SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-14719
SKYWEST, INC.
| | |
Incorporated under the laws of Utah | | 87-0292166 |
| | (I.R.S. Employer ID No.) |
444 South River Road
St. George, Utah 84790
(435) 634-3000
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
Common Stock, No Par Value | SKYW | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | |
Large accelerated filer ⌧ | | Accelerated filer ◻ |
| | |
Non-accelerated filer ◻ | | 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. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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| | |
| | |
| | |
Class | | Outstanding at July |
Common stock, no par value | |
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SKYWEST, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Exhibit 31.1 | Certification of Chief Executive Officer | | |
Exhibit 31.2 | Certification of Chief Financial Officer | | |
Exhibit 32.1 | Certification of Chief Executive Officer | | |
Exhibit 32.2 | Certification of Chief Financial Officer | |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
| | | | | | | ||||||
| | June 30, |
| December 31, | | | | | | | ||
|
| 2022 |
| 2021 | | June 30, |
| December 31, | ||||
| | (unaudited) | | | |
| 2023 |
| 2022 | |||
CURRENT ASSETS: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 96,071 | | $ | 258,421 | | $ | 114,433 | | $ | 102,984 |
Marketable securities | |
| 878,608 | |
| 601,989 | |
| 747,916 | |
| 944,231 |
Receivables, net | |
| 75,963 | |
| 65,348 | |
| 104,706 | |
| 100,523 |
Inventories, net | |
| 115,142 | |
| 104,093 | |
| 123,572 | |
| 123,209 |
Other current assets | |
| 51,100 | |
| 38,742 | |
| 92,506 | |
| 100,334 |
Total current assets | |
| 1,216,884 | |
| 1,068,593 | |
| 1,183,133 | |
| 1,371,281 |
| | | | | | | | | | | | |
PROPERTY AND EQUIPMENT: | | | | | | | | | | | | |
Aircraft and rotable spares | |
| 8,052,327 | |
| 7,848,100 | |
| 8,233,312 | |
| 8,143,614 |
Deposits on aircraft | |
| 91,813 | |
| 124,964 | |
| 23,931 | |
| 23,931 |
Buildings and ground equipment | |
| 270,802 | |
| 256,595 | |
| 273,425 | |
| 265,019 |
Total property and equipment, gross | |
| 8,414,942 | |
| 8,229,659 | |
| 8,530,668 | |
| 8,432,564 |
Less-accumulated depreciation and amortization | |
| (2,854,966) | |
| (2,731,060) | |
| (3,039,525) | |
| (2,884,084) |
Total property and equipment, net | |
| 5,559,976 | |
| 5,498,599 | |
| 5,491,143 | |
| 5,548,480 |
| | | | | | | | | | | | |
OTHER ASSETS: | | | | | | | | | | | | |
Operating lease right-of-use assets | | | 207,845 | | | 238,516 | | | 92,803 | | | 151,928 |
Long-term receivables and other assets | |
| 351,942 | |
| 320,239 | |
| 348,695 | |
| 342,864 |
Total other assets | |
| 559,787 | |
| 558,755 | |
| 441,498 | |
| 494,792 |
Total assets | | $ | 7,336,647 | | $ | 7,125,947 | | $ | 7,115,774 | | $ | 7,414,553 |
See accompanying notes to condensed consolidated financial statements.
3
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | | | | |||||
| June 30, |
| December 31, | | | | | | ||
| 2022 |
| 2021 | June 30, |
| December 31, | ||||
| (unaudited) | | | | 2023 |
| 2022 | |||
CURRENT LIABILITIES: | | | | | | | | | | |
Current maturities of long-term debt | $ | 424,998 | | $ | 391,798 | $ | 442,155 | | $ | 438,502 |
Accounts payable |
| 437,838 | |
| 496,333 |
| 457,310 | |
| 422,001 |
Accrued salaries, wages and benefits |
| 186,062 | |
| 150,583 |
| 189,265 | |
| 186,285 |
Current maturities of operating lease liabilities |
| 75,609 | |
| 78,886 |
| 18,715 | |
| 71,726 |
Taxes other than income taxes |
| 28,611 | |
| 28,869 |
| 22,631 | |
| 20,480 |
Other current liabilities |
| 45,295 | |
| 48,152 |
| 35,918 | |
| 33,549 |
Total current liabilities |
| 1,198,413 | |
| 1,194,621 |
| 1,165,994 | |
| 1,172,543 |
| | | | | | | | | | |
LONG-TERM DEBT, net of current maturities |
| 2,864,483 | |
| 2,717,420 |
| 2,743,804 | |
| 2,941,772 |
| | | | | | | | | | |
DEFERRED INCOME TAXES PAYABLE |
| 679,794 | |
| 663,236 |
| 682,694 | |
| 687,060 |
| | | | | | | | | | |
NONCURRENT OPERATING LEASE LIABILITIES |
| 134,597 | |
| 158,274 |
| 73,894 | |
| 88,622 |
| | | | | | | | | | |
OTHER LONG-TERM LIABILITIES |
| 114,329 | |
| 124,882 |
| 292,149 | |
| 176,925 |
| | | | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 7) | | | | | | | | | | |
| | | | | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | |
Preferred stock, 5,000,000 shares authorized; NaN issued |
| — | |
| — | |||||
Common stock, 0 par value, 120,000,000 shares authorized; 82,514,936 and 82,335,970 shares issued as of June 30, 2022, and December 31, 2021, respectively |
| 731,210 | |
| 722,310 | |||||
Preferred stock, 5,000,000 shares authorized; none issued |
| — | |
| — | |||||
Common stock, no par value, 120,000,000 shares authorized; 82,800,633 and 82,592,830 shares issued as of June 30, 2023, and December 31, 2022, respectively |
| 744,276 | |
| 734,426 | |||||
Retained earnings |
| 2,235,601 | |
| 2,163,916 |
| 2,230,217 | |
| 2,236,869 |
Treasury stock, at cost, 31,993,144 and 31,956,047 shares as of June 30, 2022, and December 31, 2021, respectively |
| (619,835) | |
| (618,712) | |||||
Treasury stock, at cost, 40,427,758 and 31,994,416 shares as of June 30, 2023, and December 31, 2022, respectively |
| (816,446) | |
| (619,862) | |||||
Accumulated other comprehensive loss | | (1,945) | | | — | | (808) | | | (3,802) |
Total stockholders’ equity |
| 2,345,031 | |
| 2,267,514 |
| 2,157,239 | |
| 2,347,631 |
Total liabilities and stockholders’ equity | $ | 7,336,647 | | $ | 7,125,947 | $ | 7,115,774 | | $ | 7,414,553 |
See accompanying notes to condensed consolidated financial statements.
4
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars and Shares in Thousands, Except per Share Amounts)
| | | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended | | | Three months ended | | Six months ended | ||||||||||||||||
| | June 30, | | June 30, | | | June 30, | | June 30, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
OPERATING REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | | |
Flying agreements | | $ | 773,774 | | $ | 632,967 | | $ | 1,481,837 | | $ | 1,144,158 | | | $ | 700,394 | | $ | 773,774 | | $ | 1,364,232 | | $ | 1,481,837 |
Lease, airport services and other | |
| 25,311 | |
| 24,023 | |
| 52,400 | |
| 47,387 | | |
| 25,249 | |
| 25,311 | |
| 53,242 | |
| 52,400 |
Total operating revenues | |
| 799,085 | |
| 656,990 | |
| 1,534,237 | |
| 1,191,545 | | |
| 725,643 | |
| 799,085 | |
| 1,417,474 | |
| 1,534,237 |
OPERATING EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries, wages and benefits | |
| 288,562 | |
| 233,423 | |
| 588,620 | |
| 453,265 | | |
| 322,441 | |
| 288,562 | |
| 657,642 | |
| 588,620 |
Aircraft maintenance, materials and repairs | |
| 174,883 | |
| 190,879 | |
| 323,296 | |
| 394,706 | | |
| 162,491 | |
| 174,883 | |
| 304,717 | |
| 323,296 |
Depreciation and amortization | |
| 97,249 | |
| 109,895 | |
| 199,994 | |
| 219,492 | | |
| 97,169 | |
| 97,249 | |
| 191,318 | |
| 199,994 |
Aircraft fuel | |
| 31,820 | |
| 25,867 | |
| 56,910 | |
| 45,061 | | |
| 18,279 | |
| 31,820 | |
| 39,243 | |
| 56,910 |
Airport-related expenses | |
| 17,490 | |
| 22,038 | |
| 36,695 | |
| 46,486 | | |
| 16,955 | |
| 17,490 | |
| 35,250 | |
| 36,695 |
Aircraft rentals | |
| 16,024 | |
| 15,723 | |
| 32,020 | |
| 31,213 | | |
| 2,428 | |
| 16,024 | |
| 21,956 | |
| 32,020 |
Payroll support grant | | | — | | | (114,144) | | | — | | | (307,317) | | ||||||||||||
Other operating expenses | |
| 84,455 | |
| 58,286 | |
| 156,052 | |
| 112,774 | | |
| 74,020 | |
| 84,455 | |
| 140,192 | |
| 156,052 |
Total operating expenses | |
| 710,483 | |
| 541,967 | |
| 1,393,587 | |
| 995,680 | | |
| 693,783 | |
| 710,483 | |
| 1,390,318 | |
| 1,393,587 |
OPERATING INCOME | |
| 88,602 | |
| 115,023 | |
| 140,650 | |
| 195,865 | | |
| 31,860 | |
| 88,602 | |
| 27,156 | |
| 140,650 |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | |
| 2,559 | |
| 210 | |
| 2,984 | |
| 494 | | |
| 10,494 | |
| 2,559 | |
| 20,527 | |
| 2,984 |
Interest expense | |
| (30,433) | |
| (33,940) | |
| (59,025) | |
| (65,294) | | |
| (33,718) | |
| (30,433) | |
| (67,338) | |
| (59,025) |
Other income, net | |
| 12,019 | |
| 80 | |
| 12,899 | |
| 296 | | |
| 9,001 | |
| 12,019 | |
| 11,175 | |
| 12,899 |
Total other expense, net | |
| (15,855) | |
| (33,650) | |
| (43,142) | |
| (64,504) | | |
| (14,223) | |
| (15,855) | |
| (35,636) | |
| (43,142) |
INCOME BEFORE INCOME TAXES | |
| 72,747 | |
| 81,373 | |
| 97,508 | |
| 131,361 | | ||||||||||||
PROVISION FOR INCOME TAXES | |
| 18,796 | |
| 19,379 | |
| 25,823 | |
| 33,467 | | ||||||||||||
NET INCOME | | $ | 53,951 | | $ | 61,994 | | $ | 71,685 | | $ | 97,894 | | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | |
| 17,637 | |
| 72,747 | |
| (8,480) | |
| 97,508 | |||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | |
| 2,218 | |
| 18,796 | |
| (1,828) | |
| 25,823 | |||||||||||||
NET INCOME (LOSS) | | $ | 15,419 | | $ | 53,951 | | $ | (6,652) | | $ | 71,685 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
BASIC EARNINGS PER SHARE | | $ | 1.07 | | $ | 1.23 | | $ | 1.42 | | $ | 1.95 | | ||||||||||||
DILUTED EARNINGS PER SHARE | | $ | 1.07 | | $ | 1.22 | | $ | 1.42 | | $ | 1.93 | | ||||||||||||
BASIC EARNINGS (LOSS) PER SHARE | | $ | 0.35 | | $ | 1.07 | | $ | (0.14) | | $ | 1.42 | |||||||||||||
DILUTED EARNINGS (LOSS) PER SHARE | | $ | 0.35 | | $ | 1.07 | | $ | (0.14) | | $ | 1.42 | |||||||||||||
Weighted average common shares: | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | |
| 50,522 | |
| 50,346 | |
| 50,501 | |
| 50,316 | | |
| 43,837 | |
| 50,522 | |
| 46,614 | |
| 50,501 |
Diluted | |
| 50,566 | |
| 50,725 | |
| 50,637 | |
| 50,727 | | |
| 44,219 | |
| 50,566 | |
| 46,614 | |
| 50,637 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME: | | | | | | | | | | | | | | ||||||||||||
Net income | | $ | 53,951 | | $ | 61,994 | | $ | 71,685 | | $ | 97,894 | | ||||||||||||
Net unrealized depreciation on marketable securities, net of taxes | |
| (1,945) | |
| — | |
| (1,945) | |
| — | | ||||||||||||
TOTAL COMPREHENSIVE INCOME | | $ | 52,006 | | $ | 61,994 | | $ | 69,740 | | $ | 97,894 | | ||||||||||||
COMPREHENSIVE INCOME (LOSS): | | | | | | | | | | | | | |||||||||||||
Net income (loss) | | $ | 15,419 | | $ | 53,951 | | $ | (6,652) | | $ | 71,685 | |||||||||||||
Net unrealized appreciation (depreciation) on marketable securities, net of taxes | |
| 1,514 | |
| (1,945) | |
| 2,994 | |
| (1,945) | |||||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | | $ | 16,933 | | $ | 52,006 | | $ | (3,658) | | $ | 69,740 |
See accompanying notes to condensed consolidated financial statements
5
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | |||||
| | | | | | | | | | | Other | | | | | |||||
| | Common Stock | | Retained | | Treasury Stock | | Comprehensive | | | | | ||||||||
| | Shares | | Amount | | Earnings | | Shares | | Amount | | Loss | | | Total | |||||
Balance at December 31, 2021 |
| 82,336 | | $ | 722,310 | | $ | 2,163,916 |
| (31,956) | | $ | (618,712) | | $ | — | | | $ | 2,267,514 |
Net income |
| — | |
| — | |
| 17,734 |
| — | |
| — | |
| — | | |
| 17,734 |
Exercise of common stock options and vested employee stock awards |
| 139 | | | 27 | |
| — |
| — | |
| — | |
| — | | |
| 27 |
Employee income tax paid on vested equity awards | | — | | | — | | | — | | (37) | | | (1,123) | | | — | | | | (1,123) |
Sale of common stock under employee stock purchase plan |
| 40 | | | 1,487 | |
| — |
| — | |
| — | |
| — | | |
| 1,487 |
Stock based compensation expense | | — | | | 4,076 | | | — | | — | | | — | | | — | | | | 4,076 |
Balance at March 31, 2022 |
| 82,515 | | $ | 727,900 | | $ | 2,181,650 |
| (31,993) | | $ | (619,835) | | $ | — | | | $ | 2,289,715 |
Net income |
| — | |
| — | |
| 53,951 |
| — | |
| — | |
| — | | | | 53,951 |
Stock based compensation expense |
| — | |
| 3,310 | |
| — |
| — | |
| — | |
| — | | | | 3,310 |
Net unrealized depreciation on marketable securities, net of tax of $628 | | — | | | — | | | — | | — | | | — | | | (1,945) | | | | (1,945) |
Balance at June 30, 2022 |
| 82,515 | | $ | 731,210 | | $ | 2,235,601 |
| (31,993) | | $ | (619,835) | | $ | (1,945) | | | $ | 2,345,031 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | |||||
| | | | | | | | | | | Other | | | | |||||
| | Common Stock | | Retained | | Treasury Stock | | Comprehensive | | | | ||||||||
| | Shares | | Amount | | Earnings | | Shares | | Amount | | Loss | | Total | |||||
Balance at December 31, 2022 |
| 82,593 | | $ | 734,426 | | $ | 2,236,869 |
| (31,994) | | $ | (619,862) | | $ | (3,802) | | $ | 2,347,631 |
Net income (loss) |
| — | |
| — | |
| (22,071) |
| — | |
| — | |
| — | | | (22,071) |
Exercise of common stock options and vested employee stock awards |
| 130 | | | 57 | |
| — |
| — | |
| — | |
| — | |
| 57 |
Employee income tax paid on vested equity awards | | — | | | — | | | — | | (32) | | | (585) | | | — | | | (585) |
Sale of common stock under employee stock purchase plan |
| 78 | | | 1,218 | |
| — |
| — | |
| — | |
| — | |
| 1,218 |
Stock based compensation expense |
| — | |
| 4,329 | |
| — |
| — | |
| — | |
| — | | | 4,329 |
Treasury stock purchases | | — | |
| — | |
| — |
| (5,067) | |
| (100,001) | |
| — | | | (100,001) |
Net unrealized appreciation on marketable securities, net of tax of $476 | | — | | | — | | | — | | — | | | — | | | 1,480 | | | 1,480 |
Balance at March 31, 2023 | | 82,801 | | $ | 740,030 | | $ | 2,214,798 | | (37,093) | | $ | (720,448) | | $ | (2,322) | | $ | 2,232,058 |
Net income |
| — | |
| — | |
| 15,419 |
| — | |
| — | |
| — | | | 15,419 |
Stock based compensation expense | | — | |
| 4,246 | |
| — |
| — | |
| — | |
| — | | | 4,246 |
Treasury stock purchases | | — | |
| — | |
| — |
| (3,335) | |
| (95,998) | |
| — | | | (95,998) |
Net unrealized appreciation on marketable securities, net of tax of $488 | | — | | | — | | | — | | — | | | — | | | 1,514 | | | 1,514 |
Balance at June 30, 2023 |
| 82,801 | | $ | 744,276 | | $ | 2,230,217 |
| (40,428) | | $ | (816,446) | | $ | (808) | | $ | 2,157,239 |
See accompanying notes to condensed consolidated financial statements.
6
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
| | | | | | | | | | | | | | | | |
| | Common Stock | | Retained | | Treasury Stock | | | | |||||||
| | Shares | | Amount | | Earnings | | Shares | | Amount | | Total | ||||
Balance at December 31, 2020 |
| 82,095 | | $ | 704,675 | | $ | 2,052,006 |
| (31,914) | | $ | (617,136) | | $ | 2,139,545 |
Net income |
| — | |
| — | |
| 35,900 |
| — | |
| — | |
| 35,900 |
Exercise of common stock options and vested employee stock awards |
| 177 | | | 606 | |
| — |
| — | |
| — | |
| 606 |
Employee income tax paid on vested equity awards | | — | | | — | | | — | | (42) | | | (1,573) | | | (1,573) |
Sale of common stock under employee stock purchase plan |
| 30 | | | 1,139 | |
| — |
| — | |
| — | |
| 1,139 |
Stock based compensation expense | | — | | | 2,613 | | | — | | — | | | — | | | 2,613 |
Warrants issued to U.S. Treasury |
| — | |
| 3,291 | |
| — |
| — | |
| — | |
| 3,291 |
Balance at March 31, 2021 |
| 82,302 | | $ | 712,324 | | $ | 2,087,906 |
| (31,956) | | $ | (618,709) | | $ | 2,181,521 |
Net income |
| — | |
| — | |
| 61,994 |
| — | |
| — | | | 61,994 |
Stock based compensation expense |
| — | |
| 2,877 | |
| — |
| — | |
| — | | | 2,877 |
Warrants issued to U.S. Treasury |
| — | |
| 2,513 | |
| — |
| — | |
| — | |
| 2,513 |
Balance at June 30, 2021 |
| 82,302 | | $ | 717,714 | | $ | 2,149,900 |
| (31,956) | | $ | (618,709) | | $ | 2,248,905 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | Other | | | | |
| | Common Stock | | Retained | | Treasury Stock | | Comprehensive | | | | ||||||||
| | Shares | | Amount | | Earnings | | Shares | | Amount | | Loss | | Total | |||||
Balance at December 31, 2021 |
| 82,336 | | $ | 722,310 | | $ | 2,163,916 |
| (31,956) | | $ | (618,712) | | $ | — | | $ | 2,267,514 |
Net income |
| — | |
| — | |
| 17,734 |
| — | |
| — | | | — | |
| 17,734 |
Exercise of common stock options and vested employee stock awards |
| 139 | | | 27 | |
| — |
| — | |
| — | | | — | |
| 27 |
Employee income tax paid on vested equity awards | | — | | | — | | | — | | (37) | | | (1,123) | | | — | | | (1,123) |
Sale of common stock under employee stock purchase plan |
| 40 | | | 1,487 | |
| — |
| — | |
| — | | | — | |
| 1,487 |
Stock based compensation expense | | — | | | 4,076 | | | — | | — | | | — | | | — | | | 4,076 |
Balance at March 31, 2022 | | 82,515 | | $ | 727,900 | | $ | 2,181,650 | | (31,993) | | $ | (619,835) | | $ | — | | $ | 2,289,715 |
Net income |
| — | |
| — | |
| 53,951 |
| — | |
| — | | | — | |
| 53,951 |
Stock based compensation expense | | — | | | 3,310 | | | — | | — | | | — | | | — | | | 3,310 |
Net unrealized depreciation on marketable securities, net of tax of $628 | | — | | | — | | | — | | — | | | — | | | (1,945) | | | (1,945) |
Balance at June 30, 2022 |
| 82,515 | | $ | 731,210 | | $ | 2,235,601 |
| (31,993) | | $ | (619,835) | | | (1,945) | | $ | 2,345,031 |
See accompanying notes to condensed consolidated financial statements.
67
SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
| | | | | | |
| | Six months ended | ||||
| | June 30, | ||||
|
| 2022 |
| 2021 | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES | | $ | 215,279 | | $ | 498,688 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchases of marketable securities | |
| (1,254,213) | |
| (798,877) |
Sales of marketable securities | |
| 975,649 | |
| 799,241 |
Acquisition of property and equipment: | | | | | | |
Aircraft and rotable spare parts | |
| (301,004) | |
| (63,450) |
Buildings and ground equipment | |
| (9,525) | |
| (8,700) |
Proceeds from the sale of property and equipment | |
| 6,275 | |
| 2,282 |
Deposits on aircraft | | | (37,100) | | | (58,269) |
Aircraft deposits applied towards acquired aircraft | | | 70,501 | | | — |
Increase in other assets | |
| (7,172) | |
| (54,608) |
NET CASH USED IN INVESTING ACTIVITIES | |
| (556,589) | |
| (182,381) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from issuance of long-term debt | |
| 376,753 | |
| 95,430 |
Principal payments on long-term debt | |
| (196,961) | |
| (281,778) |
Net proceeds from issuance of common stock | |
| 1,514 | |
| 1,745 |
Employee income tax paid on vested equity awards | | | (1,123) | | | (1,573) |
Payment of debt issuance cost | | | (1,223) | | | — |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 178,960 | |
| (186,176) |
| | | | | | |
Increase (decrease) in cash and cash equivalents | |
| (162,350) | |
| 130,131 |
Cash and cash equivalents at beginning of period | |
| 258,421 | |
| 215,723 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 96,071 | | $ | 345,854 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | |
Non-cash investing and financing activities: | | | | | | |
Acquisition of property and equipment | | $ | 18,234 | | $ | 11,797 |
Warrants issued to U.S. Treasury | | $ | — | | $ | 5,804 |
Cash paid during the period for: | | | | | | |
Interest, net of capitalized amounts | | $ | 60,197 | | $ | 66,767 |
Income taxes | | $ | 217 | | $ | 457 |
| | | | | | |
| | Six months ended | ||||
| | June 30, | ||||
|
| 2023 |
| 2022 | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES | | $ | 333,023 | | $ | 215,279 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchases of marketable securities | |
| (533,465) | |
| (1,254,213) |
Sales of marketable securities | |
| 732,774 | |
| 975,649 |
Acquisition of property and equipment: | | | | | | |
Aircraft and rotable spare parts | |
| (122,529) | |
| (301,004) |
Buildings and ground equipment | |
| (11,338) | |
| (9,525) |
Proceeds from the sale of property and equipment | |
| 3,815 | |
| 6,275 |
Deposits on aircraft | | | — | | | (37,100) |
Aircraft deposits applied towards acquired aircraft | | | — | | | 70,501 |
Decrease (increase) in other assets | |
| 734 | |
| (7,172) |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | |
| 69,991 | |
| (556,589) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from issuance of long-term debt | |
| 25,000 | |
| 376,753 |
Principal payments on long-term debt | |
| (221,148) | |
| (196,961) |
Payment of debt issuance cost | | | (108) | | | (1,223) |
Net proceeds from issuance of common stock | |
| 1,275 | |
| 1,514 |
Employee income tax paid on vested equity awards | | | (585) | | | (1,123) |
Purchase of treasury stock | |
| (195,999) | |
| — |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| (391,565) | |
| 178,960 |
| | | | | | |
Increase (decrease) in cash and cash equivalents | |
| 11,449 | | | (162,350) |
Cash and cash equivalents at beginning of period | |
| 102,984 | | | 258,421 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 114,433 | | $ | 96,071 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | |
Non-cash investing and financing activities: | | | | | | |
Acquisition of property and equipment | | $ | 73 | | $ | 18,234 |
Derecognition of right of use assets | | $ | (35,062) | | $ | — |
Derecognition of operating lease liabilities | | $ | 35,062 | | $ | — |
Cash paid during the period for: | | | | | | |
Interest, net of capitalized amounts | | $ | 66,131 | | $ | 60,197 |
Income taxes | | $ | 2,902 | | $ | 217 |
See accompanying notes to condensed consolidated financial statements.
78
SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Condensed Consolidated Financial Statements
Basis of Presentation
The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and, its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and, its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company formed SWC in 2022, with the intent to offer on-demand charter service and public charter service to underserved communities in the United States. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and six months ended June 30, 2022,2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.
(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues
The Company recognizes revenue under its flying agreements revenue and lease, airport services and other revenuesservice agreements when the service is provided under the applicable agreement. The Company recognizes revenue under its lease agreements ratably over the applicable lease term. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”)purchase” agreements) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For both the six months ended June 30, 20222023 and 2021,2022, capacity purchase agreements represented approximately 88.3% and 85.0% of the Company’s flying agreements revenue, respectively.revenue.
Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement)agreements), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipatesdetermines that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the six months ended June 30, 2022 and 2021, prorate flying agreements represented approximately 11.7% and 15.0% of the Company’s flying agreements revenue, respectively.
89
completed flight over the agreement term. Certain routes under the Company’s prorate arrangements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally two years in duration and the Company recognizes EAS revenue on a per-completed-flight basis pursuant to the terms of each contract. For both the six months ended June 30, 2023 and 2022, prorate flying agreements represented approximately 11.7% of the Company’s flying agreements revenue.
The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 20222023 and 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, | ||||||||||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 |
| 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||
Capacity purchase agreements revenue: flight operations | | $ | 387,456 | | $ | 273,176 | | $ | 735,930 | | $ | 484,228 | ||||||||||||
Capacity purchase agreements revenue: aircraft lease and fixed revenue | |
| 291,585 | |
| 256,559 | |
| 572,004 | |
| 488,050 | ||||||||||||
Capacity purchase agreements flight operations revenue (non-lease component) | | $ | 499,142 | | $ | 549,539 | | $ | 968,058 | | $ | 1,054,347 | ||||||||||||
Capacity purchase agreements fixed aircraft lease revenue | | | 74,042 | | | 129,502 | | | 148,522 | | | 253,587 | ||||||||||||
Capacity purchase agreements variable aircraft lease revenue | |
| 44,984 | |
| — | |
| 88,089 | |
| — | ||||||||||||
Prorate agreements revenue | |
| 94,733 | |
| 103,232 | |
| 173,903 | |
| 171,880 | |
| 82,226 | |
| 94,733 | |
| 159,563 | |
| 173,903 |
Flying agreements revenue | | $ | 773,774 | | $ | 632,967 | | $ | 1,481,837 | | $ | 1,144,158 | | $ | 700,394 | | $ | 773,774 | | $ | 1,364,232 | | $ | 1,481,837 |
The Company allocates the total consideration received under its capacity purchase agreements between lease and non-lease components based on stand-alone selling prices. A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflectedaccounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income.income (loss). During the three months ended December 31, 2022, the Company amended certain of its capacity purchase agreements resulting in a portion of the Company’s aircraft lease revenue becoming variable beginning in the fourth quarter of 2022. Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the six months ended June 30, 2023, the Company deferred recognizing lease revenue on $40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, 2023, under the straight-line method. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since(loss) because the use of the aircraft is not a separate activity of the total service provided.provided under the capacity purchase agreements.
UnderA portion of the Company’s compensation under its capacity purchase agreements relates to operating the Company is paid a fixed amount per month per aircraft, overidentified as the contract term. non-lease component of the capacity purchase agreement. The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period. The Company recognizes revenue attributed to the non-lease component received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020. Based on the number of completed block hours duringDuring the six months ended June 30, 2022,2023, the Company recognizeddeferred $77.4 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $6.0 million under certain other agreements, compared to recognizing $17.6 million of previously deferred revenue and $9.3 million of unbilled revenue compared to deferring revenue of $26.8 million during the six months ended June 30, 2021. 2022.
The Company’s total deferred revenue balance was $86.3 million as of June 30, 2022,2023 was $262.1 million, including $20.8$7.3 million in other current liabilities and $65.5 million in other long-term liabilities. The Company’s deferred revenue balance was $103.9 million as of December 31, 2021, including $24.5 million in other current liabilities and $79.4$254.8 million in other long-term liabilities. The Company’s unbilled revenue balance was $17.7$13.9 million as of June 30, 2022,2023, including $7.2 million in other current assets and $8.4$6.7 million as of December 31, 2021, and was included in other long-term assets. The Company’s deferred revenue balance was $144.7 million as of December 31, 2022, including $5.2 million in other current liabilities and $139.5 million in other long-term liabilities. The Company’s unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.
The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.
As of June 30, 2022, the Company had 521 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:
was
910