 , the Credit Facilities had an outstanding principal balance of $78,488.United States. The Credit Facilities haveAgreement includes financial covenants that require a minimum trailing 12 month12-month EBITDAR (ranging from $62,100 as of September 30, 2021, $78,100 as of December 31, 2021, and $87,700($87,700 as of March 31, 2022 and beyond) and a minimum liquidity of $30,000 at the close of any business day.
The Company was in compliance with these covenants as of September 30, 2022.
- 18 -
(Unaudited)
The Company was in compliance with all covenants in its debt agreements at September 30, 2021.
2022-1 EETC while undergoing induction.
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Notes payable under the Company's 2019-1 EETC agreement dated December 2019, with original loan amounts of $248,587 payable in bi-annual installments, in June and December, through December 2027. These notes bear interest at an annual rate of between 4.13% and 6.95% and the weighted average interest rate is 4.78%. | | $ | 211,605 | | $ | 227,347 |
| | | | | | |
Delayed Draw Term Loan Facility (see terms and conditions above) | |
| 78,488 | |
| — |
| | | | | | |
U. S. Department of the Treasury CARES Act Loan (see terms and conditions above) | |
| — | |
| 45,419 |
| | | | | | |
Notes payable to Wilmington Trust Company. Notes bear interest at an annual rate of 8.45% and were scheduled to mature Nov. 2023 to Feb. 2024. In April 2021, these notes were repaid. | |
| — | |
| 12,506 |
| | | | | | |
Other Notes payable. These notes bear interest at an annual rate of approximately 5.0% and mature March 2029. | |
| 479 | |
| 529 |
| | | | | | |
Total Debt | |
| 290,572 | |
| 285,801 |
| | | | | | |
Less: Unamortized debt issuance costs | |
| (3,752) | |
| (3,338) |
| | | | | | |
Less: Current Maturities of Long-term Debt | |
| (19,835) | |
| (26,118) |
Total Long-term Debt | | $ | 266,985 | | $ | 256,345 |
- 19 -
September 30, 2022 | December 31, 2021 | ||||||||||
Notes payable under the Company's 2019-1 EETC agreement dated December 2019, with original loan amounts of $248,587 payable in bi-annual installments, in June and December, through December 2027. These notes bear interest at an annual rate between 4.13% and 6.95% and the weighted average interest rate is 4.73% as of September 30, 2022. | $ | 194,884 | $ | 202,984 | |||||||
Notes payable under the Company's 2022-1 EETC agreement dated March 2022, with a face amount of $188,277 payable in bi-annual installments, in March and September, through March 2031. These notes bear interest at an annual rate between 4.84% and 5.75% and the weighted average interest rate is 5.06% as of September 30, 2022. | 179,019 | — | |||||||||
Delayed Draw Term Loan Facility | — | 77,481 | |||||||||
Other Notes payable | — | 466 | |||||||||
Total Debt | 373,903 | 280,931 | |||||||||
Less: Unamortized debt issuance costs | (3,706) | (3,505) | |||||||||
Less: Current Maturities of Long-term Debt | (45,535) | (29,412) | |||||||||
Total Long-term Debt | $ | 324,662 | $ | 248,014 |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | |
|
| Debt Principal |
| Amortization of Debt |
| | | ||
| | Payments | | Issuance Costs | | Net Debt | |||
Remainder of 2021 | | $ | 9,641 | | $ | (248) | | $ | 9,393 |
2022 | |
| 30,367 | |
| (956) | |
| 29,411 |
2023 | |
| 42,358 | |
| (881) | |
| 41,477 |
2024 | |
| 44,000 | |
| (758) | |
| 43,242 |
2025 | |
| 49,087 | |
| (643) | |
| 48,444 |
Thereafter | |
| 115,119 | |
| (266) | |
| 114,853 |
Total as of September 30, 2021 | | $ | 290,572 | | $ | (3,752) | | $ | 286,820 |
Debt Principal Payments | Amortization of Debt Issuance Costs | Net Debt | |||||||||||||||
Remainder of 2022 | $ | 18,187 | $ | (264) | $ | 17,923 | |||||||||||
2023 | 58,518 | (962) | 57,556 | ||||||||||||||
2024 | 60,157 | (777) | 59,380 | ||||||||||||||
2025 | 65,241 | (602) | 64,639 | ||||||||||||||
2026 | 45,668 | (415) | 45,253 | ||||||||||||||
Thereafter | 126,132 | (686) | 125,446 | ||||||||||||||
Total as of September 30, 2022 | $ | 373,903 | $ | (3,706) | $ | 370,197 |
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Carrying Amount | | $ | 290,572 | | $ | 285,801 |
Fair Value | | $ | 283,641 | | $ | 279,119 |
value of Debt was $340,067 as of September 30, 2022 and $272,004 as of December 31, 2021. The fair value of the Company’s debt was based on the discounted amount of future cash flows using the Company’s end-of-period estimated incremental borrowing rate for similar obligations. The estimates were primarily based on Level 3 inputs.
|
| |
As of September 30, 2022 and December 31, 2021, the Company had no outstanding fuel derivative contracts.
Changes in Derivative Assets (Liabilities) are as follows:
| | | | | | |
| | Nine Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
Balance - January 1 | | $ | (1,174) | | $ | 2,233 |
Non-cash Gains (Losses) | |
| 3,527 | |
| (15,766) |
Contract Settlements | |
| (2,105) | |
| 7,531 |
Balance - September 30 | | $ | 248 | | $ | (6,002) |
- 20 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Fuel Derivative Gains (Losses) consist of the following:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Non-cash Gains (Losses) | | $ | (72) | | $ | 290 | | $ | 3,527 | | $ | (15,766) |
Cash Premiums Paid | | | — | | | (53) | |
| — | |
| (1,954) |
Total Fuel Derivative Gains (Losses) | | $ | (72) | | $ | 237 | | $ | 3,527 | | $ | (17,720) |
Fuel derivative gains and losses are classified in Aircraft Fuel on the Condensed Consolidated Statements of Operations.
As of September 30, 2021, the Company had 0 outstanding fuel derivative contracts, but there were $248 of matured contracts that had not yet settled.
|
|
Accounting standards define fair value
Level 1 – Quoted prices for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full termfollows:
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Balance - January 1 | $ | — | $ | (1,174) | |||||||
Non-cash Gains | — | 3,527 | |||||||||
Contract Settlements | — | (2,105) | |||||||||
Balance - September 30 | $ | — | $ | 248 |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair valuefollowing:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Total Fuel Derivative Gains (Losses) | $ | — | $ | (72) | $ | — | $ | 3,527 |
The Company uses the following valuation methodologies for financial instruments measured at fair value on a recurring basis.
Derivative Instruments – Derivative instruments are accounted for as either assets or liabilities and are carried at fair value. The fair value for fuel derivative options and swaps is determined utilizing an option pricing model that uses inputs that are readily available in active markets or can be derived from information available in active markets and are classified within Level 2.
- 21 -
(Unaudited)
September 30, 2022 (1) | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
Available-for-Sale Securities (2): | |||||||||||||||||||||||
Municipal Debt Securities | $ | 41,108 | $ | — | $ | (331) | $ | 40,777 | |||||||||||||||
Corporate Debt Securities | 83,547 | — | (695) | 82,852 | |||||||||||||||||||
U.S. Government Agency Securities | 5,005 | — | (65) | 4,940 | |||||||||||||||||||
Total | $ | 129,660 | $ | — | $ | (1,091) | $ | 128,569 |
(1) | As the Company began purchasing these investment securities during the second quarter of 2022, there is no comparable prior period information. | ||||
(2) | The Company also holds Certificates of Deposit that are included in Investments on the Condensed Consolidated Balance Sheets totaling $6,601 and $6,283 as of September 30, 2022 and December 31, 2021, respectively. |
regular basis in active markets are classified as Level 2.
| | | | | | | | | | | | |
|
| September 30, 2021 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets | | | | | | | | | | | | |
Fuel Derivative Contracts | | $ | — | | $ | 248 | | $ | — | | $ | 248 |
Total Assets measured at fair value on a recurring basis | | $ | — | | $ | 248 | | $ | — | | $ | 248 |
Non-Financial Assets
| | | | | | | | | | | | |
|
| December 31, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Liabilities | | | | | | | | | | | | |
Fuel Derivative Contracts | | $ | — | | $ | 1,174 | | $ | — | | $ | 1,174 |
Total Liabilities measured at fair value on a recurring basis | | $ | — | | $ | 1,174 | | $ | — | | $ | 1,174 |
– Certain assets are measured at fair value on a nonrecurring basis. The Company’s non-financial assets, which primarily consist of propertyProperty & Equipment, Goodwill and equipment, goodwill and other intangible assetsOther Intangible Assets are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial assets are assessed for impairment and, if applicable, written down to fair value using significant unobservable inputs, classified as Level 3.
The Company’s debt portfolio consists
September 30, 2022 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
Cash & Cash Equivalents | $ | 70,925 | $ | 60,987 | $ | — | $ | 131,912 | |||||||||||||||
Available-for-Sale Securities: | |||||||||||||||||||||||
Municipal Debt Securities | — | 40,777 | — | 40,777 | |||||||||||||||||||
Corporate Debt Securities | — | 82,852 | — | 82,852 | |||||||||||||||||||
U.S. Government Agency Securities | — | 4,940 | — | 4,940 | |||||||||||||||||||
Total Available-for-Sale Securities | — | 128,569 | — | 128,569 | |||||||||||||||||||
Total Assets Measured at Fair Value on a Recurring Basis | $ | 70,925 | $ | 189,556 | $ | — | $ | 260,481 |
December 31, 2021 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
Cash & Cash Equivalents | $ | 309,338 | $ | — | $ | — | $ | 309,338 | |||||||||||||||
Total Assets Measured at Fair Value on a Recurring Basis | $ | 309,338 | $ | — | $ | — | $ | 309,338 |
benefits.
Payments under the Tax Receivable Agreement will not begin until at least 12 months after the closing of the Company’s IPO. In the event that the Company is prohibited from making payments under the Tax Receivable Agreement for tax benefits utilized during any periods pursuant to the CARES Act or other
- 22 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
governmental programs, the Company is not required to make payments under the Tax Receivable Agreement for Pre-IPO Tax Attributes utilized in such periods. Based on the Company's current participation in the CARES Act Program, the Company does not expect to make payments under the Tax Receivable Agreement until 2023, and thus is presented in "Long-term Liabilities" on the Condensed Consolidated Balance Sheet.
If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related TRA payments. Upon the closing of the IPO in the first quarter of 2021, the Company recognized a non-current liability of $115,200, which represented undiscounted aggregate payments that were expected to be paid to the TRA holders under the Tax Receivable Agreement,TRA, with an offset to Stockholders'Stockholders’ Equity. Subsequent changes in the measurementThe TRA balance as of the liability are being adjusted through the Consolidated Statements of Operations.September 30, 2022 and December 31, 2021 was $103,800 and $98,800, respectively. The Tax Receivable AgreementTRA liability is an estimate and actual amounts payable under the Tax Receivable Agreement could differ from this estimate based on, among other things, (i) generation of future taxable income overestimate. During the term of the Tax Receivable Agreement, (ii) the Company’s participation in future government programs, (iii) stock option activity during periods prior to the commencement of payments under the Tax Receivable Agreement and (iv) future changes in tax laws. These factors could result in an increase or decrease in the related liability which would be recognized in the Company’s earnings in the period of such change. In the second quarter of 2021, the Company reduced the TRA liability balance by $18,700, from $115,200 to $96,500. The offsetting credit was recorded in Other Non-operating Income. The decrease in the TRA liability was mainly due to the receipt of the PSP3 grant of $34,547, which extended the time period in which distributions made to shareholders are restricted from March 31, 2022 to September 30, 2022, and also resulted in an increase in forecasted 2021 pre-tax income.
An additional $1,100 reduction in the liability was made during the threenine months ended September 30, 2021, due2022, the Company recorded an adjustment to actual financial results exceeding forecasted results usedthe estimated TRA
|
|
period in nature, frequency, and amount.
| | | | | | | | | | | | |
|
| Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
CARES Act grant recognition (1) | | $ | — | | $ | (30,796) | | $ | (71,587) | | $ | (62,312) |
CARES Act employee retention credit (2) | |
| (68) | |
| (2,069) | |
| (848) | |
| (2,069) |
Aircraft lease buy-out expense (3) | |
| — | |
| — | |
| 6,963 | |
| — |
Other | |
| 3 | |
| 13 | |
| 16 | |
| 48 |
Total Special Items, net | | $ | (65) | | $ | (32,852) | | $ | (65,456) | | $ | (64,333) |
- 23 -
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
$ | — | $ | — | $ | — | $ | (71,587) | ||||||||||||||||
— | (68) | — | (848) | ||||||||||||||||||||
Other | — | 3 | — | 16 | |||||||||||||||||||
Total Special Items, net | $ | — | $ | (65) | $ | — | $ | (72,419) |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
The Company has contractual obligations and commitments primarily with regard to lease arrangements, repayment of debt (see Note 7)7), payments under the TRA (see Note 11), and probable future purchases of aircraft.
Sun Country also has a contractual obligation
second quarter and had no financial impact on the Company's Condensed Consolidated Statement of Operations. The estimate will be revised when additional information becomes available or when the contingency is finalized. The Company does not believe the finalization of the contingency will have a material effect on the Company's Condensed Consolidated Results of Operations.
|
|
Operating segments are defined as components of an enterprise about which separate financial information is both available and evaluated regularly by the Chief Operating Decision Maker and is used in resource allocation and performance assessments. The Company’s Chief Operating Decision Maker is considered to be the Company’s Chief Executive Officer. The Company’s Chief Operating Decision Maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Substantially all the Company’s tangible assets are located in the U.S. or relate to flight equipment, which is mobile across geographic markets. The Company has 2 operating segments: Passenger and Cargo.
The Company’s Passenger segment has 2 internal passenger groups (Scheduled and Charter), but since resources are shared and expenses are combined, they are considered one Passenger operating segment. The Company’s Passenger operations are highly concentrated in the U.S., but include service to many international locations, primarily based on scheduled service to Latin America during the winter season and on military charter services. All goodwill is related to the Passenger Operating Segment.
The Cargo segment began providing air cargo services under the ATSA in May 2020. Fuel consumed in Cargo operations is directly reimbursed by Amazon and therefore aircraft fuel revenue is presented net of such reimbursements on the Condensed Consolidated Statements of Operations. Fuel consumed in Cargo maintenance activities is included in the Cargo segment. Certain operating expenses are directly attributable to the Cargo operating segment.
Certain operating expenses are allocated between the operating segments. Non-Fuel operating expenses are allocated based on metrics such as block hours, fleet count and departures, which best align with the
- 24 -
(Unaudited)
nature of the respective expense. CARES Act credits, included in Special Items, net, are allocated based on the respective segment salaries, wages, and benefits.
(Unaudited)
Company’s segments, see
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 | ||||||||||||||
| | Passenger |
| Cargo |
| Consolidated |
| Passenger |
| Cargo(1) |
| Consolidated | ||||||
Operating Revenues | | $ | 149,263 | | $ | 24,400 | | $ | 173,663 | | $ | 63,701 | | $ | 14,272 | | $ | 77,973 |
Non-Fuel Operating Expenses |
| | 99,279 |
| | 15,800 |
| | 115,079 | | | 76,377 |
| | 12,492 |
| | 88,869 |
Aircraft Fuel |
| | 36,556 |
| | 91 |
| | 36,647 | | | 13,139 |
| | — |
| | 13,139 |
Special Items, net |
| | (65) |
| | — |
| | (65) | | | (25,534) |
| | (7,318) |
| | (32,852) |
Total Operating Expenses |
| | 135,770 |
| | 15,891 |
| | 151,661 | | | 63,982 |
| | 5,174 |
| | 69,156 |
Operating Income (Loss) | | $ | 13,493 | | $ | 8,509 |
| | 22,002 | | $ | (281) | | $ | 9,098 |
| | 8,817 |
Interest Income | | | | |
| | | | 28 | | | | |
| | | | 26 |
Interest Expense | | | | |
| | | | (6,286) | | | | |
| | | | (5,157) |
Other, net | | | | |
| | | | 456 | | | | |
| | | | 164 |
Income before Income Tax | | | | |
|
|
| $ | 16,200 | | | | |
|
|
| $ | 3,850 |
of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K.
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||
|
| Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| | Passenger |
| Cargo |
| Consolidated |
| Passenger |
| Cargo(1) |
| Consolidated | |||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Passenger | Cargo | Consolidated | Passenger | Cargo | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues | | $ | 382,380 | | $ | 68,084 | | $ | 450,464 | | $ | 276,188 | | $ | 17,491 | | $ | 293,679 | Operating Revenues | $ | 198,013 | $ | 23,687 | $ | 221,700 | $ | 149,263 | $ | 24,400 | $ | 173,663 | ||||||||||||||||||||||
Non-Fuel Operating Expenses |
| | 278,843 |
| | 50,272 |
| | 329,115 | | | 249,423 |
| | 17,398 |
| | 266,821 | Non-Fuel Operating Expenses | 117,788 | 23,678 | 141,466 | 99,960 | 15,800 | 115,760 | ||||||||||||||||||||||||||||
Aircraft Fuel |
| | 90,468 |
| | 163 |
| | 90,631 | | | 69,377 |
| | — |
| | 69,377 | Aircraft Fuel | 64,763 | 80 | 64,843 | 36,556 | 91 | 36,647 | ||||||||||||||||||||||||||||
Special Items, net |
| | (47,055) |
| | (18,401) |
| | (65,456) | | | (53,646) |
| | (10,687) |
| | (64,333) | Special Items, net | — | — | — | (65) | — | (65) | ||||||||||||||||||||||||||||
Total Operating Expenses |
| | 322,256 |
| | 32,034 |
| | 354,290 | | | 265,154 |
| | 6,711 |
| | 271,865 | Total Operating Expenses | 182,551 | 23,758 | 206,309 | 136,451 | 15,891 | 152,342 | ||||||||||||||||||||||||||||
Operating Income | | $ | 60,124 | | $ | 36,050 |
| | 96,174 | | $ | 11,034 | | $ | 10,780 |
| | 21,814 | |||||||||||||||||||||||||||||||||||
Operating Income (Loss) | Operating Income (Loss) | $ | 15,462 | $ | (71) | 15,391 | $ | 12,812 | $ | 8,509 | 21,321 | ||||||||||||||||||||||||||||||||||||||||||
Interest Income | | | | |
| | | | 52 | | | | |
| | | | 340 | Interest Income | 1,610 | 28 | ||||||||||||||||||||||||||||||||
Interest Expense | | | | |
| | | | (19,487) | | | | |
| | | | (16,215) | Interest Expense | (7,493) | (6,286) | ||||||||||||||||||||||||||||||||
Other, net | | | | |
| | | | 18,505 | | | | |
| | | | (331) | Other, net | 3,422 | 456 | ||||||||||||||||||||||||||||||||
Income before Income Tax | | | | |
|
|
| $ | 95,244 | | | | |
|
|
| $ | 5,608 | |||||||||||||||||||||||||||||||||||
Income Before Income Tax | Income Before Income Tax | $ | 12,930 | $ | 15,519 |
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
Passenger | Cargo | Consolidated | Passenger | Cargo | Consolidated | ||||||||||||||||||||||||||||||
Operating Revenues | $ | 601,360 | $ | 65,930 | $ | 667,290 | $ | 382,380 | $ | 68,084 | $ | 450,464 | |||||||||||||||||||||||
Non-Fuel Operating Expenses | 355,894 | 64,470 | 420,364 | 280,272 | 50,272 | 330,544 | |||||||||||||||||||||||||||||
Aircraft Fuel | 206,254 | 80 | 206,334 | 90,468 | 163 | 90,631 | |||||||||||||||||||||||||||||
Special Items, net | — | — | — | (54,018) | (18,401) | (72,419) | |||||||||||||||||||||||||||||
Total Operating Expenses | 562,148 | 64,550 | 626,698 | 316,722 | 32,034 | 348,756 | |||||||||||||||||||||||||||||
Operating Income | $ | 39,212 | $ | 1,380 | 40,592 | $ | 65,658 | $ | 36,050 | 101,708 | |||||||||||||||||||||||||
Interest Income | 2,166 | 52 | |||||||||||||||||||||||||||||||||
Interest Expense | (23,097) | (19,487) | |||||||||||||||||||||||||||||||||
Other, net | (5,156) | 18,505 | |||||||||||||||||||||||||||||||||
Income Before Income Tax | $ | 14,505 | $ | 100,778 |
|
|
|
|
- 25 -
(Unaudited)
Our unaudited condensed consolidated
There have been no material changesgenerated by those assets. Cash flow estimates are determined based on additional assumptions, including asset utilization, average fares, projected fuel costs and other operating costs, along with the estimated service life of the asset. Certain of these assumptions are highly volatile and could change significantly from period to our critical accounting policiesperiod due to various macroeconomic and estimates as comparedindustry-specific events.
2022.
- 26 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
high growth, high margins and strong cash flows with greater resilience than other passenger airlines. We focus on serving leisure and “visitingvisiting friends and relatives” (“VFR”relatives ("VFR") passengers and charter customers as well as providing crew, maintenance and insurance (“CMI”) services to Amazon, with flights throughout the United States and to destinations in Canada, Mexico, Central America and the Caribbean. Based in Minnesota, we operate an agile network that includes our scheduled service business, our synergistic charter, and cargo businesses. We share resources, such as flight crews, across our scheduled service, charter, and cargo business lines with the objective of generating higher returns and margins and mitigating the seasonality of our
- 27 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
business also enables us to leverage certain assets, capabilities, and fixed costs to enhance profitability and promote growth across our Company.
On February 10, 2021, Sun Country, Inc., our wholly-owned subsidiary (the “Borrower”), entered into a new Credit Agreement which provides for a $25,000 Revolving Credit Facility and a $90,000 Delayed Draw Term Loan Facility. We received CARES Act grants totaling $62,312 during 2020, and a CARES Act loan of $45,000 in October 2020. During the first half of 2021, we received grants totaling $37,040 and $34,547 under the Payroll Support Program Extension under the Consolidated Appropriations Act of 2021 (“PSP2”) and the American Rescue Plan Act of 2021 (“PSP3”), respectively. During the three months ended September 30, 2021, no CARES Act grants were received.
While the COVID-19 pandemic inducedpandemic-induced industry downturn has delayed our growth in 2020 and 2021, to date, we believe that our investments have positioned us to profitably grow our business in the long term following a rebound in the U.S. airline industry.
Scheduled Service. Scheduled service revenue consistsFor a more detailed discussion on the nature of base farestransactions included in the separate line items of our Condensed Consolidated Statement of Operations, see “Management’s Discussion and expired passenger travel credits.
Charter Service. Charter service revenue consistsAnalysis of revenue earned fromOperations” in Part II, Item 7 in our charter business, primarily generated through our service2021 10-K.
Ancillary. Ancillary revenue consistsFinancial Condition reflect the effect of revenue generated from air travel-related services such as baggage fees, seat selection and upgrade fees, itinerary service fees and on-board sales.
- 28 -
(Unaudited)
Cargo. Cargo revenue consists of air cargo transportation services under the ATSA with Amazon, primarily(Unaudited)
Three Months Ended September 30, 2022 (1) | Three Months Ended September 30, 2021 (1) | ||||||||||||||||||||||||||||||||||||||||||||||
Scheduled Service | Charter | Cargo | Total | Scheduled Service | Charter | Cargo | Total | ||||||||||||||||||||||||||||||||||||||||
Departures (2) | 5,611 | 2,359 | 3,043 | 11,072 | 5,533 | 1,798 | 2,912 | 10,299 | |||||||||||||||||||||||||||||||||||||||
Block hours (2) | 16,947 | 4,623 | 8,739 | 30,492 | 17,313 | 3,835 | 8,533 | 29,842 | |||||||||||||||||||||||||||||||||||||||
Aircraft miles (2) | 6,777,764 | 1,629,061 | 3,399,149 | 11,864,450 | 7,046,575 | 1,423,300 | 3,376,084 | 11,897,035 | |||||||||||||||||||||||||||||||||||||||
Available seat miles (ASMs) (thousands) (2) | 1,256,755 | 286,189 | 1,553,483 | 1,296,555 | 244,393 | 1,549,432 | |||||||||||||||||||||||||||||||||||||||||
Total revenue per ASM (TRASM) (cents) | 12.34 | 14.99 | 12.75 | 8.90 | 13.83 | 9.63 | |||||||||||||||||||||||||||||||||||||||||
Average passenger aircraft during the period (3) | 36.8 | 32.9 | |||||||||||||||||||||||||||||||||||||||||||||
Passenger aircraft at end of period (3) | 42 | 35 | |||||||||||||||||||||||||||||||||||||||||||||
Cargo aircraft at end of period | 12 | 12 | |||||||||||||||||||||||||||||||||||||||||||||
Average daily aircraft utilization (hours) (3) | 6.4 | 7.0 | |||||||||||||||||||||||||||||||||||||||||||||
Average stage length (miles) | 1,055 | 1,155 | |||||||||||||||||||||||||||||||||||||||||||||
Revenue passengers carried (4) | 908,967 | 785,348 | |||||||||||||||||||||||||||||||||||||||||||||
Revenue passenger miles (RPMs) (thousands) (4) | 1,101,011 | 1,011,936 | |||||||||||||||||||||||||||||||||||||||||||||
Load factor (4) | 87.6 | % | 78.0 | % | |||||||||||||||||||||||||||||||||||||||||||
Average base fare per passenger (4) | $ | 112.44 | $ | 102.14 | |||||||||||||||||||||||||||||||||||||||||||
Ancillary revenue per passenger (4) | $ | 55.29 | $ | 42.91 | |||||||||||||||||||||||||||||||||||||||||||
Charter revenue per block hour (4) | $ | 9,280 | $ | 8,816 | |||||||||||||||||||||||||||||||||||||||||||
Fuel gallons consumed (thousands) (2) | 13,352 | 3,056 | 16,509 | 13,475 | 2,760 | 16,321 | |||||||||||||||||||||||||||||||||||||||||
Fuel cost per gallon, excluding derivatives and other items | $ | 3.93 | $ | 2.24 | |||||||||||||||||||||||||||||||||||||||||||
Employees at end of period | 2,354 | 2,014 | |||||||||||||||||||||||||||||||||||||||||||||
Cost per available seat mile (CASM) (cents) (5) | 13.28 | 9.83 | |||||||||||||||||||||||||||||||||||||||||||||
Adjusted CASM (cents) (6) | 7.55 | 6.39 |
Other. Other revenue consists primarilyflights operated for maintenance; therefore the Total System amounts are higher than the sum of revenue from services in connection with our Sun Country Vacations products, including organizing ground services, such as hotel, carScheduled Service, Charter Service and transfers. Other revenue also includes services not directly related to providing passenger services such asCargo amounts.
Operating Expenses
Aircraft Fuel. Aircraft fuel expense includes jet fuel, federal and state taxes, other fees and the mark-to-market gains and losses associated with our fuel derivative contracts since we do not apply hedge accounting. Aircraft fuel expense can be volatile, even between quarters, due to price changes and mark-to-market gains and losses in the value of the underlying derivative instruments as crude oil prices and refining margins increase or decrease.
Salaries, Wages, and Benefits. Salaries, wages, and benefits expense includes salaries, hourly wages, bonuses, equity-based compensation, and profit sharing paid to employees for their services, as well as related expenses associated with medical benefits, employee benefit plans, employer payroll taxes and other employee related costs.
Aircraft Rent. Aircraft rent expense consists of monthly lease charges for aircraft and spare engines under the terms of the related operating leases and is recognizedutilization metrics are shown on a straight-line basis. Aircraft rent expense also includes supplemental rent, which consists of maintenance reserves paid to aircraft lessors in advance of the performance of significant maintenance activities thatsystem basis only.
Maintenance. Maintenance expense includes the cost of all parts, materials and fees for repairs performed by us and our third-party vendors to maintain our fleet. It excludes direct labor cost related to our own mechanics, whichcargo operations, special items, and certain other costs that are included in salaries, wages, and benefits expense. It also excludes maintenance expenses, which are deferred based on the built-in overhaul method for owned and finance leased aircraft , which is subsequently amortized as a component of depreciation and amortization expense. Our maintenance expense is reduced due to recognizing a liability (or contra-asset) that offsets expenses for maintenance events incurred by the new owners of Sun Country, but paid for by the previous owners. For more information on these maintenance expense credits, see Note 6unrelated to our Condensed Consolidated Financial Statements.
Sales and Marketing. Sales and marketing expense includes credit card processing fees, travel agent commissions and related global distribution systems fees, advertising, sponsorship and distribution costs, such
- 29 -
(Unaudited)
as the costs of our call centers,(Unaudited)
Nine Months Ended September 30, 2022 (1) | Nine Months Ended September 30, 2021 (1) | ||||||||||||||||||||||||||||||||||||||||||||||
Scheduled Service | Charter | Cargo | Total | Scheduled Service | Charter | Cargo | Total | ||||||||||||||||||||||||||||||||||||||||
Departures (2) | 17,512 | 6,214 | 8,310 | 32,246 | 14,777 | 5,036 | 8,229 | 28,196 | |||||||||||||||||||||||||||||||||||||||
Block hours (2) | 57,585 | 13,000 | 23,891 | 95,052 | 48,420 | 10,822 | 24,973 | 84,648 | |||||||||||||||||||||||||||||||||||||||
Aircraft miles (2) | 23,112,200 | 4,630,257 | 9,209,477 | 37,113,673 | 19,758,087 | 4,005,794 | 9,884,576 | 33,780,294 | |||||||||||||||||||||||||||||||||||||||
Available seat miles (ASMs) (thousands) (2) | 4,284,403 | 800,698 | 5,114,134 | 3,653,335 | 693,837 | 4,368,972 | |||||||||||||||||||||||||||||||||||||||||
Total revenue per ASM (TRASM) (cents) | 11.27 | 14.80 | 11.76 | 8.04 | 12.76 | 8.75 | |||||||||||||||||||||||||||||||||||||||||
Average passenger aircraft during the period (3) | 35.2 | 31.7 | |||||||||||||||||||||||||||||||||||||||||||||
Passenger aircraft at end of period (3) | 42 | 35 | |||||||||||||||||||||||||||||||||||||||||||||
Cargo aircraft at end of period | 12 | 12 | |||||||||||||||||||||||||||||||||||||||||||||
Average daily aircraft utilization (hours) (3) | 7.4 | 6.9 | |||||||||||||||||||||||||||||||||||||||||||||
Average stage length (miles) | 1,169 | 1,199 | |||||||||||||||||||||||||||||||||||||||||||||
Revenue passengers carried (4) | 2,715,707 | 2,038,399 | |||||||||||||||||||||||||||||||||||||||||||||
Revenue passenger miles (RPMs) (thousands) (4) | 3,565,501 | 2,705,969 | |||||||||||||||||||||||||||||||||||||||||||||
Load factor (4) | 83.2 | % | 74.1 | % | |||||||||||||||||||||||||||||||||||||||||||
Average base fare per passenger (4) | $ | 123.24 | $ | 99.05 | |||||||||||||||||||||||||||||||||||||||||||
Ancillary revenue per passenger (4) | $ | 51.39 | $ | 42.50 | |||||||||||||||||||||||||||||||||||||||||||
Charter revenue per block hour (4) | $ | 9,118 | $ | 8,179 | |||||||||||||||||||||||||||||||||||||||||||
Fuel gallons consumed (thousands) (2) | 44,940 | 9,085 | 54,322 | 37,299 | 7,739 | 45,269 | |||||||||||||||||||||||||||||||||||||||||
Fuel cost per gallon, excluding derivatives and other items | $ | 3.81 | $ | 2.08 | |||||||||||||||||||||||||||||||||||||||||||
Employees at end of period | 2,354 | 2,014 | |||||||||||||||||||||||||||||||||||||||||||||
Cost per available seat mile (CASM) (cents) (5) | 12.25 | 7.98 | |||||||||||||||||||||||||||||||||||||||||||||
Adjusted CASM (cents) (6) | 6.91 | 6.32 |
Depreciation and Amortization. Depreciation and amortization expense includes depreciation of fixed assets we own and leasehold improvements, amortization of finance leased assets, as well as the amortization of finite-lived intangible assets. It also includes the depreciation of significant maintenance expenses deferred under the built-in overhaul method for owned and certain finance leased aircraft.
Ground Handling. Ground handling includes ground services at airports including baggage handling, ticket counter and other ground services.
Landing Fees and Airport Rent. Landing fees and airport rent includes aircraft landing fees and charges for the use of airport facilities.
Special Items, net. Special items, net reflects expenses, or credits to expense, thatmetrics are not representativepresented as they are not calculable or are not utilized by management.
Other Operating. Otherscheduled service. Charter service revenue is driven by flight statistics.
divided by total available seat miles.
Interest Income. Interest income includes interest on our cash, cash equivalents and investment balances. Interest incomeAdjusted CASM is generally immaterial to our results of operations, reflecting the current low interest rate environment.
Interest Expense. Interest expense includes interest and feesa non-GAAP measure derived from CASM by excluding fuel costs, costs related to our outstanding debt and our finance leases, as well as the amortization of debt financing costs.
Other, net. Other expenses include activities not classified in any other area of the Condensed Consolidated Statements of Operations, such as gain or loss on sale or retirement of assetscargo operations, special items, and certain consulting expenses. The change in the TRA liability is also included here.
Income Taxes
Income taxesother costs that are accounted for using the asset and liability method. A valuation allowance is recordedunrelated to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. In assessing our ability to utilize our deferred tax assets, there is consideration on whether it is more likely than not that some or all of the deferred tax assets will be realized. All available evidence, both positive and negative, is considered in determining future taxable income on a jurisdiction by jurisdiction basis.
- 30 -
(Unaudited)
Operating Statistics
Key Operating Statistics and Metrics
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 (1) | | Three Months Ended September 30, 2020 (1) | ||||||||||||||||||
| | Scheduled | | | | | | | | | | Scheduled | | | | | | | | | ||
|
| Service |
| Charter |
| Cargo |
| Total |
| Service |
| Charter |
| Cargo |
| Total | ||||||
Departures (2) | | | 5,533 | | | 1,798 | | 2,912 | | | 10,299 | | | 3,364 | | | 1,324 | | 1,818 | | | 6,549 |
Block hours (2) | | | 17,313 | | | 3,835 | | 8,533 | | | 29,842 | | | 9,998 | | | 2,920 | | 5,168 | | | 18,191 |
Aircraft miles (2) | | | 7,046,575 | | | 1,423,300 | | 3,376,084 | | | 11,897,035 | | | 4,104,095 | | | 1,126,392 | | 2,119,442 | | | 7,381,323 |
Available seat miles (ASMs) (thousands) (2) | | | 1,296,555 | | | 244,393 | | — | | | 1,549,432 | | | 763,362 | | | 205,594 | | — | | | 974,584 |
Total revenue per ASM (TRASM) (cents) (3) | | |
| | |
| |
| | | 9.63 | | |
| | |
| | | | | 6.54 |
Average passenger aircraft during the period (3) | | |
| | |
| |
| | | 32.9 | | |
| | |
| | | | | 31.0 |
Passenger aircraft at end of period (3) | | |
| | |
| |
| | | 35 | | |
| | |
| | | | | 31 |
Cargo aircraft at end of period | | |
| | |
| |
| | | 12 | | |
| | |
| | | | | 10 |
Average daily aircraft utilization (hours) (3) | | |
| | |
| |
| | | 7.0 | | |
| | |
| | | | | 4.6 |
Average stage length (miles) | | |
| | |
| |
| | | 1,155 | | |
| | |
| | | | | 1,116 |
Revenue passengers carried (4) | | | 785,348 | | |
| |
| | |
| | | 337,887 | | |
| | | | |
|
Revenue passenger miles (RPMs) (thousands) (4) | | | 1,011,936 | | |
| |
| | |
| | | 418,223 | | |
| | | | |
|
Passenger revenue per ASM (PRASM) (cents) (4) | | | 6.19 | | |
| |
| | |
| | | 3.53 | | |
| | | | |
|
Load factor (4) | | | 78.0 | % | |
| |
| | |
| | | 54.8 | % | |
| | | | |
|
Average base fare per passenger (4) | | $ | 102.14 | | |
| |
| | |
| | $ | 79.77 | | |
| | | | |
|
Ancillary revenue per passenger (4) | | $ | 42.91 | | |
| |
| | |
| | $ | 36.27 | | |
| | | | |
|
Charter revenue per block hour | | | | | $ | 8,816 | |
| | |
| | |
| | $ | 7,967 | | | | |
|
Fuel gallons consumed (thousands) (2) | | | 13,475 | |
| 2,760 | | — | | | 16,321 | | | 7,403 | | | 2,098 | | | | | 9,558 |
Fuel cost per gallon, excluding derivatives | | |
| |
|
| |
| | $ | 2.24 | | |
| | |
| | | | $ | 1.40 |
Employees at end of period | | |
| |
|
| |
| | | 2,014 | | |
| | |
| | | | | 1,632 |
Cost per available seat mile (CASM) (cents) (5) | | | | |
|
| |
| | | 9.79 | | | | | |
| | | | | 7.10 |
Adjusted CASM (cents) (6) | | | | |
|
| |
| | | 6.35 | | | | | |
| | | | | 7.63 |
Three Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||
Scheduled Service | $ | 102,200 | $ | 80,212 | $ | 21,988 | 27 | % | |||||||||||||||
Charter Service | 42,899 | 33,809 | 9,090 | 27 | % | ||||||||||||||||||
Ancillary | 50,261 | 33,697 | 16,564 | 49 | % | ||||||||||||||||||
Passenger | 195,360 | 147,718 | 47,642 | 32 | % | ||||||||||||||||||
Cargo | 23,687 | 24,400 | (713) | (3) | % | ||||||||||||||||||
Other | 2,653 | 1,545 | 1,108 | 72 | % | ||||||||||||||||||
Total Operating Revenues | 221,700 | 173,663 | 48,037 | 28 | % | ||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||
Aircraft Fuel | 64,843 | 36,647 | 28,196 | 77 | % | ||||||||||||||||||
Salaries, Wages, and Benefits | 58,661 | 43,424 | 15,237 | 35 | % | ||||||||||||||||||
Aircraft Rent | 1,949 | 3,925 | (1,976) | (50) | % | ||||||||||||||||||
Maintenance | 11,018 | 9,660 | 1,358 | 14 | % | ||||||||||||||||||
Sales and Marketing | 6,827 | 5,470 | 1,357 | 25 | % | ||||||||||||||||||
Depreciation and Amortization | 17,181 | 14,710 | 2,471 | 17 | % | ||||||||||||||||||
Ground Handling | 8,669 | 7,873 | 796 | 10 | % | ||||||||||||||||||
Landing Fees and Airport Rent | 12,926 | 12,069 | 857 | 7 | % | ||||||||||||||||||
Special Items, net | — | (65) | 65 | (100) | % | ||||||||||||||||||
Other Operating, net | 24,235 | 18,629 | 5,606 | 30 | % | ||||||||||||||||||
Total Operating Expenses | 206,309 | 152,342 | 53,967 | 35 | % | ||||||||||||||||||
Operating Income | 15,391 | 21,321 | (5,930) | (28) | % | ||||||||||||||||||
Non-operating Income (Expense): | |||||||||||||||||||||||
Interest Income | 1,610 | 28 | 1,582 | NM | |||||||||||||||||||
Interest Expense | (7,493) | (6,286) | (1,207) | 19 | % | ||||||||||||||||||
Other, net | 3,422 | 456 | 2,966 | NM | |||||||||||||||||||
Total Non-operating Expense, net | (2,461) | (5,802) | 3,341 | (58) | % | ||||||||||||||||||
Income Before Income Tax | 12,930 | 15,519 | (2,589) | (17) | % | ||||||||||||||||||
Income Tax Expense | 2,253 | 2,140 | 113 | 5 | % | ||||||||||||||||||
Net Income | $ | 10,677 | $ | 13,379 | $ | (2,702) | (20) | % |
"NM" stands for | ||
- 31 -
(Unaudited)
Key Operating Statistics and Metrics
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 (1) | | Nine Months Ended September 30, 2020 (1) | ||||||||||||||||||
| | Scheduled | | | | | | | | | | Scheduled | | | | | | | | | ||
|
| Service |
| Charter |
| Cargo |
| Total |
| Service |
| Charter |
| Cargo |
| Total | ||||||
Departures (2) | | | 14,777 | | | 5,036 | | 8,229 | | | 28,196 | | | 10,546 | | | 3,480 | | 2,231 | | | 16,396 |
Block hours (2) | | | 48,420 | | | 10,822 | | 24,973 | | | 84,648 | | | 34,416 | | | 7,853 | | 6,244 | | | 48,882 |
Aircraft miles (2) | | | 19,758,087 | | | 4,005,794 | | 9,884,576 | | | 33,780,294 | | | 13,971,834 | | | 2,964,186 | | 2,574,422 | | | 19,616,211 |
Available seat miles (ASMs) (thousands) (2) | | | 3,653,335 | | | 693,837 | | — | | | 4,368,972 | | | 2,589,606 | | | 540,284 | | — | | | 3,149,189 |
Total revenue per ASM (TRASM) (cents) (3) | | |
| | |
| |
| | | 8.75 | | |
| | |
| | | | | 8.77 |
Average passenger aircraft during the period (3) | | |
| | |
| |
| | | 31.7 | | |
| | |
| | | | | 31.4 |
Passenger aircraft at end of period (3) | | |
| | |
| |
| | | 35 | | |
| | |
| | | | | 31 |
Cargo aircraft at end of period | | |
| | |
| |
| | | 12 | | |
| | |
| | | | | 10 |
Average daily aircraft utilization (hours) (3) | | |
| | |
| |
| | | 6.9 | | |
| | |
| | | | | 5.0 |
Average stage length (miles) | | |
| | |
| |
| | | 1,199 | | |
| | |
| | | | | 1,207 |
Revenue passengers carried (4) | | | 2,038,399 | | |
| |
| | |
| | | 1,273,747 | | |
| | | | |
|
Revenue passenger miles (RPMs) (thousands) (4) | | | 2,705,969 | | |
| |
| | |
| | | 1,721,227 | | |
| | | | |
|
Passenger revenue per ASM (PRASM) (cents) (4) | | | 5.53 | | |
| |
| | |
| | | 6.14 | | |
| | | | |
|
Load factor (4) | | | 74.1 | % | |
| |
| | |
| | | 66.5 | % | |
| | | | |
|
Average base fare per passenger (4) | | $ | 99.05 | | |
| |
| | |
| | $ | 124.88 | | |
| | | | |
|
Ancillary revenue per passenger (4) | | $ | 42.50 | | |
| |
| | |
| | $ | 41.02 | | |
| | | | |
|
Charter revenue per block hour | | |
| | $ | 8,179 | |
| | |
| | |
| | $ | 7,765 | | | | |
|
Fuel gallons consumed (thousands) (2) | | | 37,299 | |
| 7,739 | | — | | | 45,269 | | | 26,182 | | | 5,744 | | — | | | 32,120 |
Fuel cost per gallon, excluding derivatives | | |
| |
|
| |
| | $ | 2.08 | | |
| | |
| | | | $ | 1.62 |
Employees at end of period | | |
| |
|
| |
| | | 2,014 | | |
| | |
| | | | | 1,632 |
Cost per available seat mile (CASM) (cents) (5) | | | | |
|
| |
| | | 8.11 | | | | | |
| | | | | 8.63 |
Adjusted CASM (cents) (6) | | | | |
|
| |
| | | 6.29 | | | | | |
| | | | | 7.75 |
- 32 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Statement of Operations Analysis
Results of Operations
For the Three Months Ended September 30, 2021 and 2020
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | $ | | % |
| |||||
|
| 2021 |
| 2020 |
| Change |
| Change |
| |||
Operating Revenues: | | | | | | | | | | | | |
Scheduled Service | | $ | 80,212 | | $ | 26,954 | | $ | 53,258 | | 198 | % |
Charter Service | |
| 33,809 | |
| 23,264 | |
| 10,545 | | 45 | % |
Ancillary | |
| 33,697 | |
| 12,254 | |
| 21,443 | | 175 | % |
Passenger | |
| 147,718 | |
| 62,472 | |
| 85,246 | | 136 | % |
Cargo | |
| 24,400 | |
| 14,272 | |
| 10,128 | | 71 | % |
Other | |
| 1,545 | |
| 1,229 | |
| 316 | | 26 | % |
Total Operating Revenues | |
| 173,663 | |
| 77,973 | |
| 95,690 | | 123 | % |
| | | | | | | | | | | | |
Operating Expenses: | |
|
| |
|
| |
|
| |
| |
Aircraft Fuel | |
| 36,647 | |
| 13,139 | |
| 23,508 | | 179 | % |
Salaries, Wages, and Benefits | |
| 43,424 | |
| 36,348 | |
| 7,076 | | 19 | % |
Aircraft Rent | |
| 3,925 | |
| 6,410 | |
| (2,485) | | (39) | % |
Maintenance | |
| 9,660 | |
| 6,338 | |
| 3,322 | | 52 | % |
Sales and Marketing | |
| 5,470 | |
| 2,921 | |
| 2,549 | | 87 | % |
Depreciation and Amortization | |
| 14,029 | |
| 12,929 | |
| 1,100 | | 9 | % |
Ground Handling | |
| 7,873 | |
| 4,880 | |
| 2,993 | | 61 | % |
Landing Fees and Airport Rent | |
| 12,069 | |
| 8,596 | |
| 3,473 | | 40 | % |
Special Items, net | |
| (65) | |
| (32,852) | |
| 32,787 | | (100) | % |
Other Operating, net | |
| 18,629 | |
| 10,447 | |
| 8,182 | | 78 | % |
Total Operating Expenses | |
| 151,661 | |
| 69,156 | |
| 82,505 | | 119 | % |
Operating Income | |
| 22,002 | |
| 8,817 | |
| 13,185 | | 150 | % |
| | | | | | | | | | | | |
Non-operating Income (Expense): | |
|
| |
|
| |
|
| |
| |
Interest Income | |
| 28 | |
| 26 | |
| 2 | | 8 | % |
Interest Expense | |
| (6,286) | |
| (5,157) | |
| (1,129) | | 22 | % |
Other, net | |
| 456 | |
| 164 | |
| 292 | | 178 | % |
Total Non-operating Income (Expense), net | |
| (5,802) | |
| (4,967) | |
| (835) | | 17 | % |
| | | | | | | | | | | | |
Income before Income Tax | |
| 16,200 | |
| 3,850 | |
| 12,350 | | 321 | % |
Income Tax Expense | |
| 2,297 | |
| 923 | |
| 1,374 | | 149 | % |
Net Income | | $ | 13,903 | | $ | 2,927 | | $ | 10,976 | | 375 | % |
Total Operating Revenues increased $95,690,$48,037, or 123%28%, to $221,700 for the three months ended September 30, 2022 from $173,663 for the three months ended September 30, 2021. The increase was largely driven by an increase in demand for passenger service during 2022 as compared to 2021, from $77,973which was significantly impacted by a decrease in passenger demand due to the COVID-19 pandemic.
- 33 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Scheduled Service. Scheduled service revenue increased by $53,258, or 198%, to2022 from $80,212 for the three months ended September 30, 2021 from $26,954 for the three months ended September 30, 2020. The increase in scheduled service revenue was largely driven by a decline in demand for passenger service during the three months ended September 30, 2020 due to government travel restrictions, quarantine requirements, and reduced passenger demand related to the COVID-19 pandemic.
2021. The table below presents select operating data for scheduled service, expressed as quarter-over-quarter changes:
| | | | | | | | | | | |
| | Three Months Ended September 30, | | | | % |
| ||||
|
| 2021 |
| 2020 |
| Increase |
| Change |
| ||
Departures |
| | 5,533 |
| | 3,364 |
| 2,169 |
| 64 | % |
Passengers | | | 785,348 | | | 337,887 | | 447,461 | | 132 | % |
Average base fare per passenger | | $ | 102.14 | | $ | 79.77 |
| 22.37 |
| 28 | % |
RPMs (thousands) | |
| 1,011,936 | |
| 418,223 |
| 593,713 |
| 142 | % |
ASMs (thousands) | |
| 1,296,555 | |
| 763,362 |
| 533,193 |
| 70 | % |
PRASM (cents) | |
| 6.19 | |
| 3.53 |
| 2.66 |
| 75 | % |
Passenger load factor | |
| 78.0 | % |
| 54.8 | % | 23.2 pts |
| N/A | |
Three Months Ended September 30, | Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Departures | 5,611 | 5,533 | 78 | 1 | % | ||||||||||||||||||
Passengers | 908,967 | 785,348 | 123,619 | 16 | % | ||||||||||||||||||
Average base fare per passenger | $ | 112.44 | $ | 102.14 | $ | 10.30 | 10 | % | |||||||||||||||
RPMs (thousands) | 1,101,011 | 1,011,936 | 89,075 | 9 | % | ||||||||||||||||||
ASMs (thousands) | 1,256,755 | 1,296,555 | (39,800) | (3) | % | ||||||||||||||||||
TRASM (cents) | 12.34 | 8.90 | 3.44 | 39 | % | ||||||||||||||||||
Passenger load factor | 87.6 | % | 78.0 | % | 9.6 | pts | N/A |
Charter Service. Charter service revenue increased $10,545, or 45%, to2022, from $33,809 for the three months ended September 30, 2021, from $23,2642021. Charter revenue per block hour was $9,280 for the three months ended September 30, 2020. The COVID-19 pandemic drove a decrease in our third quarter of 2020 charter service revenue. There was a 31% increase in block hours for the 2021 third quarter2022, as compared to the 2020 third quarter. Charter revenue per block hour was $8,816 for the three months ended September 30, 2021, as comparedfor an increase of 5%. The increase in Charter service revenue was driven by the increase in rates and a 21% increase in Charter block hours due to $7,967the continued recovery from the COVID-19 pandemic and new charter agreements that began operations during 2022. Rates in 2021 suffered from significant competitive pressure because other carriers had excess aircraft, crew, and resources to operate charter capacity.
Ancillary. Ancillary revenue increased by $21,443, or 175%, to $33,697 for the three months ended September 30, 2021, from $12,254 for the three months ended September 30, 2020.2021. The 132%16% increase in scheduled passengers during the period resulted in greater sales of air travel-related services, such asas: baggage fees, seat selection and upgrade fees, and on-board sales. Ancillary revenue for the three months ended September 30, 2022 was $42.91further benefited by the introduction of a new a new ancillary product that began in the second quarter of 2022 and reclassified approximately $11,600 of revenue from Scheduled Service to Ancillary. Ancillary revenue was $55.29 per passenger in the three months ended September 30, 2021,2022, up $12.38, or 29%, from $36.27 per passenger in the three months ended September 30, 2020.
2021. Revenue per passenger increased due to the inclusion of a new ancillary product that reclassified portions of revenue from Scheduled Service to Ancillary, the return of onboard food and beverage sales, and increased demand.
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(Unaudited)
three months ended September 30, 2021,(Unaudited)
Other. Other revenue was $1,545 for the three months ended September 30, 2021, as compared to $1,229 for the three months ended September 30, 2020. This2021. The increase was mainly the result of an increase inprimarily driven by increased revenue from Sun Country Vacations dueas a result of higher year-over-year bookings.
Operating Expenses
Fuel Cost per Gallon.
Three Months Ended September 30, | Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Total Aircraft Fuel Expense | $ | 64,843 | $ | 36,647 | $ | 28,196 | 77 | % | |||||||||||||||
Exclude: Fuel Derivative Losses | — | (72) | 72 | (100) | % | ||||||||||||||||||
Other Excluded Items | 71 | (5) | 76 | NM | |||||||||||||||||||
Aircraft Fuel Expense, Excluding Derivatives and Other Items | $ | 64,914 | $ | 36,570 | $ | 28,344 | 78 | % | |||||||||||||||
Fuel Gallons Consumed (thousands) | 16,509 | 16,321 | 188 | 1 | % | ||||||||||||||||||
Fuel Cost per Gallon, Excluding Derivatives and Other Items | $ | 3.93 | $ | 2.24 | $ | 1.69 | 75 | % |
"NM" stands for not meaningful |
fuel due to current market conditions, further exacerbated by global geopolitical events.
Aircraft Rent. Aircraft rent expense decreased $2,485, or 39%, to $3,925 for the three months ended September 30, 2021, as compared to $6,410 for the three months ended September 30, 2020.2021. Aircraft rentRent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (for which expense(expense is recorded within aircraft rent)Aircraft Rent) to owned aircraft (for which expenseor finance leases (expense is recorded through depreciationDepreciation and interest expense)Amortization and Interest Expense). Specifically, in the first six months of 2021, we purchased six aircraft previously under operating leases. For the threenine months ended September 30, 2021 and 2020, there was an average of six and twelve2022, we executed lease amendments which modified two aircraft underfrom operating leases respectively.
Maintenance. Maintenance materials and repair expense increased $3,322, or 52%, to $9,660 for the three months ended September 30, 2021, as compared to $6,338 for the three months ended September 30, 2020. There were three landing gear events in the three months ended September 30, 2021 versus one during the three months ended September 30, 2020, resulting in a cost increase of $1,090. There was also a $1,592 increase in costs, including wheels, brakes, consumables, and expendables, driven by increased departures. Partially offsetting these increases, the cost of heavy checks decreased $945, due to two heavy checks performed in the three months ended September 30, 2021, as compared to three in the three months ended September 30, 2020. Our Cargo segment was responsible for $2,485 of the consolidated maintenance expense for the three months ended September 30, 2021, as compared to $1,602 for the prior year third quarter due to
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(Unaudited)
(Unaudited)
Cargo fleet, increased per unit costs due to incremental contract labor spend, and an increase in certain aircraft acquisition expenses that are not eligible for capitalization.
Part I, Item I of this report.
Nine Months Ended September 30, | $ Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||
Scheduled Service | $ | 334,679 | $ | 201,905 | $ | 132,774 | 66 | % | |||||||||||||||
Charter Service | 118,526 | 88,511 | 30,015 | 34 | % | ||||||||||||||||||
Ancillary | 139,548 | 86,626 | 52,922 | 61 | % | ||||||||||||||||||
Passenger | 592,753 | 377,042 | 215,711 | 57 | % | ||||||||||||||||||
Cargo | 65,930 | 68,084 | (2,154) | (3) | % | ||||||||||||||||||
Other | 8,607 | 5,338 | 3,269 | 61 | % | ||||||||||||||||||
Total Operating Revenues | 667,290 | 450,464 | 216,826 | 48 | % | ||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||
Aircraft Fuel | 206,334 | 90,631 | 115,703 | 128 | % | ||||||||||||||||||
Salaries, Wages, and Benefits | 178,576 | 129,815 | 48,761 | 38 | % | ||||||||||||||||||
Aircraft Rent | 7,347 | 13,339 | (5,992) | (45) | % | ||||||||||||||||||
Maintenance | 35,794 | 30,170 | 5,624 | 19 | % | ||||||||||||||||||
Sales and Marketing | 23,336 | 16,402 | 6,934 | 42 | % | ||||||||||||||||||
Depreciation and Amortization | 49,364 | 41,532 | 7,832 | 19 | % | ||||||||||||||||||
Ground Handling | 24,838 | 19,654 | 5,184 | 26 | % | ||||||||||||||||||
Landing Fees and Airport Rent | 32,708 | 29,606 | 3,102 | 10 | % | ||||||||||||||||||
Special Items, net | — | (72,419) | 72,419 | (100) | % | ||||||||||||||||||
Other Operating, net | 68,401 | 50,026 | 18,375 | 37 | % | ||||||||||||||||||
Total Operating Expenses | 626,698 | 348,756 | 277,942 | 80 | % | ||||||||||||||||||
Operating Income | 40,592 | 101,708 | (61,116) | (60) | % | ||||||||||||||||||
Non-operating Income (Expense): | |||||||||||||||||||||||
Interest Income | 2,166 | 52 | 2,114 | NM | |||||||||||||||||||
Interest Expense | (23,097) | (19,487) | (3,610) | 19 | % | ||||||||||||||||||
Other, net | (5,156) | 18,505 | (23,661) | NM | |||||||||||||||||||
Total Non-operating Expense, net | (26,087) | (930) | (25,157) | NM | |||||||||||||||||||
Income Before Income Tax | 14,505 | 100,778 | (86,273) | (86) | % | ||||||||||||||||||
Income Tax Expense | 4,113 | 18,444 | (14,331) | (78) | % | ||||||||||||||||||
Net Income | $ | 10,392 | $ | 82,334 | $ | (71,942) | (87) | % |
"NM" stands for not meaningful |
Nine Months Ended September 30, | Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Departures | 17,512 | 14,777 | 2,735 | 19 | % | ||||||||||||||||||
Passengers | 2,715,707 | 2,038,399 | 677,308 | 33 | % | ||||||||||||||||||
Average base fare per passenger | $ | 123.24 | $ | 99.05 | $ | 24.19 | 24 | % | |||||||||||||||
RPMs (thousands) | 3,565,501 | 2,705,969 | 859,532 | 32 | % | ||||||||||||||||||
ASMs (thousands) | 4,284,403 | 3,653,335 | 631,068 | 17 | % | ||||||||||||||||||
TRASM (cents) | 11.27 | 8.04 | 3.23 | 40 | % | ||||||||||||||||||
Passenger load factor | 83.2 | % | 74.1 | % | 9.1 | pts | N/A |
Nine Months Ended September 30, | Change | % Change | |||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Total Aircraft Fuel Expense | $ | 206,334 | $ | 90,631 | $ | 115,703 | 128 | % | |||||||||||||||
Exclude: Fuel Derivative Gains | — | 3,527 | (3,527) | (100) | % | ||||||||||||||||||
Other Excluded Items | 598 | 64 | 534 | NM | |||||||||||||||||||
Aircraft Fuel Expense, Excluding Derivatives and Other Items | $ | 206,932 | $ | 94,222 | $ | 112,710 | 120 | % | |||||||||||||||
Fuel Gallons Consumed (thousands) | 54,322 | 45,269 | 9,053 | 20 | % | ||||||||||||||||||
Fuel Cost per Gallon, Excluding Derivatives and Other Items | $ | 3.81 | $ | 2.08 | $ | 1.73 | 83 | % |
leases, respectively.
2022.
continued recovery in demand from the COVID-19 pandemic and new charter agreements that began operations during 2022.
For more information on Special Items, see
Note 12 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.- 36 -
(Unaudited)
public company, primarily related(Unaudited)
Non-operating Income (Expense)
Interest Expense. Interest expense increased $1,129, or 22%,compared to $6,286net benefit $18,505 for the threenine months ended September 30, 2021, as compared to $5,157 for the three months ended September 30, 2020.2021. The increasedecrease was primarily due to debt issuedthe $5,000 adjustment to increase the estimated TRA liability as of September 30, 2022, as compared to the $19,800 adjustment to decrease the estimated TRA liability as of September 30, 2021. For more information on the TRA liability, see
Other, net. Other, net for the threenine months ended September 30, 2021 was a net income of $456 primarily due28.4% compared to a credit of $1,10018.3% for the adjustment of our Tax Receivable Agreement liability. The decrease in the TRA liability was mainly due to an increase in forecasted 2021 pre-tax income. Partially offsetting this income was $641 in expenses related to a secondary stock offering that closed in October 2021. Other, net for the threenine months ended September 30, 2020,2021. The increase in the effective tax rate was a net income of $164, primarily due to a vendor settlement.
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(Unaudited)
Results of Operations
(Unaudited)
2021
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
Passenger | Cargo | Total | Passenger | Cargo | Total | ||||||||||||||||||||||||||||||
Operating Revenues | $ | 198,013 | $ | 23,687 | $ | 221,700 | $ | 149,263 | $ | 24,400 | $ | 173,663 | |||||||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||||||||||||||
Aircraft Fuel | 64,763 | 80 | 64,843 | 36,556 | 91 | 36,647 | |||||||||||||||||||||||||||||
Salaries, Wages, and Benefits | 44,051 | 14,610 | 58,661 | 33,619 | 9,805 | 43,424 | |||||||||||||||||||||||||||||
Aircraft Rent | 1,949 | — | 1,949 | 3,925 | — | 3,925 | |||||||||||||||||||||||||||||
Maintenance | 7,290 | 3,728 | 11,018 | 7,175 | 2,485 | 9,660 | |||||||||||||||||||||||||||||
Sales and Marketing | 6,827 | — | 6,827 | 5,470 | — | 5,470 | |||||||||||||||||||||||||||||
Depreciation and Amortization | 17,152 | 29 | 17,181 | 14,684 | 26 | 14,710 | |||||||||||||||||||||||||||||
Ground Handling | 8,666 | 3 | 8,669 | 7,873 | — | 7,873 | |||||||||||||||||||||||||||||
Landing Fees and Airport Rent | 12,823 | 103 | 12,926 | 11,949 | 120 | 12,069 | |||||||||||||||||||||||||||||
Special Items, net | — | — | — | (65) | — | (65) | |||||||||||||||||||||||||||||
Other Operating, net | 19,030 | 5,205 | 24,235 | 15,265 | 3,364 | 18,629 | |||||||||||||||||||||||||||||
Total Operating Expenses | 182,551 | 23,758 | 206,309 | 136,451 | 15,891 | 152,342 | |||||||||||||||||||||||||||||
Operating Income (Loss) | $ | 15,462 | $ | (71) | $ | 15,391 | $ | 12,812 | $ | 8,509 | $ | 21,321 | |||||||||||||||||||||||
Adjustment for Special Items, net | — | — | — | (65) | — | (65) | |||||||||||||||||||||||||||||
Operating Income (Loss), Excluding Special Items, net | $ | 15,462 | $ | (71) | $ | 15,391 | $ | 12,747 | $ | 8,509 | $ | 21,256 | |||||||||||||||||||||||
Operating Margin %, Excluding Special Items, net | 8% | —% | 7% | 9% | 35% | 12% |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | $ | | % |
| |||||
|
| 2021 |
| 2020 |
| Change |
| Change |
| |||
Operating Revenues: | | | | | | | | | | | | |
Scheduled Service | | $ | 201,905 | | $ | 159,063 | | $ | 42,842 | | 27 | % |
Charter Service | |
| 88,511 | |
| 60,983 | |
| 27,528 | | 45 | % |
Ancillary | |
| 86,626 | |
| 52,253 | |
| 34,373 | | 66 | % |
Passenger | |
| 377,042 | |
| 272,299 | |
| 104,743 | | 38 | % |
Cargo | |
| 68,084 | |
| 17,491 | |
| 50,593 | | 289 | % |
Other | |
| 5,338 | |
| 3,889 | |
| 1,449 | | 37 | % |
Total Operating Revenues | |
| 450,464 | |
| 293,679 | |
| 156,785 | | 53 | % |
| | | | | | | | | | | | |
Operating Expenses: | |
|
| |
|
| |
|
| |
| |
Aircraft Fuel | |
| 90,631 | |
| 69,377 | |
| 21,254 | | 31 | % |
Salaries, Wages, and Benefits | |
| 129,815 | |
| 106,923 | |
| 22,892 | | 21 | % |
Aircraft Rent | |
| 13,339 | |
| 23,376 | |
| (10,037) | | (43) | % |
Maintenance | |
| 30,170 | |
| 15,242 | |
| 14,928 | | 98 | % |
Sales and Marketing | |
| 16,402 | |
| 13,123 | |
| 3,279 | | 25 | % |
Depreciation and Amortization | |
| 40,103 | |
| 35,631 | |
| 4,472 | | 13 | % |
Ground Handling | |
| 19,654 | |
| 15,786 | |
| 3,868 | | 25 | % |
Landing Fees and Airport Rent | |
| 29,606 | |
| 22,377 | |
| 7,229 | | 32 | % |
Special Items, net | |
| (65,456) | |
| (64,333) | |
| (1,123) | | 2 | % |
Other Operating, net | |
| 50,026 | |
| 34,363 | |
| 15,663 | | 46 | % |
Total Operating Expenses | |
| 354,290 | |
| 271,865 | |
| 82,425 | | 30 | % |
Operating Income | |
| 96,174 | |
| 21,814 | |
| 74,360 | | 341 | % |
| | | | | | | | | | | | |
Non-operating Income (Expense): | |
|
| |
|
| |
|
| |
| |
Interest Income | |
| 52 | |
| 340 | |
| (288) | | (85) | % |
Interest Expense | |
| (19,487) | |
| (16,215) | |
| (3,272) | | 20 | % |
Other, net | |
| 18,505 | |
| (331) | |
| 18,836 | | NM | % |
Total Non-operating Income (Expense), net | |
| (930) | |
| (16,206) | |
| 15,276 | | (94) | % |
| | | | | | | | | | | | |
Income before Income Tax | |
| 95,244 | |
| 5,608 | |
| 89,636 | | 1,598 | % |
Income Tax Expense | |
| 17,172 | |
| 1,470 | |
| 15,702 | | 1,068 | % |
Net Income | | $ | 78,072 | | $ | 4,138 | | $ | 73,934 | | 1,787 | % |
Variance percentage is not meaningful (“NM”)
Total Passenger Operating RevenuesIncome increased $156,785, or 53%,by $2,650 to $450,464$15,462 for the ninethree months ended September 30, 2021,2022 from $293,679$12,812 for the ninethree months ended September 30, 2020.2021. The increase is due to a significantly lowerin Passenger Operating Income was driven by an expansion in demand for passenger service in 2020during 2022 as a result ofcompared to 2021, which was significantly impacted by the COVID-19 pandemic, and growth in cargo servicespandemic. Operating Margin Percentage for the three months ended September 30, 2022 decreased by 1%, as compared to one year ago.
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(Unaudited)
(Unaudited)
The table below presents select operating data for scheduled service:
| | | | | | | | | | | |
|
| Nine Months Ended September 30, |
| Increase | | % |
| ||||
|
| 2021 |
| 2020 | | (Decrease) |
| Change |
| ||
Departures |
| | 14,777 |
| | 10,546 |
| 4,231 |
| 40 | % |
Passengers | | | 2,038,399 | | | 1,273,747 | | 764,652 | | 60 | % |
Average base fare per passenger | | $ | 99.05 | | $ | 124.88 |
| (25.83) |
| (21) | % |
RPMs (thousands) | |
| 2,705,969 | |
| 1,721,227 |
| 984,742 |
| 57 | % |
ASMs (thousands) | |
| 3,653,335 | |
| 2,589,606 |
| 1,063,729 |
| 41 | % |
PRASM (cents) | |
| 5.53 | |
| 6.14 |
| (0.61) |
| (10) | % |
Passenger load factor | |
| 74.1 | % |
| 66.5 | % | 7.6 | pts | N/A | |
The 60% increase inResults of Operations discussion above, where we describe the number of scheduled service passengers in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, was primarily due to COVID-19 pandemic related lower demand in 2020. For the nine months ended September 30, 2021, our average base fare was $99.05, compared to $124.88 for the nine months ended September 30, 2020. The net change is the result of a strong start to 2020 with higher average fares followed by a significant drop in passengers due to COVID-19. This significant drop in passengers resulted in only a minimal impact on the nine months ending September 30, 2020 average base fare.
Charter Service. Charter service revenue increased $27,528, or 45%, to $88,511 for the nine months ended September 30, 2021, from $60,983 for the nine months ended September 30, 2020. There was a 38% increase in charter service block hours for the nine months ended September 30, 2021 vs 2020. This block hour increase is due to the ongoing recovery from the impacts of COVID-19. Charter revenue per block hour was $8,179 for the nine months ended September 30, 2021, as compared to $7,765 for the nine months ended September 30, 2020, for an increase of 5%.
Ancillary. Ancillary revenue increased $34,373, or 66%, to $86,626 for the nine months ended September 30, 2021, from $52,253 for the nine months ended September 30, 2020. This revenue relates to sales of air travel-related services such as baggage fees, seat selection and upgrade fees, and on-board sales. The increase was mainly due to a 60% increase in scheduled service passengers between periods. Additionally, there was a small increase in ancillary revenue per passenger from $42.50 per passenger in the nine months ended September 30, 2021, up from $41.02 per passenger in the nine months ended September 30, 2020.
Cargo. Revenue from cargo services was $68,084 for the nine months ended September 30, 2021, as compared with $17,491 for the nine months ended September 30, 2020. All of the 2021 and 2020 cargo service revenue is related to flights operated under the ATSA with Amazon. Cargo service began in May of 2020, so the increase is due to the year-over-year ramp up of operations. Cargo service departures were 8,229 in the nine months ended September 30, 2021, as compared to 2,231 for the nine months ended September 30, 2020.
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(Unaudited)
(Unaudited)
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
Passenger | Cargo | Total | Passenger | Cargo | Total | ||||||||||||||||||||||||||||||
Operating Revenues | $ | 601,360 | $ | 65,930 | $ | 667,290 | $ | 382,380 | $ | 68,084 | $ | 450,464 | |||||||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||||||||||||||
Aircraft Fuel | 206,254 | 80 | 206,334 | 90,468 | 163 | 90,631 | |||||||||||||||||||||||||||||
Salaries, Wages, and Benefits | 138,436 | 40,140 | 178,576 | 98,615 | 31,200 | 129,815 | |||||||||||||||||||||||||||||
Aircraft Rent | 7,347 | — | 7,347 | 13,339 | — | 13,339 | |||||||||||||||||||||||||||||
Maintenance | 25,665 | 10,129 | 35,794 | 22,417 | 7,753 | 30,170 | |||||||||||||||||||||||||||||
Sales and Marketing | 23,336 | — | 23,336 | 16,402 | — | 16,402 | |||||||||||||||||||||||||||||
Depreciation and Amortization | 49,282 | 82 | 49,364 | 41,453 | 79 | 41,532 | |||||||||||||||||||||||||||||
Ground Handling | 24,828 | 10 | 24,838 | 19,654 | — | 19,654 | |||||||||||||||||||||||||||||
Landing Fees and Airport Rent | 32,386 | 322 | 32,708 | 29,228 | 378 | 29,606 | |||||||||||||||||||||||||||||
Special Items, net | — | — | — | (54,018) | (18,401) | (72,419) | |||||||||||||||||||||||||||||
Other Operating, net | 54,614 | 13,787 | 68,401 | 39,164 | 10,862 | 50,026 | |||||||||||||||||||||||||||||
Total Operating Expenses | 562,148 | 64,550 | 626,698 | 316,722 | 32,034 | 348,756 | |||||||||||||||||||||||||||||
Operating Income | $ | 39,212 | $ | 1,380 | $ | 40,592 | $ | 65,658 | $ | 36,050 | $ | 101,708 | |||||||||||||||||||||||
Adjustment for Special Items, net | — | — | — | (54,018) | (18,401) | (72,419) | |||||||||||||||||||||||||||||
Operating Income, Excluding Special Items, net | $ | 39,212 | $ | 1,380 | $ | 40,592 | $ | 11,640 | $ | 17,649 | $ | 29,289 | |||||||||||||||||||||||
Operating Margin %, Excluding Special Items, net | 7% | 2% | 6% | 3% | 26% | 7% |
Operating Expenses
Aircraft Fuel. Aircraft fuel expense increased $21,254, or 31%, to $90,631 for the nine months ended September 30, 2021, as compared to $69,377 for the nine months ended September 30, 2020. Expense and Salaries, Wages, and Benefits. The increase in fuel expenseOperating Margin Percentage, Excluding Special Items, net was mainly due to a 41% increase in fuel gallons consumed, due to our increased level of operations as demonstrated by a 40% increase in passenger service block hours, as well as a 29% increase in the average price per gallon of fuel. Partially offsetting this increase was a decrease causedprimarily driven by the impact of fuel derivativesyear-over-year increases in each period. There was a $21,247 changerevenue across all Passenger segment business lines, slightly offset by the increases in the mark-to-market gains/losses from our fuel derivative contracts, consisting of a $3,527 gain in the nine months ended September 30, 2021 compared to a $17,720 loss in the nine months ended September 30, 2020.
Aircraft Fuel Expense and Salaries,, Wages, and Benefits. Salaries, wages, and benefits expense increased $22,892, or 21%, to $129,815 for the nine months ended September 30, 2021, as compared to $106,923 for the nine months ended September 30, 2020. The increase was mainly due to an increase in headcount between periods. The average headcount for the nine months ended September 30, 2021 was 1,813, as compared to 1,627 for the nine months ended September 30, 2020. Approximately $2,100 of the dollar increase relates to insourcing MSP ground handling operations starting in April 2020. Approximately $3,272 of the dollar increase is attributable to 2021 performance-based stock-compensation expense as a result of our IPO making it probable that a portion of our performance-based stock options would vest over a specific timeframe. No expense was recorded in the nine months ended September 30, 2020 for performance-based stock options. Our Cargo segment was responsible for $31,200 of the consolidated salaries, wages, and benefits expense for the nine months ended September 30, 2021, compared to a $11,745 in the nine months ended September 30, 2020. There has been increased pilot pay and per diems to support operations under the ATSA. The Cargo segment began in May 2020, driving additional headcount required to support the ramp up of operations and aircraft under the ATSA.
Aircraft Rent. Aircraft rent expense decreased $10,037, or 43%, to $13,339 for the nine months ended September 30, 2021, as compared to $23,376 for the nine months ended September 30, 2020. Aircraft rent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (for which expense is recorded within aircraft rent) to owned aircraft (for which expense is recorded in depreciation and interest expense). Specifically, in the first six months of 2021, we purchased six aircraft previously under operating leases. There were also two aircraft acquisitions completed in 2020 that reduced aircraft rent in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. For the nine months ended September 30, 2021 and 2020, there was an average of eight and thirteen aircraft under operating leases, respectively.
Maintenance. Maintenance materials and repair expense increased $14,928, or 98%, to $30,170 for the nine months ended September 30, 2021, as compared to $15,242 for the nine months ended September 30, 2020. The cost of heavy checks increased $3,085 due to eleven heavy checks performed in the nine months ended September 30, 2021, as compared to four for the nine months ended September 30, 2020. The cost of landing gear events increased $2,375 due to eight events performed in the nine months ended September 30, 2021, as compared to one for the nine months ended September 30, 2020. There was also a $3,049 increase in costs, including wheels, brakes, consumables, and expendables, driven by increased departures, as well as an $864 increase in the cost of servicing auxiliary power units. Our Cargo segment was responsible for $7,753 of
- 40 -
(Unaudited)
the consolidated maintenance expense for the nine months ended September 30, 2021, as compared to $2,111 for the prior year nine-month period since Cargo segment service did not begin until May 2020. The Cargo segment expense primarily relates to line maintenance, since heavy maintenance is reimbursed under the ATSA.
Sales and Marketing. Sales and marketing expense increased $3,279, or 25%, to $16,402 for the nine months ended September 30, 2021, as compared to $13,123 for the nine months ended September 30, 2020. The passenger revenue increase between these two periods was 38%, which drove a $1,441 increase in credit card processing fees and a $1,909 increase in global distribution system fees.
Depreciation and Amortization. Depreciation and amortization expense increased $4,472, or 13%, to $40,103 for the nine months ended September 30, 2021, as compared to $35,631 for the nine months ended September 30, 2020. The increase was primarily due to the impact of a change in the composition of our aircraft fleet from operating leases (for which expense is recorded within aircraft rent) to an increased number of owned aircraft and aircraft under finance leases (for which expense is recorded within depreciation, amortization and interest expense). For the nine months ended September 30, 2021 and 2020, there was an average of 18 and 10 owned aircraft, respectively. For the same periods, the average number of finance lease aircraft declined to six in 2021 from eight in 2020.
Ground Handling. Ground handling expense increased $3,868, or 25%, to $19,654 for the nine months ended September 30, 2021, as compared to $15,786 for the nine months ended September 30, 2020. There was an increase of $5,708, primarily due to the 40% increase in scheduled departures during the same time periods. However, we insourced our MSP operations in April 2020, contributing to a reduction of approximately $1,839 in ground handling expenses for the nine months ended September 30, 2021, compared to September 30, 2020, but resulted in higher salaries, wages, and benefits.
Landing Fees and Airport Rent. Landing fees and airport rent increased $7,229, or 32%, to $29,606 for the nine months ended September 30, 2021, as compared to $22,377 for the nine months ended September 30, 2020. There was a $7,532 increase driven by the 40% increase in scheduled departures for the nine months ended September 30, 2021, as compared to the same period in 2020. There was also a rate increase of approximately $891 for the nine months of 2021 versus nine months of 2020. During the nine months ended September 30, 2021, we also received a $1,416 MSP terminal user fee airline relief credit, which partially offset these increases.
Special Items, net. Special items, net was a contra-expense of $65,456 for the nine months ended September 30, 2021 and $64,333 for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, Special items, net included $71,587 of contra-expense related to funds received under PSP2 and PSP3 of the CARES Act, to be used exclusively for the continuation of payments for salaries, wages, and benefits, and $848 in refundable tax credits related to employee retention under the CARES Act. This was partially offset by a $6,963 net charge relating to the purchase of six aircraft that were previously under operating leases. For the nine months ended September 30, 2020, Special items, net included $62,312 of contra-expense related to funds received under the CARES Act, to be used exclusively for the continuation of payments for salaries, wages, and benefits, and $2,069 in refundable tax credits related to employee retention under the CARES Act. Our Cargo segment was responsible for $18,401 of the consolidated income from Special items, net for the nine months ended September 30, 2021, and $10,687 for the nine months ended September 30, 2020. The segment allocation of these credits is based on the respective segment salaries, wages, and benefits.
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SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Other Operating, net. Other operating, net expense increased $15,663, or 46%, to $50,026 for the nine months ended September 30, 2021, as compared to $34,363 for the nine months ended September 30, 2020. A Passenger segment increase of $8,186 was primarily driven by our higher level of operations for 2021, which resulted in increased crewWages, and other employee travel costs, catering expenses, and other operational overhead costs. There was also an additional cost of approximately $2,680 due to becoming a public company, primarily related to insurance, filing fees, legal and consulting fees. Our Cargo segment was responsible for $10,862 and $3,385 of our consolidated Other Operating, net expense for the nine months ended September 30, 2021 and 2020, respectively, driven by overhead expenses as well as crew and employee travel costs.
Non-operating Income (Expense)
Interest Expense. Interest expense increased $3,272, or 20%, to $19,487 for the nine months ended September 30, 2021, as compared to $16,215 for the nine months ended September 30, 2020. The increase was primarily due to debt issued for the acquisition of new aircraft, including new debt incurred in connection with the 2019-1 EETC, and the Delayed Draw Term Loan Facility. During the nine months ended September 30, 2021, the Company expensed $1,224 of debt financing costs due to the $46,260 pay-off of the CARES Act Loan and the replacement of the $25,000 ABL Facility.
Other, net. Other, net for the nine months ended September 30, 2021 was $18,505 and includes a credit of $19,800 for the adjustment of our Tax Receivable Agreement liability, which is partially offset by $1,281 in expenses for secondary stock offerings by Apollo and other stockholders. The decrease in the TRA liability was mainly due to the receipt of the PSP3 grant of $34,547, which extended the time period in which distributions made to shareholders are restricted from March 31, 2022 to September 30, 2022, and increases in forecasted 2021 pre-tax income. The $331 Other, net expense for the nine months ended September 30, 2020 was primarily due to $381 in losses on asset retirements.
- 42 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Segment Information
For the Three Months Ended September 30, 2021 and 2020
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 (1) |
| ||||||||||||||
|
| Passenger | | Cargo | | Total | | Passenger | | Cargo |
| Total |
| ||||||
Operating Revenues | | $ | 149,263 | | $ | 24,400 | | $ | 173,663 | | $ | 63,701 | | $ | 14,272 |
| $ | 77,973 | |
| | | | | | | | | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | | | | | | | | |
Aircraft Fuel | |
| 36,556 | |
| 91 | |
| 36,647 | |
| 13,139 | |
| — |
| | 13,139 | |
Salaries, Wages, and Benefits | |
| 33,619 | |
| 9,805 | |
| 43,424 | |
| 27,970 | |
| 8,378 |
| | 36,348 | |
Aircraft Rent | |
| 3,925 | |
| — | |
| 3,925 | |
| 6,410 | |
| — |
| | 6,410 | |
Maintenance | |
| 7,175 | |
| 2,485 | |
| 9,660 | |
| 4,736 | |
| 1,602 |
| | 6,338 | |
Sales and Marketing | |
| 5,470 | |
| — | |
| 5,470 | |
| 2,921 | |
| — |
| | 2,921 | |
Depreciation and Amortization | |
| 14,003 | |
| 26 | |
| 14,029 | |
| 12,949 | |
| (20) |
| | 12,929 | |
Ground Handling | |
| 7,873 | |
| — | |
| 7,873 | |
| 4,880 | |
| — |
| | 4,880 | |
Landing Fees and Airport Rent | |
| 11,949 | |
| 120 | |
| 12,069 | |
| 8,482 | |
| 114 |
| | 8,596 | |
Special Items, net | |
| (65) | |
| — | |
| (65) | |
| (25,534) | |
| (7,318) |
| | (32,852) | |
Other Operating, net | |
| 15,266 | |
| 3,364 | |
| 18,629 | |
| 8,029 | |
| 2,418 |
| | 10,447 | |
Total Operating Expenses | |
| 135,770 | |
| 15,891 | |
| 151,661 | |
| 63,982 | |
| 5,174 |
| | 69,156 | |
Operating Income (Loss) | | $ | 13,493 | | $ | 8,509 | | $ | 22,002 | | $ | (281) | | $ | 9,098 | | $ | 8,817 | |
| | | | | | | | | | | | | | | | | | | |
Adjustment for Special Items | | | (65) | | | — | | | (65) | | | (25,534) | | | (7,318) | | | (32,852) | |
| | | | | | | | | | | | | | | | | | | |
Operating Income (Loss), Excluding Special Items | | $ | 13,428 | | $ | 8,509 | | $ | 21,937 | | $ | (25,815) | | $ | 1,780 | | $ | (24,035) | |
| | | | | | | | | | | | | | | | | | | |
Operating Margin %, Excluding Special Items | | | 9 | % | | 35 | % | | 13 | % | | (41) | % | | 12 | % | | (31) | % |
Passenger. Passenger operating income increased by $13,774 to $13,493 for the three months ended September 30, 2021 from a loss of $281 for the three months ended September 30, 2020.Benefits. For more information on the changes in the components of operating incomeOperating Income for the Passenger segment, refer to the consolidated resultsResults of operationsOperations discussion above.
- 43 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Cargo. Cargo operating income was $8,509Operating Income decreased by $34,670 to $1,380 for the threenine months ended September 30, 2021,2022, as compared to $9,098$36,050 for the threenine months ended September 30, 2020. As Amazon air cargo operations commenced2021. Operating Margin Percentage, Excluding Special Items, net decreased by 24%, to 2%, over the same periods. The decrease in May 2020, the Cargo segmentOperating Income was ramping up operations during 2020. The increased operating revenues for 2021 were largely offsetprimarily driven by the lack of aallocated payroll support received under the CARES Act creditduring the first half of 2021, recognized within Special Items, net, a revenue benefit recognized in Q3 2021, compared tothe prior period, a year-over-year increase in Salaries, Wages, and Benefits driven by the new CBA for our pilots that went into effect in the beginning of 2022, decreased block hours and departures driven by heavy maintenance events, and operational factors that reduced revenue. The year-over-year decrease in Operating Margin Percentage, Excluding Special Items, net is driven by the factors listed above, excluding the benefit recognized as a result of the allocated payroll support received under the CARES Act creditduring the first half of $7,318 in Q3 2020.2021. For more information on the components of operating incomeOperating Income for the Cargo segment, refer to the consolidated resultsResults of operationsOperations discussion above, where we more fully describe the cargo expenses embedded within each financial statement line item.
For the Nine Months Ended September 30, 2021 and 2020
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 (1) | | ||||||||||||||
|
| Passenger | | Cargo | | Total | | Passenger | | Cargo |
| Total | | ||||||
Operating Revenues | | $ | 382,380 | | $ | 68,084 | | $ | 450,464 | | $ | 276,188 | | $ | 17,491 |
| $ | 293,679 | |
Operating Expenses: | | | | | | | | | | | | | | | | | | | |
Aircraft Fuel | |
| 90,468 | |
| 163 | |
| 90,631 | |
| 69,377 | |
| — |
| | 69,377 | |
Salaries, Wages, and Benefits | |
| 98,615 | |
| 31,200 | |
| 129,815 | |
| 95,178 | |
| 11,745 |
| | 106,923 | |
Aircraft Rent | |
| 13,339 | |
| — | |
| 13,339 | |
| 23,376 | |
| — |
| | 23,376 | |
Maintenance | |
| 22,417 | |
| 7,753 | |
| 30,170 | |
| 13,131 | |
| 2,111 |
| | 15,242 | |
Sales and Marketing | |
| 16,402 | |
| — | |
| 16,402 | |
| 13,123 | |
| — |
| | 13,123 | |
Depreciation and Amortization | |
| 40,024 | |
| 79 | |
| 40,103 | |
| 35,631 | |
| — |
| | 35,631 | |
Ground Handling | |
| 19,654 | |
| — | |
| 19,654 | |
| 15,786 | |
| — |
| | 15,786 | |
Landing Fees and Airport Rent | |
| 29,228 | |
| 378 | |
| 29,606 | |
| 22,220 | |
| 157 |
| | 22,377 | |
Special Items, net | |
| (47,055) | |
| (18,401) | |
| (65,456) | |
| (53,646) | |
| (10,687) |
| | (64,333) | |
Other Operating, net | |
| 39,164 | |
| 10,862 | |
| 50,026 | |
| 30,978 | |
| 3,385 |
| | 34,363 | |
Total Operating Expenses | |
| 322,256 | |
| 32,034 | |
| 354,290 | |
| 265,154 | |
| 6,711 |
| | 271,865 | |
Operating Income | | $ | 60,124 | | $ | 36,050 | | $ | 96,174 | | $ | 11,034 | | $ | 10,780 | | $ | 21,814 | |
| | | | | | | | | | | | | | | | | | | |
Adjustment for Special Items | | | (47,055) | | | (18,401) | | | (65,456) | | | (53,646) | | | (10,687) | | | (64,333) | |
| | | | | | | | | | | | | | | | | | | |
Operating Income (Loss), Excluding Special Items | | $ | 13,069 | | $ | 17,649 | | $ | 30,718 | | $ | (42,612) | | $ | 93 | | $ | (42,519) | |
| | | | | | | | | | | | | | | | | | | |
Operating Margin %, Excluding Special Items | | | 3 | % | | 26 | % | | 7 | % | | (15) | % | | 1 | % | | (14) | % |
Passenger. Passenger operating income increased $49,090, or 445%, to $60,124 for the nine months ended September 30, 2021 from $11,034 for the nine months ended September 30, 2020. For more information on
- 44 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
the changes in the components of operating income for the Passenger segment, refer to the consolidated results of operations discussion above.
Cargo. Cargo operating income was $36,050 for the nine months ended September 30, 2021, as compared to $10,780 for the nine months ended September 30, 2020. As air cargo operations commenced in May 2020, the Cargo segment was ramping up operations during 2020. For example, two additional aircraft were not added until the fourth quarter of 2020. For more information on the components of operating income for the Cargo segment, refer to the consolidated results of operations discussion above, where we more fully describe the cargo expenses embedded within each financial statement line item.
Non-GAAP Financial Measures
and Adjusted EBITDA
As a derivation of Adjusted Operating Income Margin, Adjusted Net Income is not determined in accordance with GAAP such measure is susceptible to varying calculations and not all companies calculate the measure in the same manner. As a result, derivations of net income, including Adjusted Operating Income Margin and Adjusted Net Income, as presented may not be directlythe same as or comparable to similarly titled measures presented by other companies. Forcompanies due to the foregoing reasons, Adjusted Operating Income Marginpossible differences in the method of calculation and Adjusted Net Income have
- 45 -
(Unaudited)
(Unaudited)
information
.
| | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Adjusted Operating Income Margin (Loss) reconciliation: | | | | | | | | | | | | | |
Operating Revenue | | $ | 173,663 | | $ | 77,973 | | $ | 450,464 | | $ | 293,679 | |
Operating Income | |
| 22,002 | |
| 8,817 | |
| 96,174 | | | 21,814 | |
| | | | | | | | | | | | | |
Special Items, net (a) | |
| (65) | |
| (32,852) | |
| (65,456) | |
| (64,333) | |
Stock compensation expense | |
| 964 | |
| 496 | |
| 4,577 | |
| 1,253 | |
Voluntary leave expense (b) | | | — | | | 1,890 | | | — | | | 4,431 | |
TRA expenses (c ) | |
| 25 | |
| — | |
| 340 | |
| — | |
Adjusted Operating Income (Loss) | | $ | 22,926 | | $ | (21,649) | | $ | 35,635 | | $ | (36,835) | |
| | | | | | | | | | | | | |
Operating Income Margin | |
| 12.7 | % |
| 11.3 | % |
| 21.3 | % |
| 7.4 | % |
Adjusted Operating Income Margin (Loss) | |
| 13.2 | % |
| (27.8) | % |
| 7.9 | % |
| (12.5) | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Adjusted Operating Income Margin Reconciliation: | |||||||||||||||||||||||
Operating Revenue | $ | 221,700 | $ | 173,663 | $ | 667,290 | $ | 450,464 | |||||||||||||||
Operating Income | 15,391 | 21,321 | 40,592 | 101,708 | |||||||||||||||||||
Special Items, net (a) | — | (65) | — | (72,419) | |||||||||||||||||||
Stock compensation expense | 487 | 964 | 1,981 | 4,577 | |||||||||||||||||||
TRA expenses (b) | — | 25 | — | 340 | |||||||||||||||||||
Adjusted Operating Income | $ | 15,878 | $ | 22,245 | $ | 42,573 | $ | 34,206 | |||||||||||||||
Operating Income Margin | 6.9 | % | 12.3 | % | 6.1 | % | 22.6 | % | |||||||||||||||
Adjusted Operating Income Margin | 7.2 | % | 12.8 | % | 6.4 | % | 7.6 | % |
| |||||
(a) | The adjustments include Special Items, net, as presented in Note |
(b) |
|
| This represents the one-time costs to establish the |
- 46 -
(Unaudited)
(Unaudited)
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Adjusted Net Income (Loss) reconciliation: |
| |
|
| |
| | |
|
| |
|
Net Income | | $ | 13,903 | | $ | 2,927 | | $ | 78,072 | | $ | 4,138 |
| | | | | | | | | | | | |
Special Items, net (a) | |
| (65) | |
| (32,852) | |
| (65,456) | |
| (64,333) |
Stock compensation expense | |
| 964 | |
| 496 | |
| 4,577 | |
| 1,253 |
Voluntary leave expense (b) | | | — | | | 1,890 | | | — | | | 4,431 |
Loss on asset transactions, net | |
| 3 | |
| — | |
| 3 | |
| 381 |
Early pay-off of US Treasury loan | |
| — | |
| — | |
| 842 | |
| — |
Loss on refinancing credit facility | |
| — | |
| — | |
| 382 | |
| — |
Secondary Offering Costs | | | 641 | | | — | | | 1,281 | | | — |
TRA expenses (c) | |
| 25 | |
| — | |
| 340 | |
| — |
TRA adjustment (d) | | | (1,100) | | | — | | | (19,800) | | | — |
Income tax effect of adjusting items, net (e) | |
| (361) | |
| 7,007 | |
| 13,347 | |
| 13,402 |
Adjusted Net Income (Loss) | | $ | 14,010 | | $ | (20,532) | | $ | 13,588 | | $ | (40,728) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Adjusted Net Income Reconciliation: | |||||||||||||||||||||||
Net Income | $ | 10,677 | $ | 13,379 | $ | 10,392 | $ | 82,334 | |||||||||||||||
Special Items, net (a) | — | (65) | — | (72,419) | |||||||||||||||||||
Stock Compensation Expense | 487 | 964 | 1,981 | 4,577 | |||||||||||||||||||
(Gain) Loss on Asset Transactions, net | (239) | 2 | (318) | 2 | |||||||||||||||||||
Early pay-off of US Treasury loan | — | — | — | 842 | |||||||||||||||||||
Loss on refinancing credit facility | — | — | 1,557 | 382 | |||||||||||||||||||
Secondary Offering Costs | — | 641 | — | 1,281 | |||||||||||||||||||
TRA expenses (b) | — | 25 | — | 340 | |||||||||||||||||||
TRA adjustment (c) | (3,500) | (1,100) | 5,000 | (19,800) | |||||||||||||||||||
Income tax effect of adjusting items, net (d) | (57) | (360) | (741) | 14,949 | |||||||||||||||||||
Adjusted Net Income | $ | 7,368 | $ | 13,486 | $ | 17,871 | $ | 12,488 |
| |||||
(a) | The adjustments include Special Items, net, as presented in Note |
(b) |
|
| This represents the one-time costs to establish the |
| This represents the adjustment to the TRA for the period, which is recorded in | ||||
(d) | The tax effect of adjusting items, net is calculated at the Company's statutory rate for the applicable period. The TRA adjustment is not included within the income tax effect calculation. |
(e)The tax effect of adjusting items, net is calculated at the Company’s statutory rate for the applicable period.
Adjusted EBITDAR
Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Rent ("Adjusted EBITDAR") is a non-GAAP measure included as supplemental disclosure because we believe it is a valuation measure commonly used by investors, securities analysts, and other interested parties in the industry to compare airline companies and derive valuation estimates without consideration of airline capital structure or aircraft ownership methodology. We believe that while items excluded from Adjusted EBITDAR may be recurring in nature and should not be disregarded in evaluation of our earnings performance, Adjusted EBITDAR is useful because its
- 47 -
(Unaudited)
calculation isolates the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by finance lease or by operating lease, each of which is presented differently for accounting purposes), and income taxes, which may vary significantly between periods and for different companies for reasons unrelated to overall operating performance. Adjusted EBITDAR should not be viewed as a measure of overall performance or considered in isolation or as an alternative to net income because it excludes aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. We have historically incurred substantial rent expense due to our legacy fleet of operating leased aircraft, which are currently being transitioned to owned aircraft.
Adjusted EBITDAR has limitations as an analytical tool. Some of the limitations applicable to this measure include: Adjusted EBITDAR does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; Adjusted EBITDAR does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; Adjusted EBITDAR does not reflect changes in, or cash requirements for, our working capital needs; it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDAR does not reflect any cash requirements for such replacements; and other companies in our industry may calculate Adjusted EBITDAR differently than we do, limiting each measure’s usefulness as a comparative measure. Because of these limitations, Adjusted EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
(Unaudited)
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Adjusted EBITDAR Reconciliation: | | | | | | | | | | | | |
Net Income | | $ | 13,903 |
| $ | 2,927 | | $ | 78,072 |
| $ | 4,138 |
Special Items, net (a) | |
| (65) |
| | (32,852) | |
| (65,456) |
| | (64,333) |
Stock Compensation expense | |
| 964 |
| | 496 | |
| 4,577 |
| | 1,253 |
Voluntary leave expense (b) | |
| — |
| | 1,890 | |
| — |
| | 4,431 |
Loss on asset transactions, net | |
| 3 |
| | — | |
| 3 |
| | 381 |
Secondary Offering Costs | |
| 641 |
| | — | |
| 1,281 |
| | — |
TRA expenses (c) | |
| 25 |
| | — | |
| 340 |
| | — |
TRA adjustment (d) | |
| (1,100) |
| | — | |
| (19,800) |
| | — |
Interest Income | | | (28) | | | (26) | | | (52) | | | (340) |
Interest expense | | | 6,286 | | | 5,157 | | | 19,487 | | | 16,215 |
Provision for income taxes | | | 2,297 | | | 923 | | | 17,172 | | | 1,470 |
Depreciation and Amortization | |
| 14,029 |
| | 12,929 | |
| 40,103 |
| | 35,631 |
Aircraft rent | |
| 3,925 |
| | 6,410 | |
| 13,339 |
| | 23,376 |
Adjusted EBITDAR | | $ | 40,880 | | $ | (2,146) | | $ | 89,066 | | $ | 22,222 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Adjusted EBITDA Reconciliation: | |||||||||||||||||||||||
Net Income | $ | 10,677 | $ | 13,379 | $ | 10,392 | $ | 82,334 | |||||||||||||||
Special Items, net (a) | — | (65) | — | (72,419) | |||||||||||||||||||
Stock Compensation Expense | 487 | 964 | 1,981 | 4,577 | |||||||||||||||||||
(Gain) Loss on Asset Transactions, net | (239) | 2 | (318) | 2 | |||||||||||||||||||
Secondary Offering Costs | — | 641 | — | 1,281 | |||||||||||||||||||
TRA expenses (b) | — | 25 | — | 340 | |||||||||||||||||||
TRA adjustment (c) | (3,500) | (1,100) | 5,000 | (19,800) | |||||||||||||||||||
Interest Income | (1,610) | (28) | (2,166) | (52) | |||||||||||||||||||
Interest Expense | 7,493 | 6,286 | 23,097 | 19,487 | |||||||||||||||||||
Provision for Income Taxes | 2,253 | 2,140 | 4,113 | 18,444 | |||||||||||||||||||
Depreciation and Amortization | 17,181 | 14,710 | 49,364 | 41,532 | |||||||||||||||||||
Adjusted EBITDA | $ | 32,742 | $ | 36,954 | $ | 91,463 | $ | 75,726 |
| |||||
(a) | The adjustments include Special Items, net, as presented in Note |
- 48 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
(b) |
|
| This represents the one-time costs to establish the |
| This represents the adjustment to the TRA for the period, which is recorded in |
Starting in 2020 when we launched our cargo operations, we
- 49 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
As derivations of Adjusted CASM are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of Adjusted CASM as presented may not be directly comparable to similarly titled measures presented by other companies. Adjusted CASM should not be considered in isolation or as a replacement for CASM. For the foregoing reasons, Adjusted CASM has significant limitations which affect its use as an indicator of our profitability. Accordingly, readers are cautioned not to place undue reliance on this information.
| | | | | | | | | | |
| | Three Months Ended September 30, | ||||||||
| | 2021 | | 2020 | ||||||
| | Operating | | Per ASM | | Operating | | Per ASM | ||
|
| Expenses |
| (in cents) |
| Expenses |
| (in cents) | ||
CASM | | $ | 151,661 |
| 9.79 | | $ | 69,156 |
| 7.10 |
Less: | | | | | | | | | | |
Aircraft fuel | |
| 36,647 |
| 2.37 | |
| 13,139 |
| 1.35 |
Stock Compensation expense | |
| 964 |
| 0.06 | |
| 496 |
| 0.05 |
Special items, net (a) | |
| (65) |
| (0.00) | |
| (32,852) |
| (3.37) |
Voluntary leave expense (b) | | | — | | — | | | 1,890 | | 0.20 |
TRA Expenses(c) | |
| 25 |
| 0.00 | |
| — |
| — |
Cargo expenses, not already adjusted above | |
| 15,544 |
| 1.00 | |
| 12,008 |
| 1.23 |
Sun Country Vacations | |
| 176 |
| 0.01 | |
| 112 |
| 0.01 |
Adjusted CASM | | $ | 98,370 |
| 6.35 | | $ | 74,363 |
| 7.63 |
| | | | | | | | | | |
Available Seat Miles (ASMs) | |
| 1,549,432 |
|
| |
| 974,584 |
|
|
| | | | | | | | | | |
| | Nine Months Ended September 30, | ||||||||
| | 2021 | | 2020 | ||||||
| | Operating | | Per ASM | | Operating | | Per ASM | ||
|
| Expenses |
| (in cents) |
| Expenses |
| (in cents) | ||
CASM | | $ | 354,290 |
| 8.11 | | $ | 271,865 |
| 8.63 |
Less: | | | | | | | | | | |
Aircraft fuel | |
| 90,631 |
| 2.07 | |
| 69,377 |
| 2.21 |
Stock Compensation expense | |
| 4,577 |
| 0.11 | |
| 1,253 |
| 0.04 |
Special items, net (a) | |
| (65,456) |
| (1.50) | |
| (64,333) |
| (2.04) |
Voluntary leave expense (b) | | | — | | — | | | 4,431 | | 0.14 |
TRA Expenses(c) | |
| 340 |
| 0.01 | |
| — |
| — |
Cargo expenses, not already adjusted above | |
| 48,923 |
| 1.12 | |
| 16,531 |
| 0.52 |
Sun Country Vacations | |
| 563 |
| 0.01 | |
| 444 |
| 0.01 |
Adjusted CASM | | $ | 274,712 |
| 6.29 | | $ | 244,162 |
| 7.75 |
| | | | | | | | | | |
Available Seat Miles (ASMs) | |
| 4,368,972 |
|
| |
| 3,149,189 |
|
|
Three Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Operating Expenses | Per ASM (in cents) | Operating Expenses | Per ASM (in cents) | ||||||||||||||||||||
CASM | $ | 206,309 | 13.28 | $ | 152,342 | 9.83 | |||||||||||||||||
Less: | |||||||||||||||||||||||
Aircraft Fuel | 64,843 | 4.17 | 36,647 | 2.37 | |||||||||||||||||||
Stock Compensation Expense | 487 | 0.03 | 964 | 0.06 | |||||||||||||||||||
Special Items, net (a) | — | — | (65) | — | |||||||||||||||||||
TRA expense (b) | — | — | 25 | — | |||||||||||||||||||
Cargo expenses, not already adjusted above | 23,569 | 1.52 | 15,544 | 1.00 | |||||||||||||||||||
Sun Country Vacations | 193 | 0.01 | 176 | 0.01 | |||||||||||||||||||
Adjusted CASM | $ | 117,217 | 7.55 | $ | 99,051 | 6.39 | |||||||||||||||||
ASM (thousands) | 1,553,483 | 1,549,432 |
Nine Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||
Operating Expenses | Per ASM (in cents) | Operating Expenses | Per ASM (in cents) | ||||||||||||||||||||
CASM | $ | 626,698 | 12.25 | $ | 348,756 | 7.98 | |||||||||||||||||
Less: | |||||||||||||||||||||||
Aircraft Fuel | 206,334 | 4.03 | 90,631 | 2.07 | |||||||||||||||||||
Stock Compensation Expense | 1,981 | 0.04 | 4,577 | 0.11 | |||||||||||||||||||
Special Items, net (a) | — | — | (72,419) | (1.66) | |||||||||||||||||||
TRA expense (b) | — | — | 340 | 0.01 | |||||||||||||||||||
Cargo expenses, not already adjusted above | 64,007 | 1.25 | 48,923 | 1.12 | |||||||||||||||||||
Sun Country Vacations | 810 | 0.02 | 563 | 0.01 | |||||||||||||||||||
Adjusted CASM | $ | 353,566 | 6.91 | $ | 276,141 | 6.32 | |||||||||||||||||
ASM (thousands) | 5,114,134 | 4,368,972 |
| |||||
(a) | The adjustments include Special Items, net, as presented in Note |
- 50 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
(b) |
|
| This represents the one-time costs to establish the |
share amounts)
We received a total of $62,312 in assistance from the Treasury in 2020 as part of the Payroll Support Program under the CARES Act in response to the extensive impact of the COVID-19 pandemic on the U.S. airline industry. During the first half of 2021, we received grants totaling $37,040 under PSP2. All funds provided by the Treasury to PSP2 participants may only be used for the continuation of payment of employee wages, salaries, and benefits. Further, during the second quarter of 2021, we received a grant of $34,547 under PSP3. During the three months ended September 30, 2021, no CARES Act grants were received. In accordance with any grants and/or loans received under the CARES Act, we are required to comply with the relevant provisions of the CARES Act and the related implementing agreements which, among other things, include the following: the requirement to use the Payroll Support Payments exclusively for the continuation of payment of crewmember and employee wages, salaries and benefits; the requirement that certain levels of commercial air service be maintained until March 1, 2021, or if ordered by the DOT, March 1, 2022; the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends until September 30, 2022 under PSP3; and restrictions on the payment of certain executive compensation until April 1, 2023 under PSP3. A portion of the proceeds from our initial public offering was used to repay in full all amounts outstanding under the CARES Act Loan.
On February 10, 2021, Sun Country, Inc., our wholly-owned subsidiary (the “Borrower”), entered into the Credit Agreement, which provides for a $25,000 Revolving Credit Facility and a $90,000 Delayed Draw Term Loan
- 51 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Facility, which we refer to collectively as the “Credit Facilities,” and repaid in full all borrowings outstanding under the ABL Facility. The Revolving Credit Facility matures on the earlier of (i) February 10, 2026 and (ii) to the extent the sum of (x) the amount unused commitments under the Delayed Draw Term Loan Facility and (y) the amount of loans under the Delayed Draw Term Loan Facility exceeds $25,000 on such date, the date that is 180 days prior to February 10, 2026. The Delayed Draw Term Loan Facility matures on February 10, 2026. The Delayed Draw Term Loan Facility is available only to finance the acquisition of aircraft and engines and is not available for working capital or other general corporate purposes. Only the $25,000 Revolving Credit Facility portion of the Credit Facilities is available for general corporate purposes and as a general source of liquidity. During the six months ended June 30, 2021, we drew $80,500 on the Delayed Draw Term Loan Facility. Nothing was drawn during the three months ended September 30, 2021, and $78,488 remained outstanding on September 30, 2021.
In December 2019, Sun Country arranged for the issuance of Class A, Class B and Class C pass through trust certificates, Series 2019-1 (the “2019-1 EETC”), in an aggregate face amount of $248,587 (the “Certificates”) for the purpose of financing or refinancing 13 used aircraft. The Certificates were issued to certain institutional investors, and the 2019-1 EETC face amount of the Certificates were funded by the purchase price paid by such investors for its Certificates on four funding dates from December 2019 through June 2020.
Our primary uses of liquidity are for operating expenses, capital expenditures, lease rentals and maintenance reserve deposits, debt repayments, and working capital requirements.requirements, and other general corporate purposes. Our single largest capital expenditure requirement relates to the acquisition of aircraft, which we have historically acquired through operating leases, finance leases, and debt.
We plan Our management team retains broad discretion to grow the passenger fleet to an estimated 50 aircraft by the end of 2023. We may finance additional aircraft through debt financing or finance leases based on market conditions, our prevailing level of liquidity and capital market availability. We may also enter into new operating leases on an opportunistic basis.
In addition to funding the acquisition of aircraft, we are required by our aircraft lessors to fund reserves in cash in advance for scheduled maintenance to act as collateral for the benefit of lessors. Qualifying payments that are expected to be recovered from lessors are recorded as Lessor Maintenance Deposits on our Condensed Consolidated Balance Sheet. A portion of our deposits is therefore unavailable until after we have completed the scheduled maintenance in accordance with the terms of the aircraft leases.
allocate liquidity.
Aircraft – As of September 30, 2022, we operated a fleet of 54 Boeing 737-NG aircraft. This includes 42 aircraft in the passenger fleet and 12 cargo operated aircraft through the ATSA. We may finance additional aircraft through debt financing or finance leases based on market conditions, our prevailing level of liquidity and capital market availability. We may also enter into new operating leases on an opportunistic basis. For more information on our fleet, see Note 6 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.
(Unaudited)
(Unaudited)
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Cash and Cash Equivalents | | $ | 275,332 | | $ | 62,028 |
Investments | |
| 5,997 | |
| 5,624 |
| | | | | | |
Long-term Debt | |
| 286,820 | |
| 282,463 |
Finance Lease Obligations | |
| 174,642 | |
| 107,170 |
Operating Lease Obligations | |
| 80,492 | |
| 147,199 |
Total Debt and Lease obligations | | $ | 541,954 | | $ | 536,832 |
Stockholders' Equity | |
| 482,880 | |
| 283,817 |
Total Invested Capital | | $ | 1,024,834 | | $ | 820,649 |
| | | | | | |
Debt-to-Capital | |
| 0.53 | |
| 0.65 |
Sources and Uses of Liquidity
Cash Flow Activity
| | | | | | |
|
| Nine Months Ended September 30, | ||||
| | 2021 | | 2020 | ||
Total Operating Activities |
| $ | 109,395 |
| $ | 3,553 |
Investing Activities: | |
| | | | |
Purchases of Property & Equipment | | | (111,053) | |
| (94,307) |
Other | |
| (374) | |
| 96 |
Total Investing Activities | |
| (111,427) | |
| (94,211) |
| | | | | | |
Financing Activities: | |
| | | | |
Cash from Stock Offering, net | | | 227,188 | |
| — |
Proceeds from Stock Option Exercises | | | 2,407 | | | — |
Proceeds from Borrowings | |
| 80,500 | |
| 220,307 |
Repayment of Finance Leases | |
| (9,113) | |
| (84,742) |
Repayment of Borrowings | |
| (75,728) | |
| (55,594) |
Debt Issuance Costs | | | (2,560) | | | (3,279) |
Other | |
| — | |
| 21 |
Total Financing Activities | |
| 222,694 | |
| 76,713 |
| | | | | | |
Net Increase (Decrease) in Cash | | $ | 220,662 | | $ | (13,945) |
"Cash" consists of Cash, Cash Equivalents and Restricted Cash
Operating Cash Flow Activities
Operating activities in the nine months ended September 30, 2021 provided $109,395, as compared to providing $3,553 in the nine months ended September 30, 2020. During those two nine-month periods, Net Income was $78,072 and $4,138, respectively.
- 53 -
September 30, 2022 | December 31, 2021 | ||||||||||
Cash and Cash Equivalents | $ | 131,912 | $ | 309,338 | |||||||
Available-for-Sale Securities | 128,569 | — | |||||||||
Amount Available Under Revolving Credit Facility | 24,650 | 25,000 | |||||||||
Total Liquidity | $ | 285,131 | $ | 334,338 | |||||||
September 30, 2022 | December 31, 2021 | ||||||||||
Total Debt | $ | 370,197 | $ | 277,426 | |||||||
Finance Lease Obligations | 255,128 | 192,155 | |||||||||
Operating Lease Obligations | 27,789 | 76,041 | |||||||||
Total Debt and Lease Obligations | 653,114 | 545,622 | |||||||||
Stockholders' Equity | 508,005 | 490,589 | |||||||||
Total Invested Capital | $ | 1,161,119 | $ | 1,036,211 | |||||||
Debt-to-Capital | 0.56 | 0.53 |
(Unaudited)
(Unaudited)
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Total Operating Activities | $ | 71,671 | $ | 116,358 | |||||||
Investing Activities: | |||||||||||
Purchases of Property & Equipment | (177,658) | (118,016) | |||||||||
Proceeds from the Sale Property & Equipment | 777 | — | |||||||||
Proceeds from Insurance Settlements | 8,865 | — | |||||||||
Purchases of Investments | (130,529) | (1,436) | |||||||||
Proceeds from the Sale of Investments | 935 | 1,062 | |||||||||
Total Investing Activities | (297,610) | (118,390) | |||||||||
Financing Activities: | |||||||||||
Cash Received from Stock Offering, net | — | 227,188 | |||||||||
Proceeds from Stock Option and Warrant Exercises, net | 1,625 | 2,407 | |||||||||
Proceeds from Borrowings | 188,277 | 80,500 | |||||||||
Repayment of Finance Lease Obligations | (37,842) | (9,113) | |||||||||
Repayment of Borrowings | (95,305) | (75,728) | |||||||||
Debt Issuance Costs | (2,526) | (2,560) | |||||||||
Total Financing Activities | 54,229 | 222,694 | |||||||||
Net (Decrease) Increase in Cash | $ | (171,710) | $ | 220,662 |
Additionally, the cost per gallon increased by 83% year-over-year. We expect a trend of higher year-over-year fuel costs per gallon to continue for the remainder of 2022 due to current market conditions, further exacerbated by global geopolitical events.
employee retention tax credits.
CapitalExpenditures. Our capital expenditures were $111,053$177,658 and $94,307$118,016 for the nine months ended September 30, 2022 and 2021, respectively. Our capital expenditures during the nine months ended September 30, 2022 primarily included the purchase of five incremental aircraft, two aircraft off operating leases, five spare engines, prepayment of $8,781 towards a flight simulator, and 2020, respectively.other miscellaneous projects. The final installment on the flight simulator will be remitted to the seller upon receipt and installation. The purchases of the aircraft previously under finance leases were recorded as a non-cash investing activities. Our capital expenditures during the nine months ended September 30, 2021 were primarily related to the purchases of seven aircraft, six of which were existing aircraft previously under operating leases thatleases.
fund current operations.
IPO. On In March 16, 2021, the Company offered 9,090,909 shares of common stock to the public at $24.00 per share. The underwriters had an option to purchase an additional 1,363,636 shares from the Company at the public offering price, which they exercised.we completed our IPO. In total, all 10,454,545 shares were issued and the net proceeds to the Company were $225,006$225,329 after deducting underwriting discounts and commissions, and other offering expenses.
Debt. In The proceeds from the nine months ended September 30, 2021, we incurred $80,500 in new debt under the $90,000 Delayed Draw Term Loan Facility, primarilyIPO were immediately used to purchase six aircraft, which were previously under operating leases. In the first nine months of 2020 we incurred $220,307 in debt under the 2019-1 EETC, primarily to purchase two aircraft new to the Company, purchase two aircraft which were previously under operating leases, purchase five aircraft which were previously under finance leases, as well as to refinance three other owned aircraft. In the first quarter of 2021, we repaidrepay our $45,000 loan with the U.S. Treasury, plus accrued interest.
- 54 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
For additional information regarding these financing arrangements, see Note 7 of the Notes to the Condensed Consolidated Financial Statements.
Undrawn LinesStatements included in Part I, Item I of Credit
On February 10, 2021, we executed a new five-year credit agreement that providesthis report.
Covenants
For a description of certain covenants of our debt agreements, see Note 7 of the Notes to the Condensed Consolidated Financial Statements. We were in compliance with all covenants in these debt agreements as of September 30, 2021.
of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.
- 55 -
SUN COUNTRY AIRLINES HOLDINGS, INC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
agreements are not reflected on our consolidated balance sheets.Condensed Consolidated Balance Sheets. There are no assets or liabilities on our balance sheetsBalance Sheets related to these VIEs, since our participation is limited to purchasing aircraft fuel.
2022.
In connection with the Company’s IPO, we entered into an income Tax Receivable Agreement with our pre-IPO stockholders. The agreement provides for the payment by the Company to the pre-IPO stockholders of 85% of the amount of cash savings, if any, in U.S. federal, state, local, and foreign income tax that the Company realizes as a result of certain tax attributes that existed at the time of the IPO. For additional information regarding this agreement, see Note 10 of the Notes to the Condensed Consolidated Financial Statements.
2021.
- 56 -
differ from the information provided below.
AsSeptember 30, 2021,Disclosure Controls and ProceduressupervisionSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and withreported within the participation oftime periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our management,reports filed or submitted under the Exchange Act is accumulated and communicated to our Management, including our chief executive officer (“CEO”)Chief Executive Officer and chief financial officer (“CFO”), we evaluatedChief Financial Officer, to allow timely decisions regarding required disclosure.ofunder the Securities Exchange Act of 1934, as amended, or the “Exchange Act”)Act) were not effective as of the end of the period covered by this report. Based on that evaluation, management, including our CEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective,September 30, 2022 to giveprovide reasonable assurance that the information we are required to disclosebe disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the CEO and the CFO,Management as appropriate to allow timely decisions regarding required disclosure.During In light of this fact, Management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the nine months ended September 30, 2021, we did not make any changesmaterial weakness in our internal control over financial reporting, the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented, in conformity with U.S. GAAP.areis reasonably likely to materially affect, our internal control over financial reporting.- 57 -
Common Stock“Risk Factors”“Risk Factors” in our Registration Statement on Form S-1 (File No. 333-252858), as amended, and the Final Prospectus included therein,2021 10-K, the risk factors which materially affect our business, financial condition or results of operations. Except for the updated risk factors set forth below, there have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the Registration Statementour 2021 10-K and the other information set forth elsewhererisk factor presented in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our company.Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may also materially adversely affect our business, financial condition and/or operating results.IndustryThe global pandemic resulting from the novel coronavirus has had an adverse impact that has been business, operating results, financial condition or results of operations, which may adversely affect investor confidence in us and, liquidity,as a result, the value of our common stock.duration and spreadidentification of the pandemic could resulta material weakness in additional adverse impacts.our internal control over financial reporting. A worseningmaterial weakness is a deficiency, or combination of the outbreakdeficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of another diseasea company’s annual or similar public health threat in the future could also have an adverse effectinterim financial statements will not be prevented or detected on our business, operating results, financial condition and liquidity.On March 11, 2020, the World Health Organization (the "WHO") declared COVID-19 a global pandemic causingtimely basis. The control deficiency described below created a massive market disruptionreasonable possibility that a material misstatement to the aviation industry. Measures such as travel restrictions, including testing regimes, "stay at home" and quarantine orders, limitations on public gatherings, cancellation of public events and many others have resulted in a decline in demand for air travel.While most restrictionsannual or interim consolidated financial statements would not have been removed inprevented or detected on a timely basis. Accordingly, Management has concluded that this control deficiency constituted a material weakness as of June 30, 2022. Specifically, Management's controls over the United States, leadingaccounting for complex, non-routine transactions were not designed or implemented to operate with a recovery insufficient level of precision. This included controls addressing the domestic airline industry, additional governmentalapplication of ASC Topic 842, Leases, to the purchase of aircraft subject to an existing operating lease. other restrictionsdisclosure controls and regulations that may be implemented in the future in response to further outbreaks of COVID-19 include additional travel restrictions (including expanded restrictions on domestic air travel within the United States), quarantines of additional populations (including our personnel), limitations on aircraft capacity, testing requirements and restrictions onprocedures could impair our ability to accessproduce accurate financial statements on a timely basis and could lead to a restatement of our facilities or aircraft or requirements to collect additional passenger data.financial statements. If, as a result of the ineffectiveness of our internal control over financial reporting and disclosure controls and procedures, we cannot provide reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could be harmed, and investors could lose confidence in our reported financial information. In addition, governments, non-governmental organizations and entities in the private sector may issue non-binding advisories or recommendations regarding air travel or other physical distancing measures, including limitations on the number of persons that should be present at public gatherings, which may significantly reduce demand. These restrictions and regulations have had, and will continuesome circumstances, failure to have, a material adverse impact on our business, operating results, financial condition and liquidity.We began experiencing a significant decline in demand related to COVID-19 during the first quarter of 2020, and this reduction in demand has continued through September 2021. The decline in demand caused a material deterioration in our revenues. We plan to proactively manage capacity for the foreseeable future, which has a negative impact on our revenue. We expect to continue our proactive management of costs, but decreased demand can lead to higher unit costs. In addition, actual or perceived risk of infection on our flights could have- 58 -
In addition to the schedule reductions discussed above, we continue to focus on reducing expenses and managing our liquidity and we expect to continue to modify our cost management structure, liquidity-raising efforts and capacity as the timing of demand recovery becomes more certain.
On April 20, 2020, we entered into a Payroll Support Program Agreement under the CARES Act with Treasury governing our participationidentify any new material weaknesses in the Payroll Support Program and, on January 29, 2021, we entered into a second Payroll Support Program Agreement under the CARES Act. Under the Payroll Support Program, Treasury provided us with an aggregate of $62.3 million in grants from April 21, 2020 to October 1, 2020 and an additional $16.1 million in grants on February 2, 2021, an additional $16.1 million in grants on March 26, 2021 and an additional $4.8 million in grants on April 22, 2021 (collectively, the "Payroll Support Payments"). Further, we were notified on April 15, 2021 that we would receive a grant of approximately $34.5 million under Payroll Support Program 3. Of this grant amount, $17.3 million was received on April 29, 2021 and the remaining $17.2 million was received on May 27, 2021. In addition, on October 26, 2020, we entered into a loan and guarantee agreement (the "CARES Act Loan Agreement") with Treasury under the aviation direct loan program of the CARES Act, pursuant to which Treasury agreed to extend loans to us in an aggregate principal amount of $45.0 million, subject to specified terms, which was due to be repaid on the earlier of (i) October 24, 2025 or (ii) six months prior to the expiration date offuture, any such newly identified material loyalty program securing the loan. We used a portion of the proceeds from our initial public offering to repay in full all amounts outstanding under the CARES Act Loan. The substance and duration of restrictions to which we are subject under the grants and/or loans under the CARES Act, including, but not limited to, those outlined below could materially affect our operations, and we may not be successful in managing these impacts. Further, these restrictionsweakness could limit our ability to take actions that we otherwise might have determined to be in the best interestprevent or detect a misstatement of our company and our stockholders. In particular, limitations on executive compensation may impact our ability to attract and retain senior managementaccounts or attract other key employees during this critical time. Additionally, limitations on dividends and buybacks may diminish investor interest in our stock.
Our operations may be further impacted in the event of additional instances of actual or perceived risk of infection among our employees, suppliers or business partners, and this impact may have a material adverse effect if we are unable to maintain a suitably skilled and sized workforce and address related employee matters. In addition, supply chain disruptions may impede our cargo customers' ability to deliver freight to the airports we serve, which could reduce their need for our services and thus have a material adverse effect on our business, results of operations and financial condition.
The industry may also be subject to enhanced health and hygiene requirements in attempts to counteract future outbreaks, which requirements may be costly and take a significant amount of time to implement.
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We may take additional actions to improve our financial position, including measures to improve liquidity, such as the issuance of unsecured and secured debt securities, equity securities and equity-linked securities, the sale of assets and/or the entry into additional bilateral and syndicated secured and/or unsecured credit facilities. There can be no assurance as to the timing of any such issuance, which may be in the near term, ordisclosures that any such additional financing will be completed on favorable terms, or at all. Any such actions may be material in nature and could result in significant additional borrowing. Our reduction in expenditures, measures to improve liquidity or other strategic actions that we may take in the future in response to COVID-19 may not be effective in offsetting decreased demand, and we will not be permitted to take certain strategic actions as a result of the CARES Act, which could result in a material adverse effect on our business, operating results, liquidity and financial condition.
The full extent of the ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outsidemisstatement of our annual or interim financial statements. Any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods. In addition, we cannot assure you that our independent registered public accounting firm will be able to attest that such internal controls are effective when they are required to do so.
In addition, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior, travel restrictions or adversely affects supply chains, which would impact our cargo business, could have a material adverse impact on our business, operating results, liquidity and financial condition. Outbreaks of other diseases could also result in increased government restrictionsinaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulation, such as thoseregulations. Any of these could result in delisting actions described above or otherwise, whichby the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, stockholder investigations and lawsuits, and could adversely affect our business operating results, financial condition and liquidity.
Even after the COVID-19 pandemic has moderated and the enhanced screenings, quarantine requirements, and travel restrictions have eased, we may continue to experience similar adverse effects to our business, operating results, financial condition and liquidity resulting from a recessionary or depressed economic environment that may persist, including increases in unemployment, and our business and operating results may not return to pre-COVID-19 pandemic levels on a timely basis or at all. The impact that the COVID-19 pandemic will have on our businesses, operating results, financial condition and liquidity could exacerbate the other risks identified in this prospectus.
We are depending upon continued uptake of the COVID-19 vaccine by the general public in order to normalize economic conditions, the airline industry and our business operations and to realize our planned financial and growth plans and business strategy. The failure of a vaccine, significant unplanned adverse reactions to the vaccine, politicization of the vaccine or general public distrust of the vaccine could have an adverse effect on our business, results of operations, financial condition and prospects.
Our financial and operating results and business operations for our scheduled service and charter businesses for the year ended December 31, 2020 were materially and adversely impacted as a result of the COVID-19 pandemic, which impact is likely to continue during the duration of the COVID-19 pandemic. We are depending upon an efficient distribution and sufficient supply of the COVID-19 vaccine, and continued uptake by the general public in order to normalize economic conditions, the airline industry and our business operations and to realize our financial and growth plans and business strategy. To date, COVID-19 vaccinations have been widespread, but many remain unvaccinated, as the long-term efficacy of the vaccines, including against variants, remains uncertain. The failure of a vaccine, including to the extent it is not effective against any COVID-19 variants, significant unplanned adverse reactions to the vaccine, politicization of the vaccine or
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general public distrust of the vaccine could have an adverse effect on our business, results of operations, financial condition and prospects.
Our business has been and in the future may be materially adversely affected by the price and availability of aircraft fuel. Unexpected increases in thetrading price of aircraft fuel or a shortage or disruption in the supplyour common stock. The potential consequences of aircraft fuelany material weakness could have a material adverse effect on our business, results of operations and financial condition.
The cost of aircraft fuel is highly volatile and in recent years has been our largest individual operating expense, accounting for approximately 21.7%, 26.6% and 30.1% of our operating expenses for the years ended December 31, 2020, 2019 and 2018, respectively. High fuel prices or increases in fuel costs (or in the price of crude oil) could have a material adverse effect on our business, results of operations and financial condition, including as a result of legacy network airlines and LCCs adapting more rapidly or effectively to higher fuel prices through new-technology aircraft that is more fuel efficient than our aircraft. Over the past several years, the price of aircraft fuel has fluctuated substantially and prices continue to be highly volatile and have recently increased significantly. In addition, prolonged low fuel prices could limit our ability to differentiate our product and low fares from those of the legacy network airlines and LCCs, as prolonged low fuel prices could enable such carriers to, among other things, substantially decrease their costs, fly longer stages or utilize older aircraft.
Our business is also dependent on the availability of aircraft fuel (or crude oil), which is not predictable. Weather-related events, natural disasters, terrorism, wars, political disruption or instability involving oil-producing countries, changes in governmental or cartel policy concerning crude oil or aircraft fuel production, labor strikes or other events affecting refinery production, transportation, taxes or marketing, environmental concerns, market manipulation, price speculation, changes in currency exchange rates and other unpredictable events may drive actual or perceived fuel supply shortages. Shortages in the availability of, or increases in demand for, crude oil in general, other crude oil-based fuel derivatives and aircraft fuel in particular could result in increased fuel prices and could have a material adverse effect on our business, results of operations and financial condition.
We may not be able to increase ticket prices sufficiently to cover increased fuel costs, particularly when fuel prices rise quickly. We sell a significant number of tickets to passengers well in advance of travel, and, as a result, fares sold for future travel may not reflect increased fuel costs. In addition, our ability to increase ticket prices to offset an increase in fuel costs is limited by the competitive nature of the airline industry and the price sensitivity associated with air travel, particularly leisure travel, and any increases in fares may reduce the general demand for air travel. Additionally, our cargo and charter customers may choose to refuse fuel pass-through contracts, which could drive down the profitability of those agreements.
From time to time, we may enter into fuel derivative contracts in order to mitigate the risk to our business from future volatility in fuel prices but such contracts may not fully protect us from all related risks. As of September 30, 2021, we had no outstanding call options. Generally speaking, our charter and cargo operations have pass-through provisions for fuel costs, and as such we do not hedge our fuel requirements for that portion of our business. Our hedges in place at the end of 2020 consisted of collars and call options and the underlying commodities consisted of both Gulf Coast Jet Fuel contracts as well as West Texas Intermediate Crude Oil contracts.
We may enter into derivatives that do not qualify for hedge accounting, which can impact our results of operations and increase the volatility of our earnings due to recognizing the mark-to-market impact of our hedge portfolio as a result of changes in the forward markets for oil and/or jet fuel. We cannot assure you our fuel hedging program will be effective or that we will maintain a fuel hedging program. Even if we are able to hedge portions of our future fuel requirements, we cannot guarantee that our hedge contracts will provide an adequate level of protection against increased fuel costs or that the counterparties to our hedge contracts will be able to
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perform. Additionally, our ability to realize the benefit of declining fuel prices will be limited by the impact of any fuel hedges in place, we may incur additional expenses in connection with entering into derivative contracts and we may record significant losses on fuel hedges during periods of declining prices. A failure of our fuel hedging strategy, potential margin funding requirements, overpaying for fuel through the use of hedging arrangements or our failure to maintain a fuel hedging program could prevent us from adequately mitigating the risk of fuel price increases and could have a material adverse effect on our business, results of operations and financial condition.
Airlines are often affected by factors beyond their control including: air traffic congestion at airports; air traffic control inefficiencies; government shutdowns or mandates; FAA grounding of aircraft; major construction or improvements at airports; adverse weather conditions, such as hurricanes or blizzards; increased security measures; new travel-related taxes; or the outbreak of disease, any of which could have a material adverse effect on our business, results of operations and financial condition.
Like other airlines, our business is affected by factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, major construction or improvements at airports at which we operate, increased security measures, new travel-related taxes and fees, adverse weather conditions, natural disasters and the outbreak of disease. Factors that cause flight delays frustrate passengers and increase costs and decrease revenues, which in turn could adversely affect profitability. The federal government controls all U.S. airspace, and airlines are completely dependent on the FAA to operate that airspace in a safe, efficient and affordable manner. The air traffic control system, which is operated by the FAA, faces challenges in managing the growing demand for U.S. air travel. U.S. and foreign air traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes resulting in delays. The federal government also controls airport security. In addition, there are proposals before Congress that would treat a wide range of consumer protection issues, which could increase the costs of doing business. Further, implementation of the Next Generation Air Transport System, or NextGen, by the FAA would result in changes to aircraft routings and flight paths that could lead to increased noise complaints and lawsuits, resulting in increased costs. In addition, federal government shutdowns can affect the availability of federal resources necessary to provide air traffic control and airport security. Furthermore, a federal government grounding of our aircraft type could result in flight cancellations and adversely affect our business. Governmental mandates requiring certain behaviors from employees, including COVID-19 vaccine mandates, could limit our ability to staff to meet demand because employees may choose to resign or decide not to apply for or accept open positions. Specifically, President Biden's recent Executive Order mandating that employers who maintain government contracts must require all employees to be fully vaccinated applies to our business and could have a negative impact on our ability to retain employees or hire new employees, which may adversely impact our business.
Adverse weather conditions and natural disasters, such as hurricanes, thunderstorms, winter snowstorms or earthquakes, can cause flight cancellations or significant delays, and in the past have led to Congressional demands for investigations. Cancellations or delays due to adverse weather conditions or natural disasters, air traffic control problems or inefficiencies, breaches in security or other factors may affect us to a greater degree than other, larger airlines that may be able to recover more quickly from these events, and therefore could have a material adverse effect on our business, results of operations and financial condition to a greater degree than other air carriers. Because of our day of week, limited schedule and optimized utilization and point-to-point network, operational disruptions can have a disproportionate impact on our ability to recover. In addition, many airlines reaccommodate their disrupted passengers on other airlines at prearranged rates under flight interruption manifest agreements. We have been unsuccessful in procuring any of these agreements with our peers, which makes our recovery from disruption more challenging than for larger airlines that have these agreements in place. Similarly, outbreaks of pandemic or contagious diseases, such as ebola, measles, avian flu, severe acute respiratory syndrome (SARS), COVID-19, H1N1 (swine) flu, pertussis (whooping cough) and zika virus, or their respective variants, could result in significant decreases in passenger traffic and the
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imposition of government restrictions in service and could have a material adverse impact on the airline industry. Any increases in travel-related taxes could also result in decreases in passenger traffic. Any general reduction in airline passenger traffic could have a material adverse effect on our business, results of operations and financial condition. Moreover, U.S. federal government shutdowns may cause delays and cancellations or reductions in discretionary travel due to longer security lines, including as a result of furloughed government employees or reductions in staffing levels, including air traffic controllers. U.S. government shutdowns may also impact our ability to take delivery of aircraft and commence operations in new domestic stations. Another extended shutdown like the one in December 2018-January 2019 may have a negative impact on our operations and financial results.
The industry is experiencing higher than normal number of pilot retirements, more stringent duty time regulations, increased flight hour requirement for commercial airline pilots, reductions in the number of military pilots entering the commercial workforce, increased training requirements and other factors that may lead to a shortage of pilots, which could materially adversely affect our business.
Large numbers of pilots in the industry are approaching the FAA's mandatory retirement age of 65 or have otherwise accepted an early retirement during the COVID-19 pandemic. Commercial airline pilots are subject to rigorous certification standards and must adhere to flight time and rest requirements. Commencing in 2013, the minimum flight hour requirement to achieve a commercial pilot's license in the United States increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly a commercial aircraft. Additionally, the number of military pilots being trained by the U.S. armed forces and available as commercial pilots upon their retirement from military service has been decreasing. These and other factors may lead to a shortage of qualified, entry-level pilots and increased compensation costs, particularly at carriers other than the large legacy carriers. The foregoing factors may lead to additional competition from carriers attempting to meet their hiring needs. If a shortage of pilots materializes, airlines may be unable to hire adequate numbers of pilots to meet their needs, resulting in a reduction in the number of flights offered, disruptions, increased costs of operations, financial difficulties and other adverse effects, and these circumstances may become more severe in the future and thereby cause a material adverse effect on our business.
Risks Related to Our Business
The COVID-19 pandemic has materially disrupted our strategic operating and growth plans in the near-term, and there are risks to our business, operating results, liquidity and financial condition associated with executing our strategic operating and growth plans in the long-term.
The COVID-19 pandemic has materially disrupted our strategic operating and growth plans in the near-term, and there are risks to our business, operating results and financial condition associated with executing our strategic operating and growth plans in the long-term. In developing our strategic operating and growth plans, we make certain assumptions, including, but not limited to, those related to customer demand, competition, staffing and hiring, market consolidation, the availability of aircraft and the global economy. Actual economic, market and other conditions have been and may continue to be different from our assumptions. If we do not successfully execute or adjust our strategic operating and growth plans in the long-term, or if actual results continue to vary significantly from our prior assumptions or vary significantly from our future assumptions, our business, operating results and financial condition could be materially and adversely impacted.
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Unauthorized use, incursion or breach of our information technology infrastructure could compromise the personally identifiable information of our passengers, prospective passengers or personnel and other sensitive information and expose us to liability, damage our reputation and have a material adverse effect on our business, results of operations and financial condition.
In the processing of our customer transactions and as part of our ordinary business operations, we and certain of our third-party providers collect, process, transmit and store a large volume of personally identifiable information, including email addresses and home addresses and financial data such as credit and debit card information. This data is increasingly subject to legislation and regulation, such as the Fair Accurate Credit Transparency Act, Payment Card Industry legislation, the California Consumer Privacy Act and the European Union's General Data Protection Regulation typically intended to protect the privacy of personal data that is collected, processed, stored and transmitted. The security of the systems and network where we and our third-party providers store this data is a critical element of our business, and these systems and our network may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including computer viruses, hackers, enemy state actors, denial-of-service attacks, employee theft or misuse, natural or man-made disasters, telecommunications failures, power loss and other disruptive sources and events.
As the cyber-threat landscape evolves, attacks are growing in frequency, sophistication and intensity, and are becoming increasingly difficult to detect. We have in the past, and may in the future, experience such cybersecurity threats. We and the vendors who service us may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber attacks. Attacks may be targeted at us, our customers (including the U.S. Department of Defense) and our providers, including air navigation service providers, or others who have entrusted us with information, including regulators such as the U.S. Department of Defense, FAA and DOT. In addition, attacks not targeted at us, but targeted solely at providers, may cause disruption to our computer systems or a breach of the data that we maintain on customers, employees, providers and others. Recently, several high profile consumer-oriented companies have experienced significant data breaches, which have caused those companies to suffer substantial financial and reputational harm. We cannot assure you that the precautions we have taken to avoid an unauthorized incursion of our computer systems are either adequate or implemented properly to prevent a data breach and its adverse financial and reputational consequences to our business.
A significant cybersecurity incident could result in a range of potentially material negative consequences for us, including lost revenue; unauthorized access to, disclosure, modification, misuse, loss or destruction of company systems or data; theft of sensitive, regulated or confidential data, such as personal identifying information or our intellectual property; the loss of functionality of critical systems through ransomware, denial of service or other attacks; and business delays, service or system disruptions, damage to equipment and injury to persons or property. The costs and operational consequences of defending against, preparing for, responding to and remediating an incident may be substantial. Further, we could be exposed to litigation, regulatory enforcement or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, as well injunctive relief requiring costly compliance measures. A cybersecurity incident could also impact our brand, harm our reputation and adversely impact our relationship with our customers, employees and stockholders.
Additionally, any material failure by us or our third-party providers to maintain compliance with the Payment Card Industry security requirements or to rectify a data security issue may result in fines and restrictions on our ability to accept credit and debit cards as a form of payment. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants, or costs incurred in connection with the notifications to customers, employees, providers or the general public as part of our notification obligations to the various governments that govern our business. In addition, data and security breaches can also occur as a result of
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non-technical issues, including breaches by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.
We are subject to increasing legislative, regulatory and customer focus on privacy issues and data security in the United States and abroad. In addition, a number of our commercial partners, including credit card companies, have imposed data security standards on us, and these standards continue to evolve. We will continue our efforts to meet our privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase our costs. Additionally, we must manage evolving cybersecurity risks. The loss, disclosure, misappropriation of or access to the information of our customers, personnel or business partners or any failure by us to meet our obligations could result in legal claims or proceedings, liability or regulatory penalties.
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our business, results of operations and financial condition.
Our business is labor intensive, with labor costs representing approximately 36.9%, 22.6% and 23.2% of our total operating costs for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, approximately 52% of our workforce was represented by labor unions. We cannot assure you that our labor costs going forward will remain competitive or that any new agreements into which we enter will not have terms with higher labor costs or that the negotiations of such labor agreements will not result in any work stoppages. In addition, one or more of our competitors may significantly reduce their labor costs, thereby providing them with a competitive advantage over us. New entrants to the market may not have unionized workforces and therefore may have substantially lower costs or better labor efficiencies. Furthermore, our labor costs may increase in connection with our growth, especially if we needed to hire more pilots in order to grow our cargo business. We cannot guarantee that our cargo business will grow and that hiring of additional pilots will be required. We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize.
Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA. Under the RLA, collective bargaining agreements generally contain "amendable dates" rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board, or the NMB. This process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have been released to "self-help" by the NMB. In most circumstances, the RLA prohibits strikes; however, after release by the NMB, carriers and unions are free to engage in self-help measures such as lockouts and strikes.
On December 3, 2019 our dispatchers approved a new contract. The amendable date of the collective bargaining agreement is November 14, 2024. Our collective bargaining agreement with our flight attendants is currently amendable. Negotiations with the union representing this group commenced in November of 2019. By mutual consent, the negotiations were paused in March 2020 due to the COVID-19 pandemic. We restarted negotiations in October of 2021. Our collective bargaining agreement with our pilots was amendable on October 31, 2020. Neither party chose to serve notice to the other party to make changes by the amendable date; therefore, the new amendable date is October 31, 2021, although the collective bargaining agreement provides for an "early open" 180 days in advance of such date. The pilots have since served notice to the Company and we have begun negotiations with our pilots; however, the contract remains in status quo until there is a newly ratified contract. The outcome of our collective bargaining negotiations cannot presently be determined and the terms and conditions of our future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can. In addition, if we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their collective bargaining
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agreements, we may be subject to work interruptions, stoppages or shortages. Any such action or other labor dispute with unionized employees could disrupt our operations, reduce our profitability or interfere with the ability of our management to focus on executing our business strategies. As a result, our business, results of operations and financial condition may be materially adversely affected based on the outcome of our negotiations with the unions representing our employees.
If we are unable to attract and retain qualified personnel at reasonable costs or fail to maintain our company culture, our business could be harmed.
Our business is labor intensive. We require large numbers of pilots, flight attendants, maintenance technicians and other personnel. We compete against other U.S. airlines for pilots, mechanics and other skilled labor and certain U.S. airlines offer wage and benefit packages exceeding ours. The airline industry has from time to time experienced a shortage of qualified personnel. In particular, as more pilots in the industry approach mandatory retirement age, the U.S. airline industry may be affected by a pilot shortage. We and other airlines may also face shortages of qualified aircraft mechanics and dispatchers. As is common with most of our competitors, we have faced considerable turnover of our employees. As a result of the foregoing, we may not be able to attract or retain qualified personnel or may be required to increase wages and/or benefits in order to do so. In addition, we may lose employees due to the impact of COVID-19 on aviation or as a result of restrictions imposed under the CARES Act, or other governmental requirements placed on employees, which may further impede our ability to attract and retain skilled labor. If we are unable to hire, train and retain qualified employees, our business could be harmed and we may be unable to implement our growth plans.
In addition, as we hire more people and grow, we believe it may be increasingly challenging to continue to hire people who will maintain our company culture. Our company culture, which we believe is one of our competitive strengths, is important to providing dependable customer service and having a productive, accountable workforce that helps keep our costs low. As we continue to grow, we may be unable to identify, hire or retain enough people who meet the above criteria, including those in management or other key positions. Our company culture could otherwise be adversely affected by our growing operations and geographic diversity. If we fail to maintain the strength of our company culture, our competitive ability and our business, results of operations and financial condition could be harmed.
We have a significant amount of aircraft and other fixed obligations that could impair our liquidity and thereby harm our business, results of operations and financial condition.
The airline business is capital intensive. As of December 31, 2020, our 31 passenger aircraft fleet consisted of 12 aircraft financed under operating leases, 5 aircraft financed under finance leases and 14 aircraft financed under secured debt arrangements. As of December 31, 2020, we had future aircraft and real estate operating lease obligations of approximately $163.4 million, future debt principal obligations of $285.8 million and future finance lease obligations of approximately $139.1 million. During 2021, based on our aircraft leases and debt structure as of December 31, 2020, we expect to incur obligations of $42.0 million related to operating leases, $26.9 million related to debt principal obligations and $17.6 million related to finance lease obligations. Additionally, we made payments for maintenance reserves of $20.7 million for 2020 and expect to make significant payments for maintenance reserves in the future. Our ability to pay the fixed costs associated with our contractual obligations will depend on our operating performance, cash flow, availability under the Revolving Credit Facility and our ability to secure adequate future financing, which will in turn depend on, among other things, the success of our current business strategy and our future financial and operating performance, competitive conditions, fuel price volatility, any significant weakening or improving in the U.S. economy, availability and cost of financing, as well as general economic and political conditions and other factors that
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are, to some extent, beyond our control. The amount of our aircraft-related fixed obligations could have a material adverse effect on our business, results of operations and financial condition and could:
There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all. A failure to pay our operating lease, debt and other fixed cost obligations or a breach of our contractual obligations, including the Credit Agreement, could result in a variety of adverse consequences, including the exercise of remedies by our creditors and lessors. In such a situation, it is unlikely that we would be able to cure our breach, fulfill our obligations, make required lease payments or otherwise cover our fixed costs and our secured lenders could foreclose against the assets securing the indebtedness owing to them, which would have a material adverse effect on our business, results of operations and financial condition.
Reduction in demand for air transportation, or governmental reduction or limitation of operating capacity, in the domestic United States, Canada, Mexico or Caribbean markets, or a reduction in demand for our charter or cargo operations, could harm our business, results of operations and financial condition.
A significant portion of our operations are conducted to and from the domestic United States, Canada, Mexico or Caribbean markets. Our business, results of operations and financial condition could be harmed if we lose our authority to fly to these markets, by any circumstances causing a reduction in demand for air transportation, or by governmental reduction or limitation of operating capacity, in these markets, such as adverse changes in local economic or political conditions, public health restrictions, including testing or vaccination requirements associated with COVID-19, negative public perception of these destinations, unfavorable weather conditions, public health concerns, civil unrest, violence or terrorist-related activities. Furthermore, our business could be harmed if jurisdictions that currently limit competition allow additional airlines to compete on routes we serve. In addition, a reduction in demand from our charter customers, including as a result of decreased U.S. Department of Defense troop movements or fewer sports events and related travel, or from Amazon under the ATSA could have a material and adverse effect on our business, results of operations and financial condition.
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Risks Related to this Offering and Ownership of Our Common Stock
The Apollo Stockholder has significant influence over us, and Apollo's interests may conflict with our interests and the interests of other stockholders.
Following this offering, the Apollo Stockholder will beneficially own approximately 43.6% of the voting power of our outstanding common equity (or approximately 42.0% if the underwriters exercise their option to purchase additional shares in full). As a result, although the Apollo Stockholder will beneficially own less than 50% of our outstanding common equity, individuals affiliated with Apollo will continue to have significant influence over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, entering into significant corporate transactions such as mergers, tender offers, and the sale of all or substantially all of our assets and issuance of additional debt or equity. The interests of Apollo and its affiliates, including the Apollo Funds and the Apollo Stockholder, could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by the Apollo Stockholder could delay, defer, or prevent a change in control of our company or impede a merger, takeover, or other business combination which may otherwise be favorable for us. Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, or are suppliers or customers of ours. Apollo and its affiliates may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Any such investment may increase the potential for the conflicts of interest discussed in this risk factor. So long as the Apollo Stockholder continues to directly or indirectly beneficially own a significant amount of our equity, even if such amount is less than 50%, the Apollo Stockholder will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions. The Apollo Stockholder also has a right to nominate a number of directors comprising a percentage of our board of directors in accordance with Apollo and its affiliates' beneficial ownership of the voting power of our outstanding common stock (rounded up to the nearest whole number).
Our future earnings and earnings per share, as reported under GAAP, could be adversely impacted by the warrants granted to Amazon. If Amazon exercises its right to acquire shares of our common stock pursuant to the 2019 Warrants, this will dilute the ownership interests of our then-existing stockholders and could adversely affect the market price of our common stock.
The warrants granted to Amazon in 2019 increase the number of diluted shares reported, which has an effect on our diluted earnings per share to the extent the warrants actually vest. The warrants have an exercise price of approximately $15.17 per share, approximately 15.3% of which had vested as of September 30, 2021. A portion of the 2019 Warrants will vest incrementally based on aggregate global payments by Amazon to the Company or its affiliates pursuant to the ATSA. In addition, vesting can occur immediately in certain circumstances, including upon a change of control (as defined in the 2019 Warrant) or certain transfers of 30% or more of the voting power in the Company to a new person or group (other than any equity offering by the Company or the Apollo Stockholder pursuant to an effective registration statement so long as no person or group (within the meaning of the Exchange Act) acquires more than 50% of the voting power of the Company in such offering). If additional 2019 Warrants vest and Amazon exercises its right to acquire shares of our common stock pursuant to the 2019 Warrants, it will dilute the ownership interests of our then-existing stockholders and reduce our earnings per share. In addition, to the extent the common stock issued upon exercise of the 2019 Warrants is transferred to non-U.S. citizens, it will further limit the amount of our common stock that may be owned or controlled by other non-U.S. citizens. Furthermore, any sales in the public market of any common stock issuable upon the exercise of the 2019 Warrants could adversely affect prevailing market prices of our common stock.
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You may be diluted by the future issuance of additional common stock or convertible securities in connection with our incentive plans, acquisitions or otherwise, which could adversely affect our stock price.
As of September 30, 2021, we had 937,448,259 shares of common stock authorized but unissued. Our certificate of incorporation authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. As of September 30, 2021, we had approximately 5,592,191 options outstanding, which are exercisable into approximately 5,592,191 shares of common stock, 7,634 shares of common stock that may be issued upon the vesting of outstanding RSUs and the 2019 Warrants outstanding, which are exercisable for 9,482,606 shares of common stock, subject to vesting requirements. Of the 2019 Warrants, approximately 15.3% have vested as of September 30, 2021 and the remainder will vest incrementally based on aggregate global payments by Amazon to the Company or its affiliates pursuant to the ATSA. We have reserved approximately 3,600,000 shares for grant under our Omnibus Incentive Plan. See "Executive Compensation-Equity Compensation Plans-2021 Omnibus Incentive Plan." Any common stock that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, as well as under outstanding options or warrants would dilute the percentage ownership held by the investors who purchase common stock in this offering.
From time to time in the future, we may also issue additional shares of our common stock or securities convertible into common stock pursuant to a variety of transactions, including acquisitions. Our issuance of additional shares of our common stock or securities convertible into our common stock would dilute your ownership of us and the sale of a significant amount of such shares in the public market could adversely affect prevailing market prices of our common stock.
Future sales of our common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price.
As of September 30, 2021, we had 57,551,741 shares of common stock outstanding, warrants to purchase 9,482,606 shares of common stock outstanding, options to purchase 5,592,191 shares of common stock outstanding and 7,634 shares of common stock that may be issued upon the vesting of outstanding RSUs. Following this offering the number of outstanding shares of common stock will include approximately 30 million outstanding shares that are "restricted securities," as defined under Rule 144 under the Securities Act, and eligible for sale in the public market subject to the requirements of Rule 144. We, the Apollo Stockholder and all of our executive officers and directors have agreed that, for a period of 60 days after the date of this prospectus, we and they will not, without the prior written consent of Barclays Capital Inc. and Morgan Stanley & Co. LLC on behalf of the underwriters, dispose of any shares of common stock or any securities convertible into or exchangeable for our common stock, subject to certain exceptions. Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding periods, and other limitations of Rule 144. Barclays Capital Inc. and Morgan Stanley & Co. LLC on behalf of the underwriters may, in their sole discretion, release all or any portion of the shares subject to lock-up agreements at any time and for any reason. In addition, certain of our existing stockholders, including the Apollo Stockholder and Amazon, have certain rights to require us to register the sale of common stock held by them including in connection with underwritten offerings. Additionally, we filed a registration statement in respect of all shares of common stock that we may issue under the Omnibus Incentive Plan and the SCA Acquisition Equity Plan. After registration, these shares can be freely sold in the public market upon issuance. Sales of significant amounts of stock in the public market upon expiration of lock-up agreements, the perception that such sales may occur, or early release of any lock-up agreements, could adversely affect prevailing market prices of our common stock or make it more difficult for you to sell your shares of common stock at a time and price that you deem appropriate.
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Unregistered Sales of Equity SecuritiesDuring the three months ended September 30, 2021, we did not conduct any sales of equity securities that were not registered under the Securities Act of 1933, as amended.Use of ProceedsThe Registration Statement on Form S-1 (File No. 333-252858) for our initial public offering (“IPO”) of our common stock, par value $0.01 per share was declared effective by the SEC on March 16, 2021, pursuant to which we issued and sold 10,454,545 shares of our common stock at $24.00 per share, which included 1,363,636 shares issued upon the exercise of the underwriters’ over-allotment option to purchase additional shares. We received net proceeds of $225,006 after deducting underwriting discounts and commissions, and other offering expenses. The managing underwriters for our IPO were Barclays Capital Inc. and Morgan Stanley & Co. LLC. Shares of our common stock began trading on the NASDAQ on March 17, 2021. We used approximately $46,260 of the proceeds from the IPO to repay all amounts outstanding under the CARES Act Loan. A portion of the proceeds were used to pay fees and expenses in connection with the IPO and the remainder will be used for general corporate purposes, including the acquisition of additional aircraft.Our management team will retain broad discretion to allocate the net proceeds of the IPO for general corporate purposes. Pending use as described above, we may invest the net proceeds from the IPO in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.Issuer Purchases of Equity SecuritiesThe Company does not have a share repurchase program and no shares were repurchased during the three months ended September 30, 2021. Under the CARES Act, we are restricted from conducting certain share repurchases through September 30, 2022.
None
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32* | Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code by Sun Country Airlines Holdings, Inc.’s Chief Executive Officer and President and Chief Financial Officer with respect to Sun Country's Quarterly Report on Form 10-Q for the quarterly period ended September 30, | ||||
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