UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
Or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-40217
Sun Country Airlines Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 82-4092570 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
2005 Cargo Road | |
Minneapolis, Minnesota | 55450 |
(Address of principal executive offices) | (Zip Code) |
| |
Registrant’s telephone number, including area code: (651) 681-3900 |
|
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
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 |
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filerFiler ☐ | Accelerated filerFiler ☐☑ | 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 ☑
Number of shares outstanding by each class of common stock, as of September 30, 2022:2023:
Common Stock, $0.01 par value – 58,166,67454,133,851 shares outstanding
Sun Country Airlines Holdings, Inc.
Form 10-Q
Table of Contents
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share and share amounts)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
| Current Assets: | Current Assets: | | Current Assets: | |
Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 131,912 | | | $ | 309,338 | | Cash and Cash Equivalents | $ | 26,967 | | | $ | 92,086 | |
Restricted Cash | Restricted Cash | 14,163 | | | 8,447 | | Restricted Cash | 10,953 | | | 10,842 | |
Investments | Investments | 135,170 | | | 6,283 | | Investments | 153,290 | | | 178,936 | |
Accounts Receivable, net of an allowance for credit losses of $175 and $250, respectively | 31,628 | | | 30,156 | | |
Accounts Receivable, net of an allowance for credit losses of $110 and $231, respectively | | Accounts Receivable, net of an allowance for credit losses of $110 and $231, respectively | 42,876 | | | 35,124 | |
Short-term Lessor Maintenance Deposits | Short-term Lessor Maintenance Deposits | 1,211 | | | 5,505 | | Short-term Lessor Maintenance Deposits | 1,191 | | | 1,241 | |
Inventory, net of a reserve for obsolescence of $1,255 and $1,275, respectively | 7,280 | | | 5,405 | | |
Inventory, net of a reserve for obsolescence of $1,076 and $1,107, respectively | | Inventory, net of a reserve for obsolescence of $1,076 and $1,107, respectively | 7,678 | | | 7,659 | |
Prepaid Expenses | Prepaid Expenses | 11,692 | | | 8,511 | | Prepaid Expenses | 13,358 | | | 11,423 | |
Other Current Assets | Other Current Assets | 4,684 | | | 1,798 | | Other Current Assets | 3,992 | | | 8,179 | |
Total Current Assets | Total Current Assets | 337,740 | | | 375,443 | | Total Current Assets | 260,305 | | | 345,490 | |
| Property & Equipment, net: | Property & Equipment, net: | | Property & Equipment, net: | |
Aircraft and Flight Equipment | Aircraft and Flight Equipment | 628,375 | | | 447,319 | | Aircraft and Flight Equipment | 679,145 | | | 636,584 | |
Aircraft and Flight Equipment Held for Operating Lease | | Aircraft and Flight Equipment Held for Operating Lease | 154,165 | | | — | |
Ground Equipment and Leasehold Improvements | Ground Equipment and Leasehold Improvements | 33,809 | | | 20,876 | | Ground Equipment and Leasehold Improvements | 39,316 | | | 35,948 | |
Computer Hardware and Software | Computer Hardware and Software | 10,402 | | | 8,785 | | Computer Hardware and Software | 12,856 | | | 10,831 | |
Finance Lease Assets | Finance Lease Assets | 262,060 | | | 209,457 | | Finance Lease Assets | 285,942 | | | 261,991 | |
Rotable Parts | Rotable Parts | 13,992 | | | 9,150 | | Rotable Parts | 16,820 | | | 17,059 | |
Total Property & Equipment | Total Property & Equipment | 948,638 | | | 695,587 | | Total Property & Equipment | 1,188,244 | | | 962,413 | |
Accumulated Depreciation & Amortization | Accumulated Depreciation & Amortization | (159,779) | | | (117,069) | | Accumulated Depreciation & Amortization | (231,501) | | | (176,746) | |
Total Property & Equipment, net | Total Property & Equipment, net | 788,859 | | | 578,518 | | Total Property & Equipment, net | 956,743 | | | 785,667 | |
| Other Assets: | Other Assets: | | Other Assets: | |
Goodwill | Goodwill | 222,223 | | | 222,223 | | Goodwill | 222,223 | | | 222,223 | |
Other Intangible Assets, net | 86,110 | | | 89,110 | | |
Other Intangible Assets, net of accumulated amortization of $22,757 and $18,890, respectively | | Other Intangible Assets, net of accumulated amortization of $22,757 and $18,890, respectively | 84,984 | | | 85,110 | |
Operating Lease Right-of-use Assets | Operating Lease Right-of-use Assets | 23,919 | | | 61,658 | | Operating Lease Right-of-use Assets | 15,475 | | | 22,182 | |
Aircraft Deposits | Aircraft Deposits | 9,128 | | | 10,021 | | Aircraft Deposits | 9,589 | | | 9,134 | |
Long-term Lessor Maintenance Deposits | Long-term Lessor Maintenance Deposits | 29,714 | | | 20,346 | | Long-term Lessor Maintenance Deposits | 41,172 | | | 32,433 | |
Deferred Tax Asset | Deferred Tax Asset | 14,734 | | | 17,608 | | Deferred Tax Asset | — | | | 12,956 | |
Other Assets | Other Assets | 9,017 | | | 5,495 | | Other Assets | 10,577 | | | 9,217 | |
Total Other Assets | Total Other Assets | 394,845 | | | 426,461 | | Total Other Assets | 384,020 | | | 393,255 | |
Total Assets | Total Assets | $ | 1,521,444 | | | $ | 1,380,422 | | Total Assets | $ | 1,601,068 | | | $ | 1,524,412 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share and share amounts)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Accounts Payable | Accounts Payable | $ | 49,969 | | | $ | 39,805 | | Accounts Payable | $ | 55,680 | | | $ | 62,370 | |
Accrued Salaries, Wages, and Benefits | Accrued Salaries, Wages, and Benefits | 25,900 | | | 28,527 | | Accrued Salaries, Wages, and Benefits | 30,451 | | | 26,521 | |
Accrued Transportation Taxes | Accrued Transportation Taxes | 11,000 | | | 12,736 | | Accrued Transportation Taxes | 12,795 | | | 17,666 | |
Air Traffic Liabilities | Air Traffic Liabilities | 132,830 | | | 118,562 | | Air Traffic Liabilities | 130,453 | | | 157,995 | |
Over-market Liabilities | 1,535 | | | 4,309 | | |
Finance Lease Obligations | Finance Lease Obligations | 17,484 | | | 11,705 | | Finance Lease Obligations | 32,096 | | | 17,990 | |
Loyalty Program Liabilities | Loyalty Program Liabilities | 13,045 | | | 11,451 | | Loyalty Program Liabilities | 9,415 | | | 13,963 | |
Operating Lease Obligations | Operating Lease Obligations | 6,281 | | | 17,231 | | Operating Lease Obligations | 2,286 | | | 6,296 | |
Current Maturities of Long-term Debt | 45,535 | | | 29,412 | | |
Current Maturities of Long-term Debt, net | | Current Maturities of Long-term Debt, net | 83,339 | | | 57,548 | |
Income Tax Receivable Agreement Liability | Income Tax Receivable Agreement Liability | 2,260 | | | — | | Income Tax Receivable Agreement Liability | 1,511 | | | 2,260 | |
Other Current Liabilities | Other Current Liabilities | 14,850 | | | 7,913 | | Other Current Liabilities | 12,849 | | | 14,519 | |
Total Current Liabilities | Total Current Liabilities | 320,689 | | | 281,651 | | Total Current Liabilities | 370,875 | | | 377,128 | |
| Long-term Liabilities: | Long-term Liabilities: | | Long-term Liabilities: | |
Over-market Liabilities | 1,423 | | | 10,428 | | |
Finance Lease Obligations | Finance Lease Obligations | 237,644 | | | 180,450 | | Finance Lease Obligations | 231,185 | | | 233,306 | |
Loyalty Program Liabilities | Loyalty Program Liabilities | 3,272 | | | 8,267 | | Loyalty Program Liabilities | 4,432 | | | 1,474 | |
Operating Lease Obligations | Operating Lease Obligations | 21,508 | | | 58,810 | | Operating Lease Obligations | 17,108 | | | 19,836 | |
Long-term Debt | 324,662 | | | 248,014 | | |
Long-term Debt, net | | Long-term Debt, net | 351,766 | | | 294,687 | |
Deferred Tax Liability | | Deferred Tax Liability | 5,214 | | | — | |
Income Tax Receivable Agreement Liability | Income Tax Receivable Agreement Liability | 101,540 | | | 98,800 | | Income Tax Receivable Agreement Liability | 99,509 | | | 101,540 | |
Other Long-term Liabilities | Other Long-term Liabilities | 2,701 | | | 3,413 | | Other Long-term Liabilities | 1,618 | | | 3,729 | |
Total Long-term Liabilities | Total Long-term Liabilities | 692,750 | | | 608,182 | | Total Long-term Liabilities | 710,832 | | | 654,572 | |
Total Liabilities | Total Liabilities | 1,013,439 | | | 889,833 | | Total Liabilities | 1,081,707 | | | 1,031,700 | |
| Commitments and Contingencies (see Note 13) | | |
Commitments and Contingencies (see Note 12) | | Commitments and Contingencies (see Note 12) | |
| Stockholders' Equity: | Stockholders' Equity: | | 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) | | | — | | |
Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,815,139 and 58,217,647 issued and 54,133,851 and 57,325,238 outstanding at September 30, 2023 and December 31, 2022, respectively | | Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,815,139 and 58,217,647 issued and 54,133,851 and 57,325,238 outstanding at September 30, 2023 and December 31, 2022, respectively | 588 | | | 582 | |
Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022 | | Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022 | — | | | — | |
Treasury stock, at cost, 4,681,288 and 892,409 shares held at September 30, 2023 and December 31, 2022, respectively | | Treasury stock, at cost, 4,681,288 and 892,409 shares held at September 30, 2023 and December 31, 2022, respectively | (80,681) | | | (17,605) | |
Additional Paid-In Capital | Additional Paid-In Capital | 493,493 | | | 485,638 | | Additional Paid-In Capital | 511,375 | | | 488,494 | |
Retained Earnings | Retained Earnings | 14,764 | | | 4,372 | | Retained Earnings | 88,585 | | | 22,048 | |
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | (782) | | | — | | Accumulated Other Comprehensive Loss | (506) | | | (807) | |
Total Stockholders' Equity | Total Stockholders' Equity | 508,005 | | | 490,589 | | Total Stockholders' Equity | 519,361 | | | 492,712 | |
Total Liabilities and Stockholders' Equity | Total Liabilities and Stockholders' Equity | $ | 1,521,444 | | | $ | 1,380,422 | | Total Liabilities and Stockholders' Equity | $ | 1,601,068 | | | $ | 1,524,412 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Operating Revenues: | Operating Revenues: | | | | | | | | Operating Revenues: | | | | | | | |
Passenger | Passenger | $ | 195,360 | | | $ | 147,718 | | | $ | 592,753 | | | $ | 377,042 | | Passenger | $ | 214,355 | | | $ | 195,360 | | | $ | 709,490 | | | $ | 592,753 | |
Cargo | Cargo | 23,687 | | | 24,400 | | | 65,930 | | | 68,084 | | Cargo | 26,059 | | | 23,687 | | | 74,437 | | | 65,930 | |
Other | Other | 2,653 | | | 1,545 | | | 8,607 | | | 5,338 | | Other | 8,462 | | | 2,653 | | | 20,150 | | | 8,607 | |
Total Operating Revenue | 221,700 | | | 173,663 | | | 667,290 | | | 450,464 | | |
Total Operating Revenues | | Total Operating Revenues | 248,876 | | | 221,700 | | | 804,077 | | | 667,290 | |
| Operating Expenses: | Operating Expenses: | | Operating Expenses: | |
Aircraft Fuel | Aircraft Fuel | 64,843 | | | 36,647 | | | 206,334 | | | 90,631 | | Aircraft Fuel | 61,179 | | | 64,843 | | | 185,829 | | | 206,334 | |
Salaries, Wages, and Benefits | Salaries, Wages, and Benefits | 58,661 | | | 43,424 | | | 178,576 | | | 129,815 | | Salaries, Wages, and Benefits | 72,541 | | | 58,661 | | | 223,890 | | | 178,576 | |
Aircraft Rent | Aircraft Rent | 1,949 | | | 3,925 | | | 7,347 | | | 13,339 | | Aircraft Rent | 22 | | | 1,949 | | | 2,281 | | | 7,347 | |
Maintenance | Maintenance | 11,018 | | | 9,660 | | | 35,794 | | | 30,170 | | Maintenance | 15,330 | | | 11,018 | | | 44,311 | | | 35,794 | |
Sales and Marketing | Sales and Marketing | 6,827 | | | 5,470 | | | 23,336 | | | 16,402 | | Sales and Marketing | 7,569 | | | 6,827 | | | 26,005 | | | 23,336 | |
Depreciation and Amortization | Depreciation and Amortization | 17,181 | | | 14,710 | | | 49,364 | | | 41,532 | | Depreciation and Amortization | 22,762 | | | 17,181 | | | 64,577 | | | 49,364 | |
Ground Handling | Ground Handling | 8,669 | | | 7,873 | | | 24,838 | | | 19,654 | | Ground Handling | 9,382 | | | 8,669 | | | 28,299 | | | 24,838 | |
Landing Fees and Airport Rent | Landing Fees and Airport Rent | 12,926 | | | 12,069 | | | 32,708 | | | 29,606 | | Landing Fees and Airport Rent | 13,958 | | | 12,926 | | | 36,847 | | | 32,708 | |
Special Items, net | — | | | (65) | | | — | | | (72,419) | | |
Other Operating, net | Other Operating, net | 24,235 | | | 18,629 | | | 68,401 | | | 50,026 | | Other Operating, net | 27,127 | | | 24,235 | | | 81,663 | | | 68,401 | |
Total Operating Expenses | Total Operating Expenses | 206,309 | | | 152,342 | | | 626,698 | | | 348,756 | | Total Operating Expenses | 229,870 | | | 206,309 | | | 693,702 | | | 626,698 | |
Operating Income | Operating Income | 15,391 | | | 21,321 | | | 40,592 | | | 101,708 | | Operating Income | 19,006 | | | 15,391 | | | 110,375 | | | 40,592 | |
| Non-operating Income (Expense): | Non-operating Income (Expense): | | Non-operating Income (Expense): | |
Interest Income | Interest Income | 1,610 | | | 28 | | | 2,166 | | | 52 | | Interest Income | 2,480 | | | 1,610 | | | 7,766 | | | 2,166 | |
Interest Expense | Interest Expense | (7,493) | | | (6,286) | | | (23,097) | | | (19,487) | | Interest Expense | (11,403) | | | (7,493) | | | (31,272) | | | (23,097) | |
Other, net | Other, net | 3,422 | | | 456 | | | (5,156) | | | 18,505 | | Other, net | (15) | | | 3,422 | | | (370) | | | (5,156) | |
Total Non-operating Expense, net | Total Non-operating Expense, net | (2,461) | | | (5,802) | | | (26,087) | | | (930) | | Total Non-operating Expense, net | (8,938) | | | (2,461) | | | (23,876) | | | (26,087) | |
| Income Before Income Tax | Income Before Income Tax | 12,930 | | | 15,519 | | | 14,505 | | | 100,778 | | Income Before Income Tax | 10,068 | | | 12,930 | | | 86,499 | | | 14,505 | |
Income Tax Expense | Income Tax Expense | 2,253 | | | 2,140 | | | 4,113 | | | 18,444 | | Income Tax Expense | 2,477 | | | 2,253 | | | 19,963 | | | 4,113 | |
Net Income | Net Income | $ | 10,677 | | | $ | 13,379 | | | $ | 10,392 | | | $ | 82,334 | | Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | 66,536 | | | $ | 10,392 | |
| Net Income per share to common stockholders: | Net Income per share to common stockholders: | | Net Income per share to common stockholders: | |
Basic | Basic | $ | 0.18 | | | $ | 0.23 | | | $ | 0.18 | | | $ | 1.51 | | Basic | $ | 0.14 | | | $ | 0.18 | | | $ | 1.19 | | | $ | 0.18 | |
Diluted | Diluted | $ | 0.18 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 1.40 | | Diluted | $ | 0.13 | | | $ | 0.18 | | | $ | 1.12 | | | $ | 0.17 | |
Shares used for computation: | Shares used for computation: | | | | | | | | Shares used for computation: | | | | | | | |
Basic | Basic | 58,146,606 | | | 57,355,104 | | | 58,039,201 | | | 54,368,231 | | Basic | 55,435,386 | | | 58,146,606 | | | 56,051,173 | | | 58,039,201 | |
Diluted | Diluted | 60,793,516 | | | 61,712,378 | | | 61,372,735 | | | 58,699,991 | | Diluted | 58,595,646 | | | 60,793,516 | | | 59,281,819 | | | 61,372,735 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | 66,536 | | | $ | 10,392 | |
| | | | | | | |
Other Comprehensive Income (Loss): | | | | | | | |
Net unrealized gains (losses) on Available-for-Sale securities, net of deferred tax expense (benefit) of $46, $(244), $90 and $(309), respectively | 158 | | | (562) | | | 301 | | | (782) | |
Other Comprehensive Income (Loss) | 158 | | | (562) | | | 301 | | | (782) | |
Comprehensive Income | $ | 7,749 | | | $ | 10,115 | | | $ | 66,837 | | | $ | 9,610 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)thousands, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Warrants | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total |
| | Shares | | Amount | | Shares | | Amount | | | | |
December 31, 2022 | 2,402,268 | | | 58,217,647 | | | $ | 582 | | | 892,409 | | | $ | (17,605) | | | $ | 488,494 | | | $ | 22,048 | | | $ | (807) | | | $ | 492,712 | |
Stock Issued for Stock-Based Awards | — | | | 147,105 | | | 2 | | | — | | | — | | | 554 | | | — | | | — | | | 556 | |
Net Stock Settlement of Stock-Based Awards | — | | | — | | | — | | | 406 | | | (8) | | | — | | | — | | | — | | | (8) | |
Common Stock Repurchases | — | | | — | | | — | | | 1,230,932 | | | (22,549) | | | 7,501 | | | — | | | — | | | (15,048) | |
Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 38,328 | | | — | | | 38,328 | |
Amazon Warrants | 189,652 | | | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | |
Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 2,678 | | | — | | | — | | | 2,678 | |
Other Comprehensive Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 389 | | | 389 | |
March 31, 2023 | 2,591,920 | | | 58,364,752 | | | $ | 584 | | | 2,123,747 | | | $ | (40,162) | | | $ | 500,627 | | | $ | 60,376 | | | $ | (418) | | | $ | 521,007 | |
Stock Issued for Stock-Based Awards | — | | | 187,975 | | | 2 | | | — | | | — | | | 613 | | | — | | | — | | | 615 | |
Common Stock Repurchases | — | | | — | | | — | | | 416,751 | | | (7,511) | | | — | | | — | | | — | | | (7,511) | |
Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 20,618 | | | — | | | 20,618 | |
Amazon Warrants | 252,869 | | | — | | | — | | | — | | | — | | | 1,867 | | | — | | | — | | | 1,867 | |
Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 4,415 | | | — | | | — | | | 4,415 | |
Other Comprehensive Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (246) | | | (246) | |
June 30, 2023 | 2,844,789 | | | 58,552,727 | | | $ | 586 | | | 2,540,498 | | | $ | (47,673) | | | $ | 507,522 | | | $ | 80,994 | | | $ | (664) | | | $ | 540,765 | |
Stock Issued for Stock-Based Awards | — | | | 262,412 | | | 2 | | | — | | | — | | | 1,414 | | | — | | | — | | | 1,416 | |
Common Stock Repurchases | — | | | — | | | — | | | 2,140,790 | | | (33,008) | | | — | | | — | | | — | | | (33,008) | |
Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 7,591 | | | — | | | 7,591 | |
Amazon Warrants | 189,652 | | | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | |
Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 1,039 | | | — | | | — | | | 1,039 | |
Other Comprehensive Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 158 | | | 158 | |
September 30, 2023 | 3,034,441 | | | 58,815,139 | | | $ | 588 | | | 4,681,288 | | | $ | (80,681) | | | $ | 511,375 | | | $ | 88,585 | | | $ | (506) | | | $ | 519,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | Nine Months Ended September 30, 2022 |
| | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total | | Warrants | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Total |
| | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | |
December 31, 2021 | December 31, 2021 | 57,872,452 | | | $ | 579 | | | — | | | $ | — | | | $ | 485,638 | | | $ | 4,372 | | | $ | — | | | $ | 490,589 | | December 31, 2021 | 1,643,660 | | | 57,872,452 | | | $ | 579 | | | — | | | $ | — | | | $ | 485,638 | | | $ | 4,372 | | | $ | — | | | $ | 490,589 | |
Stock Option Exercises | 91,868 | | | 1 | | | — | | | — | | | 522 | | | — | | | — | | | 523 | | |
Stock Issued for Stock-Based Awards | | Stock Issued for Stock-Based Awards | — | | | 91,868 | | | 1 | | | — | | | — | | | 522 | | | — | | | — | | | 523 | |
Net Income | Net Income | — | | | — | | | — | | | — | | | — | | | 3,637 | | | — | | | 3,637 | | Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 3,637 | | | — | | | 3,637 | |
Amazon Warrants | Amazon Warrants | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | | Amazon Warrants | 189,652 | | | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | |
Stock-based Compensation | Stock-based Compensation | — | | | — | | | — | | | — | | | 920 | | | — | | | — | | | 920 | | Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 920 | | | — | | | — | | | 920 | |
March 31, 2022 | March 31, 2022 | 57,964,320 | | | $ | 580 | | | — | | | $ | — | | | $ | 488,480 | | | $ | 8,009 | | | $ | — | | | $ | 497,069 | | March 31, 2022 | 1,833,312 | | | 57,964,320 | | | $ | 580 | | | — | | | $ | — | | | $ | 488,480 | | | $ | 8,009 | | | $ | — | | | $ | 497,069 | |
Stock Issued for Stock-Based Awards | Stock Issued for Stock-Based Awards | 181,404 | | | 1 | | | — | | | — | | | 1,037 | | | — | | | — | | | 1,038 | | Stock Issued for Stock-Based Awards | — | | | 181,404 | | | 1 | | | — | | | — | | | 1,037 | | | — | | | — | | | 1,038 | |
Net Stock Settlement of Stock-Based Awards | Net Stock Settlement of Stock-Based Awards | — | | | — | | | 1,823 | | | (52) | | | — | | | — | | | — | | | (52) | | Net Stock Settlement of Stock-Based Awards | — | | | — | | | — | | | 1,823 | | | (52) | | | — | | | — | | | — | | | (52) | |
Net Loss | Net Loss | — | | | — | | | — | | | — | | | — | | | (3,922) | | | — | | | (3,922) | | Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | (3,922) | | | — | | | (3,922) | |
Amazon Warrants | Amazon Warrants | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | | Amazon Warrants | 189,652 | | | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | |
Stock-based Compensation | Stock-based Compensation | — | | | — | | | — | | | — | | | 575 | | | — | | | — | | | 575 | | Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 575 | | | — | | | — | | | 575 | |
Other Comprehensive Loss | Other Comprehensive Loss | — | | | — | | | — | | | — | | | — | | | — | | | (220) | | | (220) | | Other Comprehensive Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (220) | | | (220) | |
June 30, 2022 | June 30, 2022 | 58,145,724 | | | $ | 581 | | | 1,823 | | | $ | (52) | | | $ | 491,492 | | | $ | 4,087 | | | $ | (220) | | | $ | 495,888 | | June 30, 2022 | 2,022,964 | | | 58,145,724 | | | $ | 581 | | | 1,823 | | | $ | (52) | | | $ | 491,492 | | | $ | 4,087 | | | $ | (220) | | | $ | 495,888 | |
Stock Issued for Stock-Based Awards | Stock Issued for Stock-Based Awards | 22,773 | | | 1 | | | — | | | — | | | 114 | | | — | | | — | | | 115 | | Stock Issued for Stock-Based Awards | — | | | 22,773 | | | 1 | | | — | | | — | | | 114 | | | — | | | — | | | 115 | |
Net Income | Net Income | — | | | — | | | — | | | — | | | — | | | 10,677 | | | — | | | 10,677 | | Net Income | — | | | — | | | — | | | — | | | — | | | — | | | 10,677 | | | — | | | 10,677 | |
Amazon Warrants | Amazon Warrants | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | | Amazon Warrants | 189,652 | | | — | | | — | | | — | | | — | | | 1,400 | | | — | | | — | | | 1,400 | |
Stock-based Compensation | Stock-based Compensation | — | | | — | | | — | | | — | | | 487 | | | — | | | — | | | 487 | | Stock-based Compensation | — | | | — | | | — | | | — | | | — | | | 487 | | | — | | | — | | | 487 | |
Other Comprehensive Loss | Other Comprehensive Loss | — | | | — | | | — | | | — | | | — | | | — | | | (562) | | | (562) | | Other Comprehensive Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (562) | | | (562) | |
September 30, 2022 | September 30, 2022 | 58,168,497 | | | $ | 582 | | | 1,823 | | | $ | (52) | | | $ | 493,493 | | | $ | 14,764 | | | $ | (782) | | | $ | 508,005 | | September 30, 2022 | 2,212,616 | | | 58,168,497 | | | $ | 582 | | | 1,823 | | | $ | (52) | | | $ | 493,493 | | | $ | 14,764 | | | $ | (782) | | | $ | 508,005 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Net Income | Net Income | $ | 10,392 | | | $ | 82,334 | | | Net Income | $ | 66,536 | | | $ | 10,392 | | |
Adjustments to reconcile Net Income to Cash from Operating Activities: | Adjustments to reconcile Net Income to Cash from Operating Activities: | | | Adjustments to reconcile Net Income to Cash from Operating Activities: | | |
Depreciation and Amortization | Depreciation and Amortization | 49,364 | | | 41,532 | | | Depreciation and Amortization | 64,577 | | | 49,364 | | |
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 | Deferred Income Taxes | 3,183 | | | 18,340 | | | Deferred Income Taxes | 18,080 | | | 3,183 | | |
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 | | | |
| Other, net | | Other, net | 14,433 | | | 10,235 | | |
Changes in Operating Assets and Liabilities: | Changes in Operating Assets and Liabilities: | | | | | Changes in Operating Assets and Liabilities: | | | | |
Accounts Receivable | Accounts Receivable | (88) | | | 34 | | | Accounts Receivable | (7,083) | | | (88) | | |
Inventory | Inventory | (1,402) | | | (456) | | | Inventory | (1,478) | | | (1,402) | | |
Prepaid Expenses | Prepaid Expenses | (3,188) | | | (3,153) | | | Prepaid Expenses | (1,929) | | | (3,188) | | |
Lessor Maintenance Deposits | Lessor Maintenance Deposits | (10,256) | | | (5,464) | | | Lessor Maintenance Deposits | (8,689) | | | (10,256) | | |
Aircraft Deposits | Aircraft Deposits | (2,569) | | | 1,162 | | | Aircraft Deposits | (482) | | | (2,569) | | |
Other Assets | Other Assets | (5,478) | | | 2,297 | | | Other Assets | 70 | | | (5,478) | | |
Accounts Payable | Accounts Payable | 8,674 | | | 2,257 | | | Accounts Payable | (5,855) | | | 8,674 | | |
Accrued Transportation Taxes | Accrued Transportation Taxes | (1,736) | | | 2,999 | | | Accrued Transportation Taxes | (4,872) | | | (1,736) | | |
Air Traffic Liabilities | Air Traffic Liabilities | 14,269 | | | 3,972 | | | Air Traffic Liabilities | (27,542) | | | 14,269 | | |
Loyalty Program Liabilities | Loyalty Program Liabilities | (3,401) | | | (1,759) | | | Loyalty Program Liabilities | (1,590) | | | (3,401) | | |
Operating Lease Obligations | Operating Lease Obligations | (61) | | | (32,651) | | | Operating Lease Obligations | (3,858) | | | (61) | | |
Other Liabilities | Other Liabilities | 3,733 | | | 8,514 | | | Other Liabilities | 2,333 | | | 3,733 | | |
Net Cash Provided by Operating Activities | Net Cash Provided by Operating Activities | 71,671 | | | 116,358 | | | Net Cash Provided by Operating Activities | 102,651 | | | 71,671 | | |
| Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | | Cash Flows from Investing Activities: | | | | |
Purchases of Property & Equipment | Purchases of Property & Equipment | (177,658) | | | (118,016) | | | Purchases of Property & Equipment | (210,641) | | | (177,658) | | |
Proceeds from the Sale of Property & Equipment | 777 | | | — | | | |
Proceeds from Insurance Settlements | 8,865 | | | — | | | |
Purchases of Investments | Purchases of Investments | (130,529) | | | (1,436) | | | Purchases of Investments | (82,574) | | | (130,529) | | |
Proceeds from the Sale of Investments | 935 | | | 1,062 | | | |
Proceeds from the Maturities of Investments | | Proceeds from the Maturities of Investments | 110,850 | | | — | | |
Other, net | | Other, net | 4,087 | | | 10,577 | | |
Net Cash Used in Investing Activities | Net Cash Used in Investing Activities | (297,610) | | | (118,390) | | | Net Cash Used in Investing Activities | (178,278) | | | (297,610) | | |
| Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | | 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) | | | — | | | |
Common Stock Repurchases | | Common Stock Repurchases | (55,051) | | | — | | |
Proceeds from Borrowings | Proceeds from Borrowings | 188,277 | | | 80,500 | | | Proceeds from Borrowings | 119,200 | | | 188,277 | | |
Repayment of Finance Lease Obligations | Repayment of Finance Lease Obligations | (37,842) | | | (9,113) | | | Repayment of Finance Lease Obligations | (16,390) | | | (37,842) | | |
Repayment of Borrowings | Repayment of Borrowings | (95,305) | | | (75,728) | | | Repayment of Borrowings | (35,475) | | | (95,305) | | |
Debt Issuance Costs | (2,526) | | | (2,560) | | | |
Other, net | | Other, net | (1,665) | | | (901) | | |
Net Cash Provided by Financing Activities | Net Cash Provided by Financing Activities | 54,229 | | | 222,694 | | | Net Cash Provided by Financing Activities | 10,619 | | | 54,229 | | |
| Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | (171,710) | | | 220,662 | | | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | (65,008) | | | (171,710) | | |
| Cash, Cash Equivalents and Restricted Cash--Beginning of the Period | Cash, Cash Equivalents and Restricted Cash--Beginning of the Period | 317,785 | | | 70,363 | | | Cash, Cash Equivalents and Restricted Cash--Beginning of the Period | 102,928 | | | 317,785 | | |
| Cash, Cash Equivalents and Restricted Cash--End of the Period | Cash, Cash Equivalents and Restricted Cash--End of the Period | $ | 146,075 | | | $ | 291,025 | | | Cash, Cash Equivalents and Restricted Cash--End of the Period | $ | 37,920 | | | $ | 146,075 | | |
| Non-cash transactions: | | Non-cash transactions: | | |
Aircraft and Flight Equipment Acquired through Finance Leases | | Aircraft and Flight Equipment Acquired through Finance Leases | $ | — | | | $ | 40,480 | | |
Changes to Finance Lease Assets due to Lease Modifications | | Changes to Finance Lease Assets due to Lease Modifications | $ | 26,427 | | | $ | 46,311 | | |
Aircraft and Flight Equipment Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation | | Aircraft and Flight Equipment Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation | $ | 2,386 | | | $ | 28,012 | | |
| The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets: | | The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets: | |
| | | September 30, 2023 | | September 30, 2022 | |
Cash and Cash Equivalents | | Cash and Cash Equivalents | $ | 26,967 | | | $ | 131,912 | | |
Restricted Cash | | Restricted Cash | 10,953 | | | 14,163 | | |
Total Cash, Cash Equivalents and Restricted Cash | | Total Cash, Cash Equivalents and Restricted Cash | $ | 37,920 | | | $ | 146,075 | | |
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | |
| 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 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
1. COMPANY BACKGROUNDBASIS OF PRESENTATION
Sun Country Airlines Holdings, Inc. (together with its consolidated subsidiaries, "Sun Country" or the "Company") is the parent company of Sun Country, Inc., which is a certificated air carrier providing scheduled passenger service, air cargo service, charter air transportation and related services. Services are provided to the general public, cargo customers, military branches, wholesale tour operators, schools, companies and other individual entities for air transportation to various U.S. and international destinations. Except as otherwise stated, the financial information, accounting policies, and activities of Sun Country Airlines Holdings, Inc. are referred to as those of the "Company" or "Sun Country".
Equity Transactions
On April 11, 2018 (the "Acquisition Date"), 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’s equity transactions, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (“2021 10-K”).Initial Public Offering of Common Stock
On March 16, 2021, the Company priced its initial public offering of 9,090,909 shares of common stock to the public at $24.00 per share. The stock began trading on the NASDAQ on March 17, 2021 under the symbol "SNCY". The underwriters had an option to purchase an additional 1,363,636 shares from the Company at the public offering price, which they exercised. In total, all 10,454,545 shares were issued on March 19, 2021 and the net proceeds to the Company were $225,329 after deducting underwriting discounts and commissions, and other offering expenses.
Concurrently with the closing of the initial public offering, SCA Horus Holdings, LLC, an affiliate of investment funds managed by affiliates of Apollo (the “Apollo Stockholder”), also completed a private placement in which the Apollo Stockholder sold 2,216,312 and 2,216,308 shares of common stock to PAR Investment Partners, L.P. and certain funds or accounts managed by an investment adviser subsidiary of Blackrock, Inc., respectively. Each of the two sales was based on an 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.
Secondary Offerings
During May 2021 and October 2021, the Apollo Stockholder and other selling stockholders sold 7,250,000 and 8,500,000 shares of the Company's common stock at the public offering pricesof$34.50 and $32.50, respectively. Under both transactions, the underwriters were given options to purchase additional shares of the Company's common stock at the public offering price. During the May 2021 and October 2021 offerings, the underwriters elected to purchase 1,087,500 and 435,291 of the option shares, respectively. The Company incurred offering expenses of $1,763 in conjunction with the two secondary offerings and did not receive any of the proceeds from these offerings.
For more information on the 2021 secondary offerings, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Amazon Agreement
On December 13, 2019, the Company signed a six-year contract (with two, two-year extension options, for a maximum term of 10 years) with Amazon.com Services, Inc. (together with its affiliates, “Amazon”) to provide cargo services under an Air Transportation Services Agreement (the “ATSA”).
In connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to 9,482,606 shares of common stock at an exercise price of approximately $15.17 per share. There were 632,183 warrants that vested upon execution of the ATSA and 63,217 warrants will vest for each milestone of $8,000 in qualifying payments made by Amazon to the Company. During the nine months ended September 30, 2022 and September 30, 2021, 568,956 warrants vested in each respective period. As of September 30, 2022 and September 30, 2021, the cumulative vested warrants 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.
2. BASIS OF PRESENTATION
The Company has prepared the unaudited Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (“GAAP”) and has included the accounts of Sun Country Airlines Holdings, Inc. and its subsidiaries. TheCertain information and footnote disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for Form 10-Q. Therefore, the accompanying unaudited Condensed Consolidated Financial Statements of Sun Country Airlines Holdings, Inc. should be read in conjunction with the Consolidated Financial Statements contained in the 2021 10-K.Company's Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC ("2022 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.
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant areas
The Company completed its public float calculation for SEC reporting purposes as of judgment relate to passenger revenue recognition, maintenance under the built-in overhaul method, equity-based compensation, tax receivable agreement, lease accounting, impairmentJune 30, 2023, as required. The Company will be a large accelerated filer as of goodwill, impairment of long-lived and intangible assets, air traffic liabilities, the loyalty program, as well as the valuation of Amazon warrants. During the nine months ended September 30, 2022, there were no significant changes to the Company’s critical accounting policies.December 31, 2023.
Due to impacts from the global coronavirus (“COVID-19”) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, uncertainties in pilot staffing, the impact of macroeconomic conditions including inflationary pressures, and other factors, operating results for the nine months ended September 30, 20222023 are not necessarily indicative of operating results for future quarters or for the year ending December 31, 2022. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers, unemployment levels, corporate travel budgets, extreme or severe weather and natural disasters, disease outbreaks, fears of terrorism or war, and other factors beyond the Company's control.
Revision of Previously Issued Consolidated Financial Statements
During the second quarter of 2022, the Company identified an immaterial misstatement in its Condensed Consolidated Financial Statements for the quarter and year-to-date interim periods in the year ended December 31, 2021 (the "previously issued financial statements"). The error related to the improper
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
application of Accounting Standards Codification (ASC) Topic 842, Leases regarding the treatment of the incremental difference between the net purchase price of the leased aircraft and the net operating lease recorded on the balance sheet immediately prior to the transaction. This difference should have been capitalized as part of the acquisition costs incurred to purchase the aircraft off the operating lease. The Company incorrectly expensed this amount as incurred within Special Items, net on the Condensed Consolidated Statements of Operations. The error resulted in an understatement of the benefit within Special Items, net, partially offset by incremental Depreciation and Amortization Expense for the three and nine months ended September 30, 2021, and an understatement of Aircraft and Flight Equipment.
The Company assessed the materiality of the errors on the prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements. Management concluded it was immaterial to the Company's previously issued annual or interim financial statements.
The Company has revised the previously issued financial statements as presented in these Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. In addition, the immaterial error has and will continue to be corrected in the comparative amounts presented in the Company’s subsequent quarterly and annual filings.
The impact of the revision on the Company's previously issued Consolidated Balance Sheets as of December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | |
| 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 | |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The impact of the revision on the Company's previously issued Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
The revision also impacted the Company's previously issued Condensed Consolidated Statements of Changes in Stockholders Equity as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
The Company's Condensed Consolidated Statement of Changes Stockholders' Equity as of December 31, 2021 has been corrected to reflect the changes to the impacted Stockholders' Equity accounts as described above.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The impact of the revision on the Company's previously issued Condensed Consolidated Statements of Cash Flow for the nine months ended September 30, 2021 is as follows:
| | | | | | | | | | | | | | | | | |
| 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) | |
The revision had no impact on the Company's Net Cash Provided by Financing Activities for the nine months ended September 30, 2021.
Investments
Investments consist of debt securities and Certificates of Deposit. The Certificates of Deposit are recorded at cost, plus accrued interest. These certificates serve as collateral for letters of credit required by various airports and other vendors. All of the certificates have original maturities greater than 90 days.
During the nine months ended September 30, 2022, the Company purchased debt securities with original maturities of three months or greater. The investments are classified as Current Assets on the Condensed Consolidated Balance Sheets because the securities are highly liquid and are available to be quickly converted into known amounts of cash to fund current operations. Most of the Company's Available-for-Sale securities will mature within one year. The Company limits its exposure to any one issuer or market sector, and largely limits its investments to investment grade quality securities.
The Company's investment securities are classified as Available-for-Sale and are reported at fair value on the Company's Condensed Consolidated Balance Sheets. Unrealized gains and losses on the Company's Available-for-Sale securities are excluded from net earnings and are reported as a component of Accumulated Other Comprehensive Income, net of income tax effects, within Stockholders' Equity on the Condensed Consolidated Balance Sheets until realized. Realized gains and losses are recorded using the specific identification method and reflected in Other, net within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations. Premiums and discounts recorded on Available-for-Sale debt securities are accounted for in Interest Income within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations.
At each reporting period, the Company assesses its Available-for-Sale investments in an unrealized loss position to determine whether an impairment exists. The Company will record an impairment if management intends to sell an impaired security, will likely be required to sell a security before recovery of the entire amortized cost, or the same level of collectible cash flows from the security is no longer expected. The
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
entire impairment will be included in Other, net within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations.
Recently Adopted Accounting Standards
In May 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. On January 1, 2022, the Company adopted ASU 2021-04 on a prospective basis, as required by the Standard. There was no financial statement impact upon adoption.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The new standard requires additional disclosures regarding government grants and money contributions. The standard requires disclosures on the nature of the transactions and related accounting policies, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transactions. The Company adopted this standard as of January 1, 2022. See Note 3 for additional information on COVID-19 related government assistance the Company has received.2023.3. IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic resulted in a dramatic decline in passenger demand across the U.S. airline industry. Sun Country experienced a significant decrease in demand related to the COVID-19 pandemic, which caused a material decline in 2021 revenues as compared to pre-pandemic levels, and negatively impacted the Company’s financial condition and operating results.
During the third quarter of 2022, Sun Country continued to see recovery in demand from the COVID-19 pandemic relative to demand in 2021, which may impact the comparability of results to prior periods. However, the ongoing impact of the COVID-19 pandemic on overall demand for air travel remains uncertain and cannot be predicted at this time.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
During 2021 and 2020, the Company received certain funds from the CARES Act. The cash awarded to the Company through the CARES Act was accounted for as grants, debt, and tax credits based on the terms and nature of the funds awarded.
During the nine months ended September 30, 2021, the Company received and recognized as income within Special Items, net $71,587 from the U.S. Treasury under the Payroll Support Program Extension (“PSP2”) and the American Rescue Plan Act of 2021 ("PSP3"). The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. During the nine months ended September 30, 2021, the Company recorded $848 related to the CARES Employee Retention Credit within Special Items, net. Under the CARES Act Loan Program, the Company received a $45,000 loan (the “CARES Act Loan”) from the U.S. Treasury, which was repaid in full on March 24, 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.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
In accordance with any grants and/or loans received under the CARES Act, the Company is 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 Program 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 through March 1, 2022, if ordered by the Department of Transportation ("DOT"); the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends through September 30, 2022; and restrictions on the payment of certain executive compensation through April 1, 2023. As of September 30, 2022, the Company was in compliance with these provisions.
4.2. REVENUE
Sun Country is a certificated air carrier generating Operating Revenues from Scheduled service,Service, Charter service, Ancillary, Cargo and Other revenue. Scheduled serviceService revenue mainly consists of base fares. Charter service revenue is primarily generated through service provided to the U.S. Department of Defense, collegiate and professional sports teams, and casinos. Ancillary revenues consist of revenue earned from air travel-related services, such as: baggage fees, seat selection fees, passenger interface feeother fees and on-board sales. Cargo consists of revenue earned from flying cargo aircraft for Amazon.com Services, Inc. (together with its affiliates, “Amazon”) under the ATSA.Air Transportation Services Agreement (the “ATSA”). Other revenue consists primarily of revenue from services in connection with Sun Country Vacations products.products and rental revenue related to certain transactions where the Company acts as a lessor.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
The significant categories comprising Operating Revenues are as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Scheduled Service | Scheduled Service | $ | 102,200 | | | $ | 80,212 | | | $ | 334,679 | | | $ | 201,905 | | Scheduled Service | $ | 96,483 | | | $ | 102,200 | | | $ | 360,607 | | | $ | 334,679 | |
Charter Service | Charter Service | 42,899 | | | 33,809 | | | 118,526 | | | 88,511 | | Charter Service | 47,437 | | | 42,899 | | | 143,250 | | | 118,526 | |
Ancillary | Ancillary | 50,261 | | | 33,697 | | | 139,548 | | | 86,626 | | Ancillary | 70,435 | | | 50,261 | | | 205,633 | | | 139,548 | |
Passenger | Passenger | 195,360 | | | 147,718 | | | 592,753 | | | 377,042 | | Passenger | 214,355 | | | 195,360 | | | 709,490 | | | 592,753 | |
Cargo | Cargo | 23,687 | | | 24,400 | | 65,930 | | 68,084 | Cargo | 26,059 | | | 23,687 | | | 74,437 | | | 65,930 | |
Other | Other | 2,653 | | | 1,545 | | 8,607 | | 5,338 | Other | 8,462 | | | 2,653 | | | 20,150 | | | 8,607 | |
Total Operating Revenue | $ | 221,700 | | | $ | 173,663 | | | $ | 667,290 | | | $ | 450,464 | | |
Total Operating Revenues | | Total Operating Revenues | $ | 248,876 | | | $ | 221,700 | | | $ | 804,077 | | | $ | 667,290 | |
The Company attributes and measures its Operating RevenueRevenues by geographic region as defined by the DOTDepartment of Transportation ("DOT") for airline reporting based upon the origin of each passenger and cargo flight segment.
The Company’s 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.
Total Operating Revenues by geographic region are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
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, |
| 2023 | | 2022 | | 2023 | | 2022 |
Domestic | $ | 242,504 | | | $ | 214,904 | | | $ | 767,509 | | | $ | 634,963 | |
Latin America | 6,372 | | | 6,756 | | | 36,078 | | | 32,182 | |
Other | — | | | 40 | | | 490 | | | 145 | |
Total Operating Revenues | $ | 248,876 | | | $ | 221,700 | | | $ | 804,077 | | | $ | 667,290 | |
Contract Balances
The Company’s contract assets primarily relate to costs incurred to get Amazon cargo aircraft ready for service. The balances are included in Other Current Assets and Other Assets on the Condensed Consolidated Balance Sheets. These deferred up-front costs are being amortized into Maintenance Expense on a pro-rata basis over the initial six years of the ATSA.The amount expensed during the three and nine months ended September 30, 2022 was $151 and $469, respectively. The expense for both the three and nine months ended September 30, 2021 was $208 and $515, respectively.
The Company’s significant contract liabilities are comprised of: 1) ticket sales for transportation that has not yet been provided (reported as Air Traffic Liabilities on the Condensed Consolidated Balance Sheets), 2) outstanding loyalty points that may be redeemed for future travel and other non-air travel awards (reported as Loyalty Program Liabilities on the Condensed Consolidated Balance Sheets) and, 3) the Amazon Deferred Up-front Payment received (reported within Other Current Liabilities and Other Long-term Liabilities on the Condensed Consolidated Balance Sheets).
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars 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 Amazonthousands, except per share and the remaining $5,633 was recorded in Other Liabilities on the Company’s Condensed Consolidated Balance 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 September 30, 2022, $225 and $699 was amortized into Cargo revenue, respectively. For the three and nine months ended September 30, 2021, $310 and $779 was amortized into Cargo revenue, respectively.share amounts)
(Unaudited)
Contract Assets and Liabilities are as follows:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Contract Assets | Contract Assets | | | | Contract Assets | | | |
Costs to fulfill contract with Amazon | Costs to fulfill contract with Amazon | $ | 2,350 | | | $ | 2,819 | | Costs to fulfill contract with Amazon | $ | 1,669 | | | $ | 2,195 | |
Total Contract Assets | | Total Contract Assets | $ | 1,669 | | | $ | 2,195 | |
| Contract Liabilities | | Contract Liabilities | |
Air Traffic Liabilities | Air Traffic Liabilities | 132,830 | | | 118,562 | | Air Traffic Liabilities | $ | 130,453 | | | $ | 157,995 | |
Loyalty Program Liabilities | Loyalty Program Liabilities | 16,317 | | | 19,718 | | Loyalty Program Liabilities | 13,847 | | | 15,437 | |
Amazon Deferred Up-front Payment | Amazon Deferred Up-front Payment | 3,501 | | | 4,200 | | Amazon Deferred Up-front Payment | 2,486 | | | 3,271 | |
Total Contract Liabilities | Total Contract Liabilities | $ | 152,648 | | | $ | 142,480 | | Total Contract Liabilities | $ | 146,786 | | | $ | 176,703 | |
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, 2022, $109,8522023, $152,292 of revenue was recognized in Passenger revenue that was included in the Air Traffic Liabilities as of December 31, 2021.2022.
Loyalty Program
The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. The Company records a liability for loyalty points earned by passengers under the Sun Country Rewards program using two methods: (1)1) a liability for points that are earned by passengers on purchases of the Company’s services is established by deferring revenue based on the redemption value, net of estimated loyalty points that will expire unused, or breakage; and (2)2) a liability for points attributed to
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
loyalty points issued to the Company’s Visa card holders is established by deferring a portion of payments received from the Company’s co-branded agreement. The balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impacts the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue). Due to these reasons, the timing of loyalty point redemptions can vary significantly.
Changes in the Loyalty Program Liabilities are as follows:
| | | 2022 | | 2021 | | 2023 | | 2022 |
Balance – January 1 | Balance – January 1 | $ | 19,718 | | | $ | 22,069 | | Balance – January 1 | $ | 15,437 | | | $ | 19,718 | |
Loyalty Points Earned | Loyalty Points Earned | 5,125 | | | 3,058 | | Loyalty Points Earned | 6,209 | | | 5,125 | |
Loyalty Points Redeemed (1) | Loyalty Points Redeemed (1) | (8,526) | | | (4,816) | | Loyalty Points Redeemed (1) | (7,799) | | | (8,526) | |
Balance – September 30 | Balance – September 30 | $ | 16,317 | | | $ | 20,311 | | Balance – September 30 | $ | 13,847 | | | $ | 16,317 | |
______________________ | | | | | |
(1) | Loyalty points are combined in one homogenous pool, thatwhich includes both air and non-air travel awards, and are not separately identifiable. As such, the revenue recognized is comprised of points that were part of the Loyalty Program Liabilities balance at the beginning of the period, as well as points that were earned during the period. |
5. EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net Income | $ | 10,677 | | | $ | 13,379 | | | $ | 10,392 | | | $ | 82,334 | |
| | | | | | | |
Denominator: | | | | | | | |
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) | 2,646,910 | | | 4,357,274 | | | 3,333,534 | | | 4,331,760 | |
Weighted Average Common Shares Outstanding - Diluted | 60,793,516 | | | 61,712,378 | | | 61,372,735 | | | 58,699,991 | |
| | | | | | | |
Basic earnings per share | $ | 0.18 | | | $ | 0.23 | | | $ | 0.18 | | | $ | 1.51 | |
Diluted earnings per share | $ | 0.18 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 1.40 | |
______________________
| | | | | |
(1) | There were 3,221,617 and 3,626,851 performance-based stock options outstanding at September 30, 2022 and 2021, respectively. As of September 30, 2022 and 2021, the Company expected approximately 63% and 75% of these options to vest, respectively. As of September 30, 2022, 32.5% of the eligible outstanding performance-based stock options vested and were considered exercisable. These amounts are included in the measure above to the extent they are dilutive. |
The Company's anti-dilutive shares for the periods presented were immaterial to the Condensed Consolidated Financial Statements.
Warrants held by Amazon are included in the calculation of dilutive weighted average shares outstanding as of the date the warrants vest. The unvested warrants held by Amazon have not been included in dilutive shares as their performance condition has not been satisfied.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
6.3. EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | 66,536 | | | $ | 10,392 | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted Average Common Shares Outstanding - Basic | 55,435,386 | | | 58,146,606 | | | 56,051,173 | | | 58,039,201 | |
Dilutive effect of Stock Options, RSUs and Warrants (1) | 3,160,260 | | | 2,646,910 | | | 3,230,646 | | | 3,333,534 | |
Weighted Average Common Shares Outstanding - Diluted | 58,595,646 | | | 60,793,516 | | | 59,281,819 | | | 61,372,735 | |
| | | | | | | |
Basic earnings per share | $ | 0.14 | | | $ | 0.18 | | | $ | 1.19 | | | $ | 0.18 | |
Diluted earnings per share | $ | 0.13 | | | $ | 0.18 | | | $ | 1.12 | | | $ | 0.17 | |
______________________
| | | | | |
(1) | There were 2,810,840 and 3,221,617 performance-based stock options outstanding at September 30, 2023 and 2022, respectively. As of September 30, 2023, 100% of the performance-based stock options have vested. As of September 30, 2022, 63% of the performance-based stock options were expected to vest. |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
4. AIRCRAFT
As of September 30, 2022,2023, Sun Country operated aCountry's fleet consisted of 59 Boeing 737-NG aircraft, comprised of 54 Boeing 737-NG aircraft, consisting of 53 Boeing 737-800s and onefive Boeing 737-700.737-900ERs.
The following tables summarize the Company’s aircraft fleet activity for the nine months ended September 30, 20222023 and 2021,2022, respectively:
| | | December 31, 2021 | | Additions | | Reclassifications | | Removals | | September 30, 2022 | | December 31, 2022 | | Additions | | Reclassifications | | Removals | | September 30, 2023 |
Passenger: | Passenger: | | | | | | | | | | Passenger: | | | | | | | | | |
Owned | Owned | 21 | | 5 | | 4 | | | (1) |
| 29 | Owned | 29 | | 1 | | | — | | | (1) | |
| 29 |
Finance leases (1) | Finance leases (1) | 9 | | 2 | | — | | | — | | | 11 | Finance leases (1) | 11 | | — | | | 2 | | | — | | | 13 |
Operating leases | Operating leases | 6 | | — | | | (4) | | — | | | 2 | Operating leases | 2 | | | — | | | (2) | | | — | | | — | |
Sun Country Airlines’ Fleet | Sun Country Airlines’ Fleet | 36 | | 7 | | — | | | (1) | | | 42 | Sun Country Airlines’ Fleet | 42 | | 1 | | | — | | | (1) | | | 42 |
Cargo: | Cargo: | | Cargo: | |
Aircraft Operated for Amazon | Aircraft Operated for Amazon | 12 | | — | | | — | | | — | | | 12 | Aircraft Operated for Amazon | 12 | | — | | | — | | | — | | | 12 |
Total Aircraft Operated | 48 | | 7 | | — | | | (1) | | | 54 | |
Other Owned: | | Other Owned: | |
Aircraft Held for Operating Lease | | Aircraft Held for Operating Lease | — | | 5 | | | — | | | — | | | 5 |
Total Aircraft | | Total Aircraft | 54 | | 6 | | | — | | | (1) | | | 59 |
| | | December 31, 2020 | | Additions | | Reclassifications | | Removals | | September 30, 2021 | | December 31, 2021 | | Additions | | Reclassifications | | Removals | | September 30, 2022 |
Passenger: | Passenger: | | | | | | | | | | Passenger: | | | | | | | | | |
Owned | Owned | 14 | | | 1 | | | 6 | | | — | | | 21 | | Owned | 21 | | | 5 | | | 4 | | | (1) | | | 29 | |
Finance leases | 5 | | | 3 | | | — | | | — | | | 8 | | |
Finance leases (2) | | Finance leases (2) | 9 | | | 2 | | | — | | | — | | | 11 | |
Operating leases | Operating leases | 12 | | | — | | | (6) | | | — | | | 6 | | Operating leases | 6 | | | — | | | (4) | | | — | | | 2 | |
Sun Country Airlines’ Fleet | Sun Country Airlines’ Fleet | 31 | | | 4 | | | — | | | — | | | 35 | | Sun Country Airlines’ Fleet | 36 | | | 7 | | | — | | | (1) | | | 42 | |
Cargo: | Cargo: | | Cargo: | |
Aircraft Operated for Amazon | Aircraft Operated for Amazon | 12 | | | — | | | — | | | — | | | 12 | | Aircraft Operated for Amazon | 12 | | | — | | | — | | | — | | | 12 | |
Total Aircraft Operated | 43 | | | 4 | | | — | | | — | | | 47 | | |
Total Aircraft | | Total Aircraft | 48 | | | 7 | | | — | | | (1) | | | 54 | |
| | | | | |
(1) | Two aircraft operating leases were reclassified into finance leaseleases, as further described below. |
(2) | Two aircraft operating leases were reclassified into finance leases and two separate aircraft finance lease purchase options were exercised, resulting in a net change of zero finance lease reclassifications. |
During the nine months ended September 30, 2022,2023, the Company acquired seven incremental aircraft, five of which737-900ERs that are currently on lease to an unaffiliated airline ("Aircraft Held for Operating Lease"). The five Aircraft Held for Operating Lease were financed using proceeds from the issuance of Class A and 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, seea term loan arrangement. See Note 75 of these Condensed Consolidated Financial Statements. DuringStatements for more information on this transaction. Additionally, during the nine months ended September 30, 2022,2023, the Company completed transactions that adjusted the composition of its fleet. The Companyacquired an incremental aircraft and executed two lease amendments to purchase two aircraft at the end of thetheir respective lease term, whichterms. The lease amendments modified the classification of these leases from operating leases to finance leases withand have expiration dates in fiscal year 2026. The Company purchased two aircraft previously classified as finance leases, using proceeds from2024. During the 2022-1 EETC. Additionally, the Company purchased two aircraft previously classified as operating leases, both of which are now unencumbered.three months ended September 30, 2023, management approved a
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
plan to retire an owned aircraft. Certain parts of the aircraft were maintained for future use by the Company or held for sale. The impact of the retirement and the assets held for sale were not material to the Company's Condensed Consolidated Financial Statements. Of the 34 Owned aircraft and Aircraft Held for Operating Lease as of September 30, 2023, 31 aircraft were financed and three aircraft were unencumbered.
During the nine months ended September 30, 2022,
an ownedthe Company executed lease amendments to purchase two aircraft
was retired due toat the
aircraft sustaining damage beyond economic repair. The retirement had no impact on the Company's Condensed Consolidated Results of Operations. See Note 13 for more information.Sixend of the lease term, which modified the lease classification from operating leases to finance leases with expiration dates in fiscal year 2026 and retired one aircraft. Further, the Company purchased two aircraft previously classified as finance leases using proceeds from the issuance of Class A and Class B pass-through trust certificates (the "2022-1 EETC") and purchased during the nine months ended September 30, 2021 were financed through the Delayed Draw Term Loan Facility. See Note 7 for additional information. All sixtwo aircraft were previously accounted forclassified as operating leases. The Company also acquired fourseven incremental 737-800 aircraft, onefive of which was purchased,were financed using proceeds from the 2022-1 EETC and threetwo through a finance lease arrangements.arrangement that is set to expire in fiscal year 2030.Depreciation, amortization, and rent expense on aircraft are as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Aircraft Status | Aircraft Status | Expense Type | 2022 | | 2021 | | 2022 | | 2021 | Aircraft Status | | Expense Type | | 2023 | | 2022 | | 2023 | | 2022 |
Owned | Owned | Depreciation | $ | 10,179 | | | $ | 9,284 | | | $ | 29,027 | | | $ | 26,514 | | Owned | | Depreciation | | $ | 14,395 | | | $ | 10,179 | | | $ | 40,709 | | | $ | 29,027 | |
Finance Leased | Finance Leased | Amortization | 4,419 | | | 2,977 | | | 12,533 | | | 7,846 | | Finance Leased | | Amortization | | 5,183 | | | 4,419 | | | 14,741 | | | 12,533 | |
Operating Leased | Operating Leased | Aircraft Rent (1) | 1,949 | | | 3,925 | | | 7,347 | | | 13,339 | | Operating Leased | | Aircraft Rent (1) | | 22 | | | 1,949 | | | 2,281 | | | 7,347 | |
| | $ | 16,547 | | | $ | 16,186 | | | $ | 48,907 | | | $ | 47,699 | | | $ | 19,600 | | | $ | 16,547 | | | $ | 57,731 | | | $ | 48,907 | |
| | | | | |
(1) | Aircraft Rent expense includes credits for the amortization of over-market liabilities established at the Acquisition Date. |
Depreciation expense on owned aircraft and amortization expense on finance leased aircraft are both classified in Depreciation and Amortization on the Condensed Consolidated Statements of Operations.
Aircraft Maintenance Deposits Contra-Assets5. ASSET ACQUISITIONS
As of the Acquisition Date, the Company established a maintenance deposit contra-asset to offset the acquired maintenance deposits assets included in Short-term Lessor Maintenance Deposits on the Condensed Consolidated Balance Sheets. The assets represent deposits remitted by the previous owners of the Company 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 the previously acquired maintenance deposit is partially funding the maintenance event. As of September 30, 2022 and December 31, 2021, the remaining balance of the contra-asset was $13,211 and $22,348, respectively. Of the $9,137 reduction in the contra-asset duringDuring the nine months ended September 30, 2022, $8,362 is related2023, the Company acquired five Aircraft Held for Operating Lease. The table below reflects the cumulative balances of the five aircraft as of the acquisition dates:
| | | | | | | | | | | | | | |
Asset | | Balance Sheet Classification | | |
Aircraft Held for Operating Lease | | Aircraft and Flight Equipment Held for Operating Lease | | $ | 114,632 | |
Maintenance Rights Asset | | Aircraft and Flight Equipment Held for Operating Lease | | 39,533 | |
Over-Market Asset | | Other Intangible Assets, net | | 3,741 | |
Total | | | | $ | 157,906 | |
The purchase price was assigned to the purchaseassets based upon their relative fair values as of two aircraft previously under operating leases. The contra-assets reduced the acquisition costs incurred to purchasedate. The Company estimated the aircraft off the operating lease.
Over-market Liabilities
Asfair value of the Acquisition Date, the Company recognized a liability representing lease terms which are unfavorable compared with market terms of similar leases. The over-market lease liability is recorded as a contra-asset offsetting the corresponding lease asset. The remaining unamortized balance of this contra-asset as of September 30, 2022 and December 31, 2021 was $132 and $10,363, respectively and is recorded withinAircraft Held for Operating Lease Right-of-Use Assets. During the first quarter of 2022, the Company executed lease amendments which modified two aircraft from operating leases to finance leases. As a resultprincipally based on market appraisals. The appraisals were based on an analysis of the modifications,economic conditions impacting both the Company reclassified $9,687airline industry and broader economy, the current fuel price environment, aircraft order data, passenger traffic levels, and qualitative and quantitative characteristics impacting the value of the over-marketacquired aircraft.
The fair value of the Maintenance Rights Asset was determined using a discounted cash flow method based on aircraft utilization levels at the time of the acquisition and the applicable rates as specified within the lease liability from Operating Lease Right-of-Use Assets to Finance Lease Assets. The resulting reclassification reduced the go-forward Depreciation and Amortization for the related Finance Lease Assets. Additionally, $173 of theagreements.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
reduction is relatedThe fair value of the Over-Market Asset was determined using a discounted cash flow model that involves the comparison of contractual lease cash flows to the estimated at-market lease payments for an aircraft of the same type and age.
The purchase of twothe Aircraft Held for Operating Lease was financed using the proceeds from a term loan credit facility with a face amount of $119,200 and the Company's Cash and Cash Equivalents. For more information on the term loan credit facility, see Note 6 of these Condensed Consolidated Financial Statements. Aircraft Held for Operating Lease
The Company obtained outright ownership of the Aircraft Held for Operating Lease upon purchase and assumed the position of lessor until the end of the lease terms. The Company is entitled to fixed payments over the remaining lease term for each aircraft, previously under operating leaseswhich expire at various dates between the fourth quarter of 2024 and the fourth quarter of 2025. On each lease expiry date, the Aircraft Held for Operating Lease will be redelivered to Sun Country and are expected to be inducted into the Company’s fleet. The rental revenue associated with the Aircraft Held for Operating Lease is recognized as it is earned and is included in Other revenue. The Company has recognized $5,870 and $11,742 of rental revenue during the three and nine months ended September 30, 2022. The contra-assets reduced2023, respectively.
Maintenance Rights Asset
Upon purchase of the acquisition costs incurredAircraft Held for Operating Lease, the Company recognized a Maintenance Rights Asset which represents the Company’s contractual right to purchasereceive the aircraft offin a specified maintenance condition at the operating lease.
Asend of the Acquisition Date, Sun Country’s existinglease. The acquired leases included paymentscontain an end of lease compensation clause whereby the lessee is required to remit a cash payment to true-up the aircraft’s maintenance condition to full-life or perform the maintenance tasks needed to physically restore the airframe and engines to such a condition. The asset represents the difference between the Aircraft Held for Operating Lease’s physical maintenance reserves in additioncondition as of the purchase date and the contractual return condition at the end of the lease term. The Maintenance Rights Asset is not depreciated over the lease term, nor will it accrete as additional life is consumed on the aircraft.
Over-Market Asset
Upon purchase of the Aircraft Held for Operating Lease, the Company recognized an intangible asset representing lease terms which are favorable to the stated aircraft lease payments. For a substantial portion of these maintenance reserve payments,lessor (unfavorable to the Company does not expect to be reimbursed by the lessor. Therefore, a liability was established representing over-market maintenance reserve lease termslessee), as compared towith market terms of similar leases. The asset will be amortized over the remaining balancelease terms for the respective aircraft, which ranges from 1.2 to 2.2 years as of this liability at September 30, 2022 and December 31, 2021 was $2,958 and $14,737, respectively. Of2023. The amortization will be recognized as contra-revenue, offsetting the $11,779 reduction in the over-market maintenance reserve liabilities during the nine months ended September 30, 2022, $6,023 was incorporated into the Finance Lease Assets in accordancerental revenue associated with the terms of the executed lease amendments, as described above. Additionally, $3,303 of the reduction is related to the purchase of two aircraft previously under operating leases. The maintenance deposits were allocated to the acquisition costs incurred to purchase the aircraft off the operating lease.Aircraft Held for Operating Lease included in Other revenue.
7.6. DEBT
Credit Facilities –
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.lenders. The Credit 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 proceeds from the Revolving Credit Facility can be used for general corporate purposes, whereas the proceeds from the DDTL were to be used solely to finance the acquisition of aircraft or engines to be registered in the United States. The Credit Agreement includes financial covenants that
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and minimum liquidity, as defined within the Credit Agreement, of $30,000 at the close of any business day. The Company was in compliance with these covenants as of September 30, 2022.2023.
During 2021, the Company drew $80,500 on the DDTL to purchase six aircraft, which were previously under operating leases. During the first quarter of 2022, the Company repaid the outstanding balance of the DDTL in full using proceeds it received from the 2022-1 EETC, which terminated the DDTL. As a result, no amounts under the DDTL were available to the Company as of September 30, 2022.2023. The Company recorded a $1,557 loss on extinguishment of debt related toin 2022 in connection with the repayment of the DDTL, which represents the write-off of the unamortized deferred financing costs. As of September 30, 2022,2023, the Company had $24,650 of financing available through the Revolving Credit Facility, remained undrawn and $24,650 was availableas $350 had been pledged to the Company.support a letter of credit.
Long-term Debt–
Term Loan Credit Facility
During the nine months ended September 30, 2023, the Company executed a term loan credit facility with a face amount of $119,200 for the purpose of financing the five Aircraft Held for Operating Lease. The loan is to be repaid monthly through March 2030. During the lease term, payments collected from the lessee will be applied directly to the repayment of principal and interest on the term loan credit facility. The Aircraft Held for Operating Lease, as well as the related lease payments received from the lessee, are pledged as collateral. During the nine months ended September 30, 2023, the Company recorded $1,820 in debt issuance costs associated with the term loan credit facility.
The interest rate on the term loan credit facility is determined by using a base rate, which resets monthly, plus an applicable margin, and a fixed credit spread adjustment of 0.1%. The applicable margin during the lease term is fixed at 3.75%, and is subsequently reduced to 3.25% once the aircraft have been redelivered to the Company and a Loan-to-Value ("LTV") ratio calculation is completed at the end of the lease term. The interest rate in effect as of September 30, 2023 was 9.2%. To the extent that the LTV ratio exceeds 75% at the end of the lease term, a principal prepayment will be required in order to reduce the ratio to 75%. If at any point within 12 months of the end of the lease term for each respective aircraft the Company deems it probable that a principal prepayment will be required in order to reduce the LTV ratio to 75%, and such amount can be reasonably estimated, the estimated principal prepayment amount will be reclassified from Long-term Debt, net to Current Maturities of Long-Term Debt, net on the Company's Condensed Consolidated Balance Sheets. In the event a principal prepayment is required, amounts received under the end of lease maintenance compensation clause may be applied towards the prepayment.
Pass-Through Trust Certificates
During March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. The Company is required to make bi-annual principal and interest payments each March and September, through March 2031. These notes bear interest at an annual rate between 4.84% and 5.75%. The weighted average interest rate was 5.05% as of September 30, 2023.
In December 2019, the Company 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 for the purpose of financing or refinancing 13 used aircraft, which was completed in 2020.
In March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. The Company recorded $2,526 in debt issuance costs associated with the 2022-1 EETC. Of the 13 aircraft financed by the 2022-1 EETC during the nine months ended September 30, 2022, five were existing owned aircraft previously financed by the DDTL, two of the aircraft were owned outright, four of the aircraft were acquired incrementally, and two aircraft were bought-out from an existing finance lease. The Company is required to make semi-annualbi-annual principal and interest payments each MarchJune and September, the first payment occurred on September 15, 2022. The 2022-1 EETC is secured by a lien on the financed or refinanced aircraft and will be cross-collateralized by the other aircraft financedDecember, through the issuance. Total appraised value of the aircraft and engines financed by the 2022-1 EETC was approximately $259,688 as of the original date of the agreement.December 2027. These notes bear
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
During the nine months endedinterest at an annual rate between 4.13% and 6.95%. The weighted average interest rate was 4.69% as of September 30, 2022, the Company capitalized $2,327 of Interest Expense related to aircraft financed with the proceeds of the 2022-1 EETC while undergoing induction.2023.
Long-term Debt includes the following:
| | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
2019-1 EETC (see terms and conditions above) | $ | 168,598 | | | $ | 176,697 | |
2022-1 EETC (see terms and conditions above) | 158,775 | | | 179,019 | |
Term Loan Credit Facility (see terms and conditions above) | 112,068 | | | — | |
Total Debt | 439,441 | | | 355,716 | |
Less: Unamortized debt issuance costs | (4,336) | | | (3,481) | |
Less: Current Maturities of Long-term Debt, net | (83,339) | | | (57,548) | |
Total Long-term Debt, net | $ | 351,766 | | | $ | 294,687 | |
Future maturities of the outstanding Debt are as follows:
| | | Debt Principal Payments | | Amortization of Debt Issuance Costs | | Net Debt | | Debt Principal Payments | | Amortization of Debt Issuance Costs | | Net Debt |
Remainder of 2022 | $ | 18,187 | | | $ | (264) | | | $ | 17,923 | | |
2023 | 58,518 | | | (962) | | | 57,556 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 33,804 | | | $ | (341) | | | $ | 33,463 | |
2024 | 2024 | 60,157 | | | (777) | | | 59,380 | | 2024 | 75,403 | | | (1,188) | | | 74,215 | |
2025 | 2025 | 65,241 | | | (602) | | | 64,639 | | 2025 | 80,007 | | | (956) | | | 79,051 | |
2026 | 2026 | 45,668 | | | (415) | | | 45,253 | | 2026 | 61,146 | | | (709) | | | 60,437 | |
2027 | | 2027 | 65,170 | | | (525) | | | 64,645 | |
Thereafter | Thereafter | 126,132 | | | (686) | | | 125,446 | | Thereafter | 123,911 | | | (617) | | | 123,294 | |
Total as of September 30, 2022 | $ | 373,903 | | | $ | (3,706) | | | $ | 370,197 | | |
Total as of September 30, 2023 | | Total as of September 30, 2023 | $ | 439,441 | | | $ | (4,336) | | | $ | 435,105 | |
The fair value of Debt was $340,067$408,892 as of September 30, 20222023 and $272,004$324,059 as of December 31, 2021.2022. 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.
7. STOCK-BASED COMPENSATION
Stock compensation expense was $1,039 and $487, during the three months ended September 30, 2023 and September 30, 2022, respectively; and $8,132 and $1,981 during the nine months ended September 30, 2023 and September 30, 2022, respectively. During the nine months ended September 30, 2023, all conditions associated with the time-based and performance-based options granted under the SCA Acquisition Holdings, LLC Amended and Restated Equity Incentive Plan were met. As a result, 100% of the performance-based stock options and all remaining unvested time-based options vested. Therefore, during the nine months ended September 30, 2023, the Company recognized an acceleration of stock-based compensation expense for the time-based and performance-based stock options totaling $2,960.
As of September 30, 2023, there was $7,267 of total unrecognized compensation expense related to Restricted Stock Units ("RSUs"). This unrecognized compensation is expected to be fully recognized over a weighted average period of approximately 2.1 years.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
8. FUEL DERIVATIVES AND RISK MANAGEMENT
The Company’s operations are inherently dependent upon the price of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into fuel option and swap contracts. The Company does not apply hedge accounting to its fuel derivative contracts, nor does it hold or issue them for trading purposes. As of September 30, 2022 and December 31, 2021, the Company had no outstanding fuel derivative contracts.
Fuel derivative contracts are recognized at fair value on the Condensed Consolidated Balance Sheets as Derivative Assets, if the fair value is in an asset position, or as Derivative Liabilities, if the fair value is in a liability position. Derivatives where the payment due date is greater than one year from the balance sheet date are classified as long-term. Fuel derivative gains and losses are classified in Aircraft Fuel on the Condensed Consolidated Statements of Operations.
Changes in Derivative Assets (Liabilities) are as follows:
| | | | | | | | | | | |
| 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 | |
Fuel Derivative Gains (Losses) consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Total Fuel Derivative Gains (Losses) | $ | — | | | $ | (72) | | | $ | — | | | $ | 3,527 | |
No cash premiums were paid in any of the periods presented above.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
9. INVESTMENTS
A summary of debt securities by major security type:
| | | September 30, 2022 (1) | | September 30, 2023 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-Sale Securities (2): | | | | | | | | |
Available-for-Sale Securities: (1) | | Available-for-Sale Securities: (1) | | | | | | | |
Municipal Debt Securities | Municipal Debt Securities | $ | 41,108 | | | $ | — | | | $ | (331) | | | $ | 40,777 | | Municipal Debt Securities | $ | 17,071 | | | $ | — | | | $ | (50) | | | $ | 17,021 | |
Corporate Debt Securities | Corporate Debt Securities | 83,547 | | | — | | | (695) | | | 82,852 | | Corporate Debt Securities | 55,514 | | | — | | | (209) | | | 55,305 | |
U.S. Government Agency Securities | U.S. Government Agency Securities | 5,005 | | | — | | | (65) | | | 4,940 | | U.S. Government Agency Securities | 74,591 | | | — | | | (398) | | | 74,193 | |
Total | Total | $ | 129,660 | | | $ | — | | | $ | (1,091) | | | $ | 128,569 | | Total | $ | 147,176 | | | $ | — | | | $ | (657) | | | $ | 146,519 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-Sale Securities: (1) | | | | | | | |
Municipal Debt Securities | $ | 47,897 | | | $ | 16 | | | $ | (258) | | | $ | 47,655 | |
Corporate Debt Securities | 93,460 | | | 1 | | | (683) | | | 92,778 | |
U.S. Government Agency Securities | 32,326 | | | 2 | | | (126) | | | 32,202 | |
Total | $ | 173,683 | | | $ | 19 | | | $ | (1,067) | | | $ | 172,635 | |
| | | | | |
(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$6,771 and $6,283$6,301 as of September 30, 20222023 and December 31, 2021,2022, respectively. |
As of September 30, 2022,2023, most of the Company's investments that have unrealized losses have been in a continuous unrealized loss position for less than 12 months. The unrealized losses were the result of increases in market interest rates and were not the result of a deterioration in the credit quality of the securities. As of September 30, 2022,2023, the Company believes that any unrealized losses are recoverable prior to the investment's conversion to cash. As of September 30, 2023, the Company had the intent and ability to hold these investments until maturity. Therefore, the Company believes these losses to be temporary.temporary and no impairments have been recognized.
10.9. FAIR VALUE MEASUREMENTS
For a description ofThe following table summarizes the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 12 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K.Financial Instruments – Financial instruments including Restricted Cash, Certificates of Deposit, Accounts Receivable, Accounts Payable and all other Current Liabilities have carrying values that approximate fair value.
Cash & Cash Equivalents – The carrying value of cash and cash equivalents approximates fair value. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.
Available-for-Sale Securities - Available-for-Sale investment securities include debt securities, such as municipal, corporate, and U.S. government agency notes. All of these investments are classified as Level 2 because they do not trade in active markets on a regular basis. The Company obtains its pricing per security from a third-party, which uses quoted market prices, when available, or other observable inputs for determination of fair value.
Non-Financial Assets – Certain assets are measured at fair value on a nonrecurring basis. The Company’s non-financial assets, which primarily consist of Property & Equipment, Goodwill and Other 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.basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Cash & Cash Equivalents | $ | 26,967 | | | $ | — | | | $ | — | | | $ | 26,967 | |
Available-for-Sale Securities: | | | | | | | |
Municipal Debt Securities | — | | | 17,021 | | | — | | | 17,021 | |
Corporate Debt Securities | — | | | 55,305 | | | — | | | 55,305 | |
U.S. Government Agency Securities | — | | | 74,193 | | | — | | | 74,193 | |
Total Available-for-Sale Securities | — | | | 146,519 | | | — | | | 146,519 | |
Total Assets Measured at Fair Value on a Recurring Basis | $ | 26,967 | | | $ | 146,519 | | | $ | — | | | $ | 173,486 | |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
Debt – See Note 7 for more information on the Company's debt financings and related fair values.The following table summarizes the assets measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash & Cash Equivalents | Cash & Cash Equivalents | $ | 309,338 | | | $ | — | | | $ | — | | | $ | 309,338 | | Cash & Cash Equivalents | $ | 73,727 | | | $ | 18,359 | | | $ | — | | | $ | 92,086 | |
Available-for-Sale Securities: | | Available-for-Sale Securities: | | | | | | | |
Municipal Debt Securities | | Municipal Debt Securities | — | | | 47,655 | | | — | | | 47,655 | |
Corporate Debt Securities | | Corporate Debt Securities | — | | | 92,778 | | | — | | | 92,778 | |
U.S. Government Agency Securities | | U.S. Government Agency Securities | — | | | 32,202 | | | — | | | 32,202 | |
Total Available-for-Sale Securities | | Total Available-for-Sale Securities | — | | | 172,635 | | | — | | | 172,635 | |
Total Assets Measured at Fair Value on a Recurring Basis | Total Assets Measured at Fair Value on a Recurring Basis | $ | 309,338 | | | $ | — | | | $ | — | | | $ | 309,338 | | Total Assets Measured at Fair Value on a Recurring Basis | $ | 73,727 | | | $ | 190,994 | | | $ | — | | | $ | 264,721 | |
11.10. INCOME TAXES
The Company's effective tax rate for the three and nine months ended September 30, 20222023 was 17.4%24.6% and 28.4%23.1%, respectively. The effective tax rate for the three and nine months ended September 30, 20212022 was 13.8%17.4% and 18.3%28.4%, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items. The increaseeffective tax rates for the three and nine months ended September 30, 2022 effective tax rate iswere primarily due toimpacted by the non-taxable adjustmentnon-deductible adjustments to the tax receivable liability related to the Tax Receivable Agreement (the "Tax Receivable Agreement" or "TRA"), partially offset by stock compensation benefits..
Tax Receivable Agreement
In connection withThe total TRA balance as of September 30, 2023 and December 31, 2022 was $101,020 and $103,800, of which $1,511 and $2,260 was current, respectively. The TRA liability is an estimate and actual amounts payable under the Company’s IPO,TRA could differ from this estimate. During the nine months ended September 30, 2023, the Company entered intorecorded an immaterial adjustment to the estimated TRA with ourliability. During the nine months ended September 30, 2022, the Company recorded a $5,000 adjustment to increase the estimated TRA liability. During the nine months ended September 30, 2023, the Company made a payment of $2,425 to the pre-IPO stockholders (the “TRA holders”). The TRA provides for the payment by the Company to the TRA holders of 85%, which includes certain members of the amountCompany's management and certain members of cash savings, if any,the Company's Board of Directors. The payment is included within Financing Activities on the Condensed Consolidated Statements of Cash Flows. Payments will be made in U.S. federal, state, local, and foreign income tax that the Company actually realizes (or are deemed to realize in certain circumstances)future periods as a result of certain tax attributes that existed at the time of the IPO (the “Pre-IPO Tax Attributes”) are utilized.
11. STOCKHOLDERS' EQUITY
Equity Transactions
Secondary Offerings
On February 15, 2023, the Company announced the commencement of a secondary public offering of 5,250,000 shares of its Common Stock by an affiliate of certain investment funds managed by affiliates of Apollo Global Management, Inc. ("the Apollo Stockholder"). The Company will retainunderwriters were given an option to purchase an additional 787,500 shares of Common Stock. In connection with the benefit ofoffering, the remaining 15% of these cash savings.
Upon the closing of the IPO in the first quarter of 2021,underwriters agreed to sell to 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 TRA, with an offset to Stockholders’ Equity. The TRA balance as of September 30, 2022 and December 31, 2021 was $103,800 and $98,800, respectively. The TRA liability is an estimate and actual amounts payable under the Tax Receivable Agreement could differ from this estimate. During the nine months ended September 30, 2022, the Company recordedagreed to purchase from the underwriters, an adjustment toaggregate of 750,000 shares of Common Stock at a price of $19.75 per share, the estimated TRAsame price at which the underwriters purchased the Common Stock from the selling stockholder, for a total of $14,812. The
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
liabilityCompany incurred offering expenses of $5,000. Adjustments$640 in connection with this offering and did not receive any of the proceeds.
Common Stock Repurchases
On October 31, 2022, the Company’s Board of Directors authorized a $50,000 stock repurchase program. On August 1, 2023, the Company's Board of Directors authorized the addition of $30,000 to the TRA are recorded in Other, net Non-Operating Income (Expense) onCompany's existing stock repurchase program. The stock repurchase program has no expiration date and may be modified, suspended, or terminated at any time.
During the Company’s Condensed Consolidated Statementsfourth quarter of Operations.
For more information on2022, the TRA, see Note 13Company entered into a $25,000 Accelerated Share Repurchase Program. The Company received an initial delivery of 890,586 shares at an average price of $19.65 per share during the fourth quarter of 2022. The settlement of the Notesprogram occurred during January 2023, upon which the Company received an additional 480,932 shares. In total, the Company repurchased 1,371,518 shares at an average price of $18.23 per share.During the nine months ended September 30, 2023, the Company repurchased 3,307,541 shares of its Common Stock at an average price of $16.64 per share. The repurchases were part of a secondary public offering of the Company's shares by the Apollo Stockholder, as well as open market purchases completed in the second and third quarters.
As of September 30, 2023, the Company did not have any remaining amount of Board authorization to repurchase shares of its Common Stock. Subsequent to September 30, 2023, the Company's Board of Directors authorized the addition of $25,000 to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” inCompany's existing stock repurchase program. The stock repurchase program has no expiration date and may be modified, suspended, or terminated at any time.
Amazon Agreement
On December 13, 2019, the 2021 10-K.Company signed a six-year contract (with two, two-year extension options, for a maximum term of 10 years) with Amazon to provide cargo services under the ATSA. In connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to 9,482,606 shares of common stock at an exercise price of approximately $15.17 per share. During the nine months ended September 30, 2023 and 2022, 632,173 and 568,956 warrants vested, respectively. As of September 30, 2023 and 2022, the cumulative vested warrants held by Amazon were 3,034,441 and 2,212,616, respectively. The exercise period of these warrants is through the eighth anniversary of the issue date.
12. SPECIAL ITEMS, NET
Special Items, net reflects expenses, or credits to expense, that are not representative of our ongoing costs for the periods presented and may vary from period to period in nature, frequency, and amount.
Special Items, net on the Condensed Consolidated Statements of Operations consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
CARES Act grant recognition (see Note 3) | $ | — | | | $ | — | | | $ | — | | | $ | (71,587) | |
CARES Act employee retention credit (See Note 3) | — | | | (68) | | | — | | | (848) | |
Other | — | | | 3 | | | — | | | 16 | |
Total Special Items, net | $ | — | | | $ | (65) | | | $ | — | | | $ | (72,419) | |
13. COMMITMENTS AND CONTINGENCIES
The Company has contractual obligations and commitments primarily with regard to lease arrangements, repayment of debt (see Note 76), payments under the TRA (see Note 1110), and probable future purchases of aircraft. DuringAs of September 30, 2023, the secondCompany had a commitment to lease three aircraft with deliveries spanning the fourth quarter of 2022,2023 and the first quarter of 2024. The leases will each have annual lease payments of approximately $2,000 for six years.
As of September 30, 2023, the Company had a commitment to purchase an owned aircraft was retired duewith an expected delivery in the fourth quarter of 2023. The purchase agreement calls for a base price of $27,500 that is subject to the aircraft sustaining damage beyond economic repair. The best estimate of this event was recorded as of the second quarter and had no financial impactadjustment based 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 effectaircraft's maintenance condition on the Company's Condensed Consolidated Resultsdate of Operations.delivery.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
During the ninetwelve months ended SeptemberJune 30, 2022, the Company executedcompensation payable to an agreement to purchase a flight simulator at a total purchase priceexecutive officer temporarily exceeded the restrictions on the payment of $9,745. To date, $8,781 has been remitted tocertain executive compensation under the seller. The remaining purchase price will be remitted toCoronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Once the seller upon receipt and installationissue was identified, the executive officer voluntarily rescinded the unvested portion of the simulator. Payments forequity grant that caused the simulator are accounted for within Property & Equipment onexecutive’s compensation to exceed the Condensed Consolidated Balance SheetsCARES Act limit. At no point did the executive's cash compensation and equity awards that could be monetized exceed the CARES Act limit. The Company did not accrue any amounts related to this matter as of September 30, 2022.2023. To the extent we are deemed to have failed to remain in full compliance with the CARES Act and the applicable rules and regulations thereunder, we may become subject to fines or other enforcement actions.
The Company is subject to various legal proceedings in the normal course of business and expenses legal costs as incurred. Management does not believe these proceedings will have a materially adverse effect on the Company.
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
14.13. OPERATING SEGMENTS
The following tables present financial information for the Company’s two operating segments: Passenger and Cargo. For more information on the Company’s segments, see Note 17 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 |
| Passenger | | Cargo | | Consolidated | | Passenger | | Cargo | | Consolidated |
Operating Revenues | $ | 198,013 | | | $ | 23,687 | | | $ | 221,700 | | | $ | 149,263 | | | $ | 24,400 | | | $ | 173,663 | |
Non-Fuel Operating Expenses | 117,788 | | | 23,678 | | | 141,466 | | | 99,960 | | | 15,800 | | | 115,760 | |
Aircraft Fuel | 64,763 | | | 80 | | | 64,843 | | | 36,556 | | | 91 | | | 36,647 | |
Special Items, net | — | | | — | | | — | | | (65) | | | — | | | (65) | |
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 | |
Interest Income | | | | | 1,610 | | | | | | | 28 | |
Interest Expense | | | | | (7,493) | | | | | | | (6,286) | |
Other, net | | | | | 3,422 | | | | | | | 456 | |
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 | |
15. SUBSEQUENT EVENTS
The Company evaluated subsequent eventsOperating revenues for the period from the Balance Sheet date through November 2, 2022, the date that the Condensed Consolidated Financial Statements were available to be issued.
Passenger segment includes amounts recorded within Other revenue. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| Passenger | | Cargo | | Consolidated | | Passenger | | Cargo | | Consolidated |
Operating Revenues | $ | 222,817 | | | $ | 26,059 | | | $ | 248,876 | | | $ | 198,013 | | | $ | 23,687 | | | $ | 221,700 | |
Non-Fuel Operating Expenses | 142,045 | | | 26,646 | | | 168,691 | | | 117,788 | | | 23,678 | | | 141,466 | |
Aircraft Fuel | 61,157 | | | 22 | | | 61,179 | | | 64,763 | | | 80 | | | 64,843 | |
Total Operating Expenses | 203,202 | | | 26,668 | | | 229,870 | | | 182,551 | | | 23,758 | | | 206,309 | |
Operating Income (Loss) | $ | 19,615 | | | $ | (609) | | | 19,006 | | | $ | 15,462 | | | $ | (71) | | | 15,391 | |
Interest Income | | | | | 2,480 | | | | | | | 1,610 | |
Interest Expense | | | | | (11,403) | | | | | | | (7,493) | |
Other, net | | | | | (15) | | | | | | | 3,422 | |
Income Before Income Tax | | | | | $ | 10,068 | | | | | | | $ | 12,930 | |
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and share amounts)
(Unaudited)
On October 31, 2022, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| Passenger | | Cargo | | Consolidated | | Passenger | | Cargo | | Consolidated |
Operating Revenues | $ | 729,640 | | | $ | 74,437 | | | $ | 804,077 | | | $ | 601,360 | | | $ | 65,930 | | | $ | 667,290 | |
Non-Fuel Operating Expenses | 428,889 | | | 78,984 | | | 507,873 | | | 355,894 | | | 64,470 | | | 420,364 | |
Aircraft Fuel | 185,770 | | | 59 | | | 185,829 | | | 206,254 | | | 80 | | | 206,334 | |
Total Operating Expenses | 614,659 | | | 79,043 | | | 693,702 | | | 562,148 | | | 64,550 | | | 626,698 | |
Operating Income (Loss) | $ | 114,981 | | | $ | (4,606) | | | 110,375 | | | $ | 39,212 | | | $ | 1,380 | | | 40,592 | |
Interest Income | | | | | 7,766 | | | | | | | 2,166 | |
Interest Expense | | | | | (31,272) | | | | | | | (23,097) | |
Other, net | | | | | (370) | | | | | | | (5,156) | |
Income Before Income Tax | | | | | $ | 86,499 | | | | | | | $ | 14,505 | |
14. SUBSEQUENT EVENTS
The Company evaluated subsequent events for the Company’speriod from the Balance Sheet date through November 7, 2023, the date that the Condensed Consolidated Financial Statements were available to be issued.
Subsequent to September 30, 2023, the Company's Board of Directors authorized athe addition of $25,000 to the Company's existing stock repurchase program pursuant to which the Company may purchase up to $50,000 of its Common Stock, $0.01 par value per share (“Common Stock”). The Company may purchase shares of its Common Stock on a discretionary basis from time-to-time through open market repurchases, privately negotiated transactions, accelerated share repurchase, or other means, including through Rule 10b5-1 trading plans. Whether any repurchases are made, and the timing and actual number of any shares repurchased, will be determined by management depending on a variety of factors, including stock price, trading volume, market conditions and other general business considerations.program. The stock repurchase program has no expiration date and may be modified, suspended, or terminated at any time. Any repurchases made under this program will be funded from the Company’s existing cash flows, or future cash flows.
* * * * * *
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)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, the terms “Sun Country,” “we,” “us” and “our” refer to Sun Country Airlines Holdings, Inc., and its subsidiaries.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates.
Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria:i.the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and
ii.different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations.
We have identified the following critical accounting policies:
–Revenue Recognition
–Loyalty Program Accounting
–Asset Impairment Analysis
–Valuation of the TRA Liability
Revenue Recognition
Scheduled passenger service, charter service, and most ancillary revenues are recognized when the passenger flight occurs. Revenues exclude amounts collected on behalf of other parties, including transportation taxes.
The Company initially defers ticket sales as an air traffic liability and recognizes revenue when the passenger flight occurs. Unused non-refundable tickets expire at the date of scheduled travel and are recorded as revenue unless the customer notifies the Company in advance of such date that the customer will not travel. If notification is made, a travel credit is created for the face value, including ancillary fees, less applicable change fees. Revenue for change fees is deferred and recognized when the passenger travel is provided.
Travel credits may generally be redeemed toward future travel for up to 12 months after the date of the original booking. As of September 30, 2022, the Company’s air traffic liability included $8,378 related to travel credits for future travel. The Company records an estimate for travel credits that will expire unused, otherwise known as breakage, in Passenger Revenue upon issuance of the travel credit. During the nine months ended September 30, 2022 and 2021, the Company recorded $7,837 and $9,008 of estimated travel credit breakage, respectively. A portion of travel credits will expire unused, at which time any remaining revenue is recognized.
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 estimated breakage rate is primarily based on historical experience of travel credit activity and other factors that may not be indicative of future trends, such as the COVID-19 pandemic, program changes or modifications that could affect the ultimate usage patterns of tickets and travel credits. The Company continuously monitors its breakage rate assumptions and may adjust its estimated breakage rate in the future. Changes in the Company’s estimated breakage rate impact revenue recognition prospectively.
For the nine months ended September 30, 2022, a 10% change in the Company’s estimated travel credit breakage rate would have resulted in a change to Passenger Revenue of approximately $626.
There are no critical accounting estimates associated with Charter or Cargo revenue recognition that would materially impact the amount of revenue recognized in any specific period.
Loyalty Program Accounting
The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. The Company records a liability for loyalty points earned by passengers under the Sun Country Rewards program using two methods: (1) a liability for points that are earned by passengers on purchases of the Company’s services is established by deferring revenue based on the redemption value, net of breakage; and (2) a liability for points attributed to loyalty points issued to the Company’s Visa card holders is established by deferring a portion of payments received from the Company’s co-branded agreement. The Company’s Sun Country Rewards program allows for the redemption of points to include payment towards air travel, land travel, taxes, and other ancillary purchases. The balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impacts the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue). The Company records an estimate for loyalty points breakage in Passenger Revenue upon issuance of the loyalty points. Loyalty points held by co-branded credit card members do not expire. All other loyalty points expire if unused after three years.
Points Earned Through Travel Purchases. Passenger sales that earn Sun Country Rewards provide customers with travel services and loyalty points, which are each considered distinct performance obligations. The Company values each performance obligation on a standalone basis. The Company determines the standalone selling price of loyalty points issued using a redemption value approach, which considers the value a passenger will receive upon redemption of the loyalty points. Consideration allocated to loyalty points is deferred, net of estimated breakage, and recognized as Passenger Revenue when both the loyalty points have been redeemed and the passenger travel occurs.
Points Earned through the Co-Branded Credit Card Program. Under the Company's co-branded credit card program, funds received for the marketing of a co-branded credit card and delivery of loyalty points are accounted for as a multiple-deliverable arrangement. The Company determined that the arrangement has two distinct performance obligations: (1) loyalty points to be awarded; and, (2) use of our brand and access to our customer lists, and certain other advertising and marketing elements (collectively, the marketing performance obligation). Funds received from the co-branded credit card program are allocated to the two performance obligations based on relative standalone selling price. The assumptions used to allocate the funds received are not considered critical to the application of the accounting model for the Company’s loyalty program. Consideration allocated to loyalty points is deferred and recognized as Passenger Revenue when both the loyalty points have been redeemed and the passenger travel occurs. Consideration allocated to the marketing performance obligation is recognized as revenue as the spend occurs and is recorded in Other Revenue.
The Company estimates breakage for loyalty points that are not likely to be redeemed. Loyalty points are combined in one homogenous pool, that includes both air and non-air travel awards, and are not separately identifiable. The estimated breakage rate is primarily based on historical experience of loyalty point redemption
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)
activity and other factors that may not be indicative of future trends, such as the COVID-19 pandemic, program changes or modifications that could affect the ultimate usage pattern of loyalty points. The Company continuously monitors its breakage rate assumptions and may adjust its estimated breakage rate for loyalty points in the future. Changes in the Company’s estimated breakage rate assumptions impact revenue recognition prospectively.
During the nine months ended September 30, 2022, the Company recognized $1,134 of loyalty points breakage within Passenger Revenue. A 10% change in the Company’s loyalty point estimated breakage rate would have resulted in a change to Passenger Revenue of approximately $141.
Asset Impairment Analysis
The Company’s long-lived assets, such as Property & Equipment and finite-lived Intangible Assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assets include aircraft and associated engines, operating and finance lease assets, the Company’s customer relationship finite-lived intangible assets, and other long-lived assets. The Company reviews the current economic and operating environment to determine whether events or circumstances indicate that these assets may be impaired. Such indicators include, but are not limited to: (1) significant, permanent decrease in the market price of the Company’s long-lived assets, (2) significant decrease in the projected cash flows generated from the use of its long-lived assets, (3) changes in the estimated useful life or productive capacity of the asset, (4) changes in the regulatory environment in which the Company operates, and (5) a decision to permanently remove flight equipment or other long-lived assets from operations. If such factors are identified and the Company determines that the carrying amount of the long-lived asset (or asset group) is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the asset (or asset group’s) carrying amount exceeds its fair value. Fair value is determined using various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
When the Company assesses its long-lived assets for impairment, it utilizes certain assumptions, including, but not limited to: (1) estimated fair value of the assets and (2) estimated future undiscounted cash flows expected to be generated 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 period due to various macroeconomic and industry-specific events.
To determine whether impairment exists, the Company groups its assets based on the lowest level of identifiable cash flows, which is its operating segments. This is due to the Company operating a Passenger Service fleet comprised exclusively of one type of aircraft, the Boeing 737-NG. None of the Company’s long-lived assets are owned by, or associated with, the Cargo operating segment.
The Company has not recorded an impairment on its long-lived assets for any of the periods presented in these Condensed Consolidated Financial Statements, nor did it identify any triggering events during the nine months ended September 30, 2022 and for the year ended December 31, 2021.
Valuation of the TRA Liability
In connection with its IPO, the Company entered into a TRA with pre-IPO stockholders (the “TRA holders”). The TRA provides for the payment by the Company to the TRA holders of 85% of the amount of cash savings, if any, in U.S. federal, state, local, and foreign income tax that the Company actually realizes (or are deemed to realize in certain circumstances) as a result of certain tax attributes that existed at the time of the IPO (the “Pre-IPO Tax Attributes”). Amounts payable under the TRA are contingent upon, among other things, (i) generation of future
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)
taxable income over the term of the TRA, (ii) the Company’s participation in future government programs, (iii) stock option activity during periods prior to the commencement of payments under the TRA 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.
If the Company does not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then it would not be required to make the related TRA payments. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, the Company considers its historical results and incorporates certain assumptions, including revenue growth, operating margin, stock option exercises and tax depreciation expense. The TRA liability estimates related to the generation of future taxable income and stock option activity during the periods prior to the commencement of payments only applies through fiscal year 2022, due to the expiration of the CARES Act dividend and capital distribution restrictions in 2022.
A $10,000 change in forecasted taxable income would have resulted in a change to the TRA Liability of approximately $1,200. Stock option exercises during the nine months ended September 30, 2022 did not significantly impact the TRA liability. Adjustments to the TRA are recorded in the current period in Other, net within Non-operating Income (Expense) on the Company’s Condensed Consolidated Statements of Operations.
Recently Adopted Accounting Pronouncements
See Note 2 to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recently adopted accounting pronouncements.Forward-Looking Statements
The following discussion and analysis presents factors that had a material effect on our results of operations during the nine months ended September 30, 20222023 and 2021.2022. Also discussed is our financial position as of September 30, 20222023 and December 31, 2021.2022. This section should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and related notes and discussion under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20212022 10-K. This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this report titled, “Risk Factors” and elsewhere in this report. You should carefully read the “Risk Factors” included herein and in our 20212022 10-K and in our Quarterly Report on Form 10-Q for the periods ended March 31, 2023 ("March 31, 2023 10-Q") and June 30, 2023 ("June 30, 2023 10-Q") to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Business Overview
Sun Country is a new breed of hybrid low-cost air carrier that dynamically deploys shared resources across our synergistic scheduled service, charter, and cargo businesses. By doing so, we believe we are able to generate high growth, high margins and strong cash flows with greater resilience than other passenger airlines. WeBased in Minnesota, we focus on serving leisure and visiting friends and relatives ("VFR") passengers and charter customers as well asand providing crew, maintenance and insurance (“CMI”) services, to Amazon, with flights throughout the United StatesU.S. 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
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)
route network. We optimize capacity allocation by market, time of year, day of week and line of business by shifting flying to markets during periods of peak demand and away from markets during periods of low demand with far greater frequency than nearly all other large U.S. passenger airlines. We believe our flexible business model generates higher returns and margins while also providing greater resiliency to economic and industry downturns than a traditional scheduled service carrier.
Our scheduled service business combines low costs with a high-quality product to generate higher Total Revenue per Available Seat Mile (“TRASM”) than Ultra Low-Cost Carriers (“ULCCs”)("ULCCs", which include Allegiant Travel Company, Frontier Airlines and Spirit Airlines) while maintaining lower Adjusted Cost per Available Seat Mile (“CASM”) than Low Cost Carriers (“LCCs”)("LCCs", which include Southwest Airlines and JetBlue Airways), resulting in best-in-class unit profitability. Our business includes many cost characteristics of ULCCs, (which includes Allegiant Travel Company, Frontier Airlines and Spirit Airlines), such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillaryAncillary products and services for an additional fee), point-to-point service and a single-family fleet of Boeing 737-NG aircraft, which allow us to maintain a cost base comparable to these ULCCs. However, we offer a high-quality product that we believe is superior to ULCCs and consistent with that of LCCs (which includes Southwest Airlines and JetBlue Airways).LCCs. For example, our product includes more average legroom than ULCCs, complimentary beverages,soft drinks and juices, complimentary in-flight entertainment, and in-seat power, none of which are offered by other ULCCs.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Our charter business, which is one of the largest narrow body charter operations in the United States, is a key component of our strategy because it provides both inherent diversification and downside protection, and because it is synergistic with our other businesses. Our charter business has several favorable characteristics, including: large repeat customers, more stable demand than scheduled service flying, and the ability to pass through certain costs, including fuel. Our diverse charter customer base includes casino operators, the U.S. Department of Defense, college,and collegiate and professional sports teams. Our charter business includes ad hoc, repeat, short-term and long-term service contracts with pass throughpass-through fuel arrangements and annual rate escalations. Most of our business is non-cyclical because the U.S. Department of Defense and sports teams continue to fly during normal economic downturns and our casino contracts are long-term in nature.
On December 13, 2019, we signed the ATSA with Amazon to provide air cargo services. WeFlying under the ATSA began in May 2020 and we are currently flying 12 Boeing 737-800 cargo aircraft for Amazon. Our CMI service is asset-light from a Sun Country perspective as Amazon supplies the aircraft and covers many of the operating expenses, including fuel, and provides all cargo loading and unloading services. We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our scheduled service and charterpassenger businesses. Our cargo business also enables us to leverage certain assets, capabilities, and fixed costs to enhance profitability and promote growth across our Company.
Operations in Review
We believe a key component of our success is establishing Sun Country as a high growth, low-cost carrier in the United States by attracting customers with low fares and garnering repeat business by delivering a high-quality passenger experience, offering state-of-the-art interiors, freecomplimentary streaming of in-flight entertainment to passenger devices, seat reclining and seat-back power in all of our aircraft.
The COVID-19 pandemic resulted in a dramatic decline in passenger demand across the U.S. airline industry. We experienced a significant decrease in demand related to the COVID-19 pandemic, which caused a material decline in our 2021 results as compared to pre-pandemic levels, and negatively impacted our financial condition and operating results.
During the third quarter of 2022, we have continued to see recovery in demand from the COVID-19 pandemic relative to demand in 2021, which may impact the comparability of results presented. However, the ongoing impact of the COVID-19 pandemic on overall demand for air travel remains uncertain and cannot be predicted
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)
at this time. In addition, the impact of COVID-19 vaccine mandates, uncertainties in pilot staffing, higher aircraftPilot training throughput issues, fuel pricesprice volatility due to globalmarket conditions and geopolitical events, and the impact of macroeconomic conditions, including inflationary pressures, couldcontinue to impact our business and results of operations in the near term. While the COVID-19 pandemic-induced industry downturn delayed our growth in 2020 and 2021, 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.
Operational challenges, driven by training throughput issues, fuel price increases and other inflationary pressures have impacted the Company, as well as the industry. In the near term, current demand environment, the Company has been able to maintain relatively strong performance by relying on its core competency of optimizing capacity allocation by market, time of year, day of week and line of business by appropriately allocating capacity to best meet demand. Further, our diversified business model, which includes a focus on leisure and VFR passengers, charter and e-commerce related cargo service, is unique in the airline travel demand will partiallysector and mitigates the impact of economic and industry downturns on our business when compared with other large U.S. passenger airlines. This strategy has allowed the Company to offset a majority of these additional costs. Further, our Charter and Cargo businesses have the additionalability to pass on certain costs, associated with operational challenges, fuel price increases, and other inflationary pressures.including fuel. Our flexible business model gives us the ability to adjust our services in response to these market conditions, which is targeted at producing the highest possible returns for Sun Country.
For more information on our business and strategic advantages, see the "Business" and “Management’s Discussion and Analysis of Operations” sections within Part I, Item 1 and Part II, Item 7, respectively, in our 20212022 10-K. Components of Operations
For a more detailed discussion on the nature of transactions included in the separate line items of our Condensed Consolidated Statement of Operations, see “Management’s Discussion and Analysis of Operations” in Part II, Item 7 in our 20212022 10-K. Prior Periods' Financial Statement Revisions
As described in Note 2 to the Condensed Consolidated Financial Statements, we have revised previously issued financial statements to correct an immaterial misstatement. Accordingly, all prior period numbers included in this Management's Discussion and Analysis of Financial Condition reflect the effect of the revisions.
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)
Operating Statistics
| | | Three Months Ended September 30, 2022 (1) | | Three Months Ended September 30, 2021 (1) | | Three Months Ended September 30, 2023 (1) | | Three Months Ended September 30, 2022 (1) |
| | Scheduled Service | | Charter | | Cargo | | Total | | Scheduled Service | | Charter | | Cargo | | Total | | Scheduled Service | | Charter | | Cargo | | Total | | Scheduled Service | | Charter | | Cargo | | Total |
Departures (2) | Departures (2) | 5,611 | | 2,359 | | | 3,043 | | | 11,072 | | | 5,533 | | 1,798 | | | 2,912 | | | 10,299 | | Departures (2) | 6,878 | | 2,688 | | | 3,432 | | | 13,128 | | | 5,611 | | 2,359 | | | 3,043 | | | 11,072 | |
Block hours (2) | Block hours (2) | 16,947 | | 4,623 | | | 8,739 | | | 30,492 | | | 17,313 | | 3,835 | | | 8,533 | | | 29,842 | | Block hours (2) | 19,935 | | 5,274 | | | 9,287 | | | 34,874 | | | 16,947 | | 4,623 | | | 8,739 | | | 30,492 | |
Aircraft miles (2) | 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 | | Aircraft miles (2) | 7,776,676 | | 1,841,921 | | | 3,599,149 | | | 13,341,868 | | | 6,777,764 | | 1,629,061 | | | 3,399,149 | | | 11,864,450 | |
Available seat miles (ASMs) (thousands) (2) | Available seat miles (ASMs) (thousands) (2) | 1,256,755 | | 286,189 | | | 1,553,483 | | | 1,296,555 | | 244,393 | | | 1,549,432 | | Available seat miles (ASMs) (thousands) (2) | 1,446,462 | | 322,722 | | | 1,791,485 | | | 1,256,755 | | 286,189 | | | 1,553,483 | |
Total revenue per ASM (TRASM) (cents)(3) | Total revenue per ASM (TRASM) (cents)(3) | 12.34 | | 14.99 | | | 12.75 | | | 8.90 | | 13.83 | | | 9.63 | | Total revenue per ASM (TRASM) (cents)(3) | 11.72 | | 14.70 | | | 12.11 | | | 12.34 | | 14.99 | | | 12.75 | |
Average passenger aircraft during the period (3)(4) | Average passenger aircraft during the period (3)(4) | | | | | | | 36.8 | | | | | | | 32.9 | | Average passenger aircraft during the period (3)(4) | | | | | | | 42.0 | | | | | | | 36.8 | |
Passenger aircraft at end of period (3)(4) | Passenger aircraft at end of period (3)(4) | | | | | | | 42 | | | | | | | 35 | | Passenger aircraft at end of period (3)(4) | | | | | | | 42 | | | | | | | 42 | |
Cargo aircraft at end of period | Cargo aircraft at end of period | | | | | | | 12 | | | | | | | 12 | | Cargo aircraft at end of period | | | | | | | 12 | | | | | | | 12 | |
Average daily aircraft utilization (hours) (3) | | | | | | | 6.4 | | | | | | | 7.0 | | |
Aircraft Held for Operating Lease | | Aircraft Held for Operating Lease | | 5 | | | — | |
Average daily aircraft utilization (hours) (4) | | Average daily aircraft utilization (hours) (4) | | | | | | | 6.6 | | | | | | | 6.4 | |
Average stage length (miles) | Average stage length (miles) | | | | | | | 1,055 | | | | | | | 1,155 | | Average stage length (miles) | | | | | | 1,005 | | | | | | | 1,055 | |
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 | | | | |
Revenue passengers carried (5) | | Revenue passengers carried (5) | 1,090,172 | | | | | | | | 908,967 | | | | |
Revenue passenger miles (RPMs) (thousands) (5) | | Revenue passenger miles (RPMs) (thousands) (5) | 1,252,583 | | | | | | | | 1,101,011 | | | | |
Load factor (5) | | Load factor (5) | 86.6 | % | | | | | | | | 87.6 | % | | | | |
Average base fare per passenger (5) | | Average base fare per passenger (5) | $ | 88.50 | | | | | | | | $ | 112.44 | | | | |
Ancillary revenue per passenger (5) | | Ancillary revenue per passenger (5) | $ | 64.61 | | | | | | | | $ | 55.29 | | | | |
Total fare per passenger (5) | | Total fare per passenger (5) | $ | 153.11 | | $ | 167.73 | |
Charter revenue per block hour (5) | | Charter revenue per block hour (5) | | $ | 8,994 | | | | | | | | | $ | 9,280 | | | |
Fuel gallons consumed (thousands) (2) | Fuel gallons consumed (thousands) (2) | 13,352 | | | 3,056 | | | 16,509 | | | 13,475 | | 2,760 | | | 16,321 | | Fuel gallons consumed (thousands) (2) | 15,536 | | 3,513 | | | 19,262 | | | 13,352 | | 3,056 | | | 16,509 | |
Fuel cost per gallon, excluding derivatives and other items | | | | | | | $ | 3.93 | | | | | | | $ | 2.24 | | |
Fuel cost per gallon, excluding indirect fuel credits | | Fuel cost per gallon, excluding indirect fuel credits | | | | | | | $ | 3.19 | | | | | | | $ | 3.93 | |
Employees at end of period | Employees at end of period | | | | | | | 2,354 | | | | | | | 2,014 | | Employees at end of period | | | | | | | 2,692 | | | | | | | 2,354 | |
Cost per available seat mile (CASM) (cents) (5) | | | | | | 13.28 | | | | | 9.83 | | |
Adjusted CASM (cents) (6) | | | | | | 7.55 | | | | | 6.39 | | |
Cost per available seat mile (CASM) (cents) (6) | | Cost per available seat mile (CASM) (cents) (6) | | | | | | 12.83 | | | | | 13.28 | |
Adjusted CASM (cents) (7) | | Adjusted CASM (cents) (7) | | | | | | 7.75 | | | | | 7.55 | |
______________________
(1)Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.
(2)Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore, the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts.
(3)Scheduled Service TRASM includes Schedule Service revenue, Ancillary revenue, and ASM generating revenue classified within Other Revenue on the Condensed Consolidated Statements of Operations.
(4)Scheduled Service and Charter serviceService utilize the same fleet of aircraft. Aircraft counts and utilization metrics are shown on a system basis only.
(4)(5)Passenger-related statistics and metrics are shown only for scheduled service.Scheduled Service. Charter serviceService revenue is driven by flight statistics.
(5)(6)CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.
(6)(7)Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, special items, and certain other costs that are unrelated to our airline operations.
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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Operating Statistics____________________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023(1) | | Nine Months Ended September 30, 2022 (1) |
| Scheduled Service | | Charter | | Cargo | | Total | | Scheduled Service | | Charter | | Cargo | | Total |
Departures (2) | 19,456 | | 7,816 | | | 9,643 | | | 37,295 | | | 17,512 | | 6,214 | | | 8,310 | | | 32,246 | |
Block hours (2) | 61,438 | | 15,994 | | | 25,633 | | | 104,188 | | | 57,585 | | 13,000 | | | 23,891 | | | 95,052 | |
Aircraft miles (2) | 24,139,614 | | 5,522,791 | | | 9,732,308 | | | 39,758,210 | | | 23,112,200 | | 4,630,257 | | | 9,209,477 | | | 37,113,673 | |
Available seat miles (ASMs) (thousands) (2) | 4,489,968 | | 961,953 | | | | | 5,516,826 | | | 4,284,403 | | 800,698 | | | | | 5,114,134 | |
Total revenue per ASM (TRASM) (cents) (3) | 12.80 | | 14.89 | | | | | 13.01 | | | 11.27 | | 14.80 | | | | | 11.76 | |
Average passenger aircraft during the period (4) | | | | | | | 41.8 | | | | | | | | | 35.2 | |
Passenger aircraft at end of period (4) | | | | | | | 42 | | | | | | | | | 42 | |
Cargo aircraft at end of period | | | | | | | 12 | | | | | | | | | 12 | |
Aircraft Held for Operating Lease | | | | | | | 5 | | | | | | | | | — | |
Average daily aircraft utilization (hours) (4) | | | | | | | 6.9 | | | | | | | | | 7.4 | |
Average stage length (miles) | | | | | | | 1,088 | | | | | | | | | 1,169 | |
Revenue passengers carried (5) | 3,093,536 | | | | | | | | 2,715,707 | | | | | | |
Revenue passenger miles (RPMs) (thousands) (5) | 3,900,975 | | | | | | | | 3,565,501 | | | | | | |
Load factor (5) | 86.9 | % | | | | | | | | 83.2 | % | | | | | | |
Average base fare per passenger (5) | $ | 116.57 | | | | | | | | $ | 123.24 | | | | | | |
Ancillary revenue per passenger (5) | $ | 66.47 | | | | | | | | $ | 51.39 | | | | | | |
Total fare per passenger (5) | $ | 183.04 | | | | | | | | $ | 174.63 | | | | | | |
Charter revenue per block hour (5) | | | $ | 8,956 | | | | | | | | | $ | 9,118 | | | | | |
Fuel gallons consumed (thousands) (2) | 48,046 | | 11,063 | | | | | 59,734 | | | 44,940 | | 9,085 | | | | | 54,322 | |
Fuel cost per gallon, excluding indirect fuel credits | | | | | | | $ | 3.12 | | | | | | | | | $ | 3.81 | |
Employees at end of period | | | | | | | 2,692 | | | | | | | | | 2,354 | |
Cost per available seat mile (CASM) (cents) (6) | | | | | | | 12.57 | | | | | | | | | 12.25 | |
Adjusted CASM (cents) (7) | | | | | | | 7.56 | | | | | | | | | 6.91 | |
______________________
(1)Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.
(2)Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore, the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts.
(3)Scheduled Service TRASM includes Schedule Service revenue, Ancillary revenue, and ASM generating revenue classified within Other Revenue on the Condensed Consolidated Statements of Operations.
(4)Scheduled Service and Charter serviceService utilize the same fleet of aircraft. Aircraft counts and utilization metrics are shown on a system basis only.
(4)(5)Passenger-related statistics and metrics are shown only for scheduled service.Scheduled Service. Charter serviceService revenue is driven by flight statistics.
(5)(6)CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.
(6)(7)Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, special items, and certain other costs that are unrelated to our airline operations.
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)
Results of Operations
For the Three Months Ended September 30, 20222023 and 20212022
| | | Three Months Ended September 30, | | $ Change | | % Change | | Three Months Ended September 30, | | $ Change | | % Change |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Operating Revenues: | Operating Revenues: | | | | | | | | Operating Revenues: | | | | | | | |
Scheduled Service | Scheduled Service | $ | 102,200 | | | $ | 80,212 | | | $ | 21,988 | | | 27 | % | Scheduled Service | $ | 96,483 | | | $ | 102,200 | | | $ | (5,717) | | | (6) | % |
Charter Service | Charter Service | 42,899 | | | 33,809 | | | 9,090 | | | 27 | % | Charter Service | 47,437 | | | 42,899 | | | 4,538 | | | 11 | % |
Ancillary | Ancillary | 50,261 | | | 33,697 | | | 16,564 | | | 49 | % | Ancillary | 70,435 | | | 50,261 | | | 20,174 | | | 40 | % |
Passenger | Passenger | 195,360 | | | 147,718 | | | 47,642 | | | 32 | % | Passenger | 214,355 | | | 195,360 | | | 18,995 | | | 10 | % |
Cargo | Cargo | 23,687 | | | 24,400 | | | (713) | | | (3) | % | Cargo | 26,059 | | | 23,687 | | | 2,372 | | | 10 | % |
Other | Other | 2,653 | | | 1,545 | | | 1,108 | | | 72 | % | Other | 8,462 | | | 2,653 | | | 5,809 | | | 219 | % |
Total Operating Revenues | Total Operating Revenues | 221,700 | | | 173,663 | | | 48,037 | | | 28 | % | Total Operating Revenues | 248,876 | | | 221,700 | | | 27,176 | | | 12 | % |
| Operating Expenses: | Operating Expenses: | | Operating Expenses: | |
Aircraft Fuel | Aircraft Fuel | 64,843 | | | 36,647 | | | 28,196 | | | 77 | % | Aircraft Fuel | 61,179 | | | 64,843 | | | (3,664) | | | (6) | % |
Salaries, Wages, and Benefits | Salaries, Wages, and Benefits | 58,661 | | | 43,424 | | | 15,237 | | | 35 | % | Salaries, Wages, and Benefits | 72,541 | | | 58,661 | | | 13,880 | | | 24 | % |
Aircraft Rent | Aircraft Rent | 1,949 | | | 3,925 | | | (1,976) | | | (50) | % | Aircraft Rent | 22 | | | 1,949 | | | (1,927) | | | (99) | % |
Maintenance | Maintenance | 11,018 | | | 9,660 | | | 1,358 | | | 14 | % | Maintenance | 15,330 | | | 11,018 | | | 4,312 | | | 39 | % |
Sales and Marketing | Sales and Marketing | 6,827 | | | 5,470 | | | 1,357 | | | 25 | % | Sales and Marketing | 7,569 | | | 6,827 | | | 742 | | | 11 | % |
Depreciation and Amortization | Depreciation and Amortization | 17,181 | | | 14,710 | | | 2,471 | | | 17 | % | Depreciation and Amortization | 22,762 | | | 17,181 | | | 5,581 | | | 32 | % |
Ground Handling | Ground Handling | 8,669 | | | 7,873 | | | 796 | | | 10 | % | Ground Handling | 9,382 | | | 8,669 | | | 713 | | | 8 | % |
Landing Fees and Airport Rent | Landing Fees and Airport Rent | 12,926 | | | 12,069 | | | 857 | | | 7 | % | Landing Fees and Airport Rent | 13,958 | | | 12,926 | | | 1,032 | | | 8 | % |
Special Items, net | — | | | (65) | | | 65 | | | (100) | % | |
Other Operating, net | Other Operating, net | 24,235 | | | 18,629 | | | 5,606 | | | 30 | % | Other Operating, net | 27,127 | | | 24,235 | | | 2,892 | | | 12 | % |
Total Operating Expenses | Total Operating Expenses | 206,309 | | | 152,342 | | | 53,967 | | | 35 | % | Total Operating Expenses | 229,870 | | | 206,309 | | | 23,561 | | | 11 | % |
Operating Income | Operating Income | 15,391 | | | 21,321 | | | (5,930) | | | (28) | % | Operating Income | 19,006 | | | 15,391 | | | 3,615 | | | 23 | % |
| Non-operating Income (Expense): | Non-operating Income (Expense): | | Non-operating Income (Expense): | |
Interest Income | Interest Income | 1,610 | | | 28 | | | 1,582 | | | NM | Interest Income | 2,480 | | | 1,610 | | | 870 | | | 54 | % |
Interest Expense | Interest Expense | (7,493) | | | (6,286) | | | (1,207) | | | 19 | % | Interest Expense | (11,403) | | | (7,493) | | | (3,910) | | | 52 | % |
Other, net | Other, net | 3,422 | | | 456 | | | 2,966 | | | NM | Other, net | (15) | | | 3,422 | | | (3,437) | | | (100) | % |
Total Non-operating Expense, net | Total Non-operating Expense, net | (2,461) | | | (5,802) | | | 3,341 | | | (58) | % | Total Non-operating Expense, net | (8,938) | | | (2,461) | | | (6,477) | | | 263 | % |
| Income Before Income Tax | Income Before Income Tax | 12,930 | | | 15,519 | | | (2,589) | | | (17) | % | Income Before Income Tax | 10,068 | | | 12,930 | | | (2,862) | | | (22) | % |
Income Tax Expense | Income Tax Expense | 2,253 | | | 2,140 | | | 113 | | | 5 | % | Income Tax Expense | 2,477 | | | 2,253 | | | 224 | | | 10 | % |
Net Income | Net Income | $ | 10,677 | | | $ | 13,379 | | | $ | (2,702) | | | (20) | % | Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | (3,086) | | | (29) | % |
| | |
"NM" stands for not meaningful |
|
Total Operating Revenues increased $27,176, or 12%, to $248,876 for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The revenue increase was largely driven by a 14% increase in average passenger aircraft, which led to a 20% increase in passenger segment departures and a 15% increase in passenger segment ASMs. The volume increases offset the decrease to average total fare per passenger of $14.62, or 9%, to $153.11 for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. Total Operating Revenues for the three months ended
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)
TotalSeptember 30, 2023 benefited from the $5,870 of rental revenue associated with the five Aircraft Held for Operating Revenues increased $48,037,Lease acquired during the first half of 2023.
Scheduled Service. Scheduled Service revenue decreased $5,717, or 28%6%, to $221,700$96,483 for the three months ended September 30, 2022 from $173,663 for2023 as compared to 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, which was significantly impacted by a decrease in passenger demand due to the COVID-19 pandemic.
Scheduled Service. Scheduled service revenue increased by $21,988, or 27%, to $102,200 for the three months ended September 30, 2022 from $80,212 for the three months ended September 30, 2021.2022. The table below presents select operating data for scheduled service, expressed as quarter-over-quarter changes:
| | | Three Months Ended September 30, | | Change | | % Change | | Three Months Ended September 30, | | Change | | % Change |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Departures | Departures | 5,611 | | | 5,533 | | | 78 | | | 1 | % | Departures | 6,878 | | | 5,611 | | | 1,267 | | | 23 | % |
Passengers | Passengers | 908,967 | | | 785,348 | | | 123,619 | | | 16 | % | Passengers | 1,090,172 | | | 908,967 | | | 181,205 | | | 20 | % |
Average base fare per passenger | Average base fare per passenger | $ | 112.44 | | | $ | 102.14 | | | $ | 10.30 | | | 10 | % | Average base fare per passenger | $ | 88.50 | | | $ | 112.44 | | | $ | (23.94) | | | (21) | % |
RPMs (thousands) | RPMs (thousands) | 1,101,011 | | | 1,011,936 | | | 89,075 | | | 9 | % | RPMs (thousands) | 1,252,583 | | | 1,101,011 | | | 151,572 | | | 14 | % |
ASMs (thousands) | ASMs (thousands) | 1,256,755 | | | 1,296,555 | | | (39,800) | | | (3) | % | ASMs (thousands) | 1,446,462 | | | 1,256,755 | | | 189,707 | | | 15 | % |
TRASM (cents) | TRASM (cents) | 12.34 | | | 8.90 | | | 3.44 | | | 39 | % | TRASM (cents) | 11.72 | | | 12.34 | | | (0.62) | | | (5) | % |
Passenger load factor | Passenger load factor | 87.6 | % | | 78.0 | % | | 9.6 | pts | | N/A | Passenger load factor | 86.6 | % | | 87.6 | % | | (1.0) | pts | | N/A |
The quarter-over-quarter increases in certain scheduled serviceScheduled Service operating data were primarily the result of the continued recovery in demand from the COVID-19 pandemic in the third quarter of 2022 relative to the same period in 2021. The quarter-over-quarteran increase in demand is demonstratedcapacity and materially consistent demand. Scheduled Service departures and ASMs increased by 23% and 15%, respectively, as a 39% increase in TRASM, a 10%result of the 14% quarter-over-quarter increase in the average base fare per passenger and a 16%aircraft for the period. This increase in capacity drove the 20% increase in passengers, even aswhile TRASM and load factor had decreases quarter-over-quarter. The decrease quarter-over-quarter departures were materially consistent and ASMs decreased by 3%. The year-over-year revenue increase is slightly offsetwas further impacted by the introduction of a newrate increase for an Ancillary product, which reclassified approximately $11,600portions of revenue from Scheduled Service to Ancillary.
Charter Service. Charter serviceAncillary after its introduction in the second quarter of 2022. The quarter-over-quarter increase in rate for this Ancillary product decreased Scheduled Service revenue increased $9,090, or 27%, to $42,899by $24,037 for the three months ended September 30, 2022, from $33,8092023, as compared to $11,633 during the three months ended September 30, 2022.
Charter Service. Charter Service revenue increased $4,538, or 11%, to $47,437 for the three months ended September 30, 2021. Charter revenue per block hour was $9,280 for2023, as compared to the three months ended September 30, 2022, as compared to $8,816 for the three months ended September 30, 2021, for an increase of 5%.2022. The increase in Charter service revenue was driven by thea 14% increase in rates and a 21% increase inboth Charter Service block hours due to the continued recovery from the COVID-19 pandemic and newdepartures as a result of increased activity with long-term 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.customers. Charter Service revenue per block hour was materially consistent quarter-over-quarter.
Ancillary. Ancillary revenue increased by $16,564,$20,174, or 49%40%, to $50,261$70,435 for the three months ended September 30, 2022, from $33,697 for2023, as compared to the three months ended September 30, 2021. The 16% increase in scheduled passengers during the period resulted in greater sales of air travel-related services, such as: baggage fees, seat selection and upgrade fees, and on-board sales. Ancillary revenue for the three months ended September 30, 2022 was further 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.2022. Ancillary revenue was $55.29$64.61 per passenger in the three months ended September 30, 2022,2023, up $12.38,$9.32 or 29%17%, fromas compared to the three months ended September 30, 2021. Revenue per passenger increased due to2022. The increase in Scheduled Service passengers during the inclusionperiod resulted in a higher volume of a new ancillarysales for air travel-related services, such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, itinerary service fees, other fees and on-board sales. The increase in revenue was further supported by rate increases for our Ancillary products. The change quarter-over-quarter was also impacted by an increase in rate for an Ancillary product, thatwhich reclassified portions of revenue from Scheduled Service to Ancillary after its introduction in the returnsecond quarter of onboard food and beverage sales, and2022. The increase in rate increased demand.revenue by $24,037 for the three months ended September 30, 2023, as compared to $11,633 during the three months ended September 30, 2022.
Cargo. Revenue from cargoCargo services decreased by $713,increased $2,372, or 3%10%, to $23,687$26,059 for the three months ended September 30, 2022, from $24,400 for2023, as compared to the three months ended September 30, 2021.2022. The decreaseincrease was primarily driven by a 13% and 6% quarter-over-quarter increase in departures and block hours, respectively. Revenue
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)
primarily driven by an approximately $1,700 revenue benefit recognizedduring the three months ended September 30, 2023 also benefited from the annual rate escalation included in the prior year, slightly offset by a 2% and 4% increase in block hours and departures, respectively.ATSA, which went into effect on December 13, 2022.
Other. Other revenue was $2,653increased $5,809, or 219%, to $8,462 for the three months ended September 30, 2022,2023, as compared to $1,545 for the three months ended September 30, 2021. The increase was primarily driven by increased2022. Other revenue benefited from Sun Country Vacations as a resultthe $5,870 of higher year-over-year bookings.rental revenue associated with the five Aircraft Held for Operating Lease acquired during the first half of 2023.
Operating Expenses
Aircraft Fuel. We believe Aircraft Fuel expense, excluding derivatives and other items,indirect fuel credits, is the best measure of the effect of fuel prices on our business as it consists solely of items associated withdirect fuel forexpenses that are related to our operations and is consistent with how management analyzes our operating performance. This measure is defined as GAAP Aircraft Fuel expense, excluding gains related toindirect fuel hedge derivative contracts and certain costscredits that are recognized within Aircraft Fuel expense, but are not directly related to our Fuel Cost per Gallon.
The primary components of Aircraft Fuel expense are shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | % Change |
| 2023 | | 2022 | | |
Total Aircraft Fuel Expense | $ | 61,179 | | | $ | 64,843 | | | $ | (3,664) | | | (6) | % |
Indirect Fuel Credits | 175 | | | 71 | | | 104 | | | 146 | % |
Aircraft Fuel Expense, Excluding Indirect Fuel Credits | $ | 61,354 | | | $ | 64,914 | | | $ | (3,560) | | | (5) | % |
Fuel Gallons Consumed (thousands) | 19,262 | | | 16,509 | | | 2,753 | | | 17 | % |
Fuel Cost per Gallon, Excluding Indirect Fuel Credits | $ | 3.19 | | | $ | 3.93 | | | $ | (0.74) | | | (19) | % |
| | |
"NM" stands for not meaningful |
The increase in Aircraft Fuel expense was mainly driven by the 75% year-over-year increasedecreased 6% quarter-over-quarter primarily due to a 19% decrease in the average pricefuel cost per gallon, partially offset by a 17% increase in consumption. The price of fuel due to current market conditions, further exacerbatedduring the three months ended September 30, 2022 was significantly impacted by global geopolitical events.
Salaries, Wages, and Benefits. Salaries, Wages, and Benefits expense increased $15,237,$13,880, or 35%24%, to $58,661$72,541 for the three months ended September 30, 2022,2023, as compared to $43,424 for the three months ended September 30, 2021.2022. The quarter-over-quarter increase in Salaries, Wages, and Benefits was primarily drivenimpacted by the new Collective Bargaining Agreement ("CBA") for our pilots, which went into effecta 14% increase in the first quarter of 2022,employee headcount and increased per unit costs for pilots and an increase in Passenger Service block hours. The employee headcount as of September 30, 2022 was 2,354, as comparedflight crews to 2,014 as of September 30, 2021, for an increase of 340, or 17%. The increase in employee headcount was driven by increased passenger demand as we continue our recovery fromsupport the impacts of the COVID-19 pandemic.current flight schedule.
Aircraft Rent. Aircraft Rent expense decreased $1,976,$1,927, or 50%99%, to $1,949$22 for the three months ended September 30, 2022,2023, as compared to $3,925 for the three months ended September 30, 2021.2022. Aircraft Rent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (expense is recorded within Aircraft Rent) to owned aircraft or finance leases (expense is recorded through Depreciation and Amortization and Interest Expense). Specifically,As of September 30, 2023 and 2022, we operated no and two aircraft under operating leases, respectively. Accordingly, Aircraft Rent expense is expected to be nominal in future periods. The acquisition of new aircraft through operating leases is at the ninediscretion of management.
Maintenance. Maintenance expense increased $4,312, or 39%, to $15,330 for the three months ended September 30, 2022, we executed lease amendments which modified two aircraft from operating leases2023, as compared to finance leasesthe three months ended September 30, 2022. The increase in Maintenance expense was primarily driven by the timing of heavy maintenance events and unscheduled
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)
and purchased two aircraft previously classifiedrepairs, as operating leases. As of September 30, 2022 and 2021, there were two and six aircraft under operating leases, respectively.
Maintenance. Maintenance materials and repair expense increased $1,358, or 14%, to $11,018 for the three months ended September 30, 2022,well as compared to $9,660 for the three months ended September 30, 2021. The increase inhigher maintenance expense was primarily driven by increased line maintenance for the Cargo fleet, increased per unit costs due to incremental contract labor spend, and anthe quarter-over-quarter increase in certain aircraft acquisition expenses that are not eligible for capitalization.the size of our fleet and operations.
Sales and Marketing. Sales and Marketing expense increased $1,357,$742, or 25%11%, to $6,827$7,569 for the three months ended September 30, 2022,2023, as compared to $5,470 for the three months ended September 30, 2021.2022. The change quarter-over-quarter increase was primarily driven by a $1,300$415 increase in credit card processing and global distribution system fees, due to volume and rate increases.as a result of the 20% increase in Scheduled Service passengers.
Depreciation and Amortization. Depreciation and Amortization expense increased $2,471,$5,581, or 17%32%, to $17,181$22,762 for the three months ended September 30, 2022,2023, as compared to $14,710 for the three months ended September 30, 2021.2022. The increase was primarily due to the impact of a change in the composition of our aircraft fleet that results in an increased number of owned aircraft and aircraft under finance leases (the expense is recorded as Depreciation and Amortization and Interest Expense). As of September 30, 20222023 and 2021,2022, there were 2947 and 2140 aircraft that were owned aircraft and 11 and eightor under finance leases, respectively.
Ground Handling. Ground Handling expense increased $796,$713, or 10%8%, to $8,669$9,382 for the three months ended September 30, 2022,2023, as compared to $7,873 for the three months ended September 30, 2021.2022. The increase was primarily driven by the 20% increase in Passenger segment departures as a result of our expanding operations, as well as rate increases due to new charter agreements that began operations during 2022.market pressures.
Landing Fees and Airport Rent. Landing Fees and Airport Rent increased $857,$1,032, or 7%8%, to $12,926$13,958 for the three months ended September 30, 2022,2023, as compared to $12,069the three months ended September 30, 2022. The increase was primarily driven by the 20% increase in Passenger segment departures as a result of our expanding operations, as well as rate increases due to market pressures.
Other Operating, net. Other operating, net increased $2,892, or 12%, to $27,127 for the three months ended September 30, 2021. The increase was2023, as compared to the three months ended September 30, 2022, primarily due to new charter agreements that began operations during 2022 andincreases in costs associated with our operational growth, as well as an increase in rates.third-party vendor spend.
Non-operating Income (Expense)
Special Items, netInterest Income. There were no Special Items recordedInterest income increased $870, or 54%, to $2,480 for the three months ended September 30, 2022,2023, as compared to a net benefitthe three months ended September 30, 2022. The increase was primarily due to increases in the amount of $65investments held and higher interest rates.
Interest Expense. Interest expense increased $3,910, or 52%, to $11,403 for the three months ended September 30, 2021.2023, as compared to the three months ended September 30, 2022. The change was primarily due to a 19% increase in owned aircraft that were financed or refinanced with debt proceeds. This includes the term loan credit facility for the purpose of financing the five Aircraft Held for Operating Lease purchased during the first half of 2023, which was financed in a higher interest rate environment. For more information on Special Items,the Company's Debt, see Note 126 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. Other, Operating, net. Other, operating, net increased $5,606,decreased $3,437, or 30%,100% to $24,235a net expense of $15 for the three months ended September 30, 2022,2023, as compared to $18,629a net benefit of $3,422 for the three months ended September 30, 2021, mainly due to increased departures within the Passenger segment, which resulted in higher crew and other employee travel costs, catering expenses, and other operational overhead costs, as well as an increase in rates associated with these expenditures.
Non-operating Income (Expense)
Interest Income. Interest income2022. The decrease was $1,610 for the three months ended September 30, 2022 primarily due to the change in investment strategy which led$3,500 adjustment to the purchase of debt securities during 2022. Interest income forestimated TRA liability in the three months ended September 30, 2021 was nominal.
Interest Expense. Interest expense increased $1,207, or 19%, to $7,493 for the three months ended September 30, 2022, as compared to $6,286 for the three months ended September 30, 2021. The increase was primarily due to a larger mix of owned aircraft that were financed or refinanced with the proceeds from the 2022-1 EETC, as well as an increase in aircraft accounted for as finance leases during the three months endedprior year.
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)
Income Tax. The Company's effective tax rate for the three months ended September 30, 2023 was 24.6% compared to 17.4% for the three months ended September 30, 2022. These amounts were slightlyThe increase in the effective tax rate was primarily due to the $3,500 non-deductible adjustment of the TRA liability in the prior period, partially offset by $1,049 of capitalized interest.stock compensation benefits. For more information on the Company's Debt,TRA liability, see Note 710 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. Other, net. Other, net increased by $2,966 to a net benefitResults of $3,422 forOperations
For the
three months endedNine Months Ended September 30,
2023 and 2022
as compared to net benefit of $456 for the three months ended September 30, 2021. The increase was primarily due to the $3,500 adjustment to decrease the estimated TRA liability in the current quarter, as compared to the $1,100 adjustment to decrease the estimated TRA liability in the prior year. For more information on the TRA liability, see Note 11 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. Income Tax. The Company's effective tax rate for the three months ended September 30, 2022 was 17.4% compared to 13.8% for the three months ended September 30, 2021. The increase in the effective tax rate was primarily due to the non-taxable adjustment of the TRA liability, partially offset by stock compensation benefits.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | $ Change | | % Change |
| 2023 | | 2022 | | |
Operating Revenues: | | | | | | | |
Scheduled Service | $ | 360,607 | | | $ | 334,679 | | | $ | 25,928 | | | 8 | % |
Charter Service | 143,250 | | | 118,526 | | | 24,724 | | | 21 | % |
Ancillary | 205,633 | | | 139,548 | | | 66,085 | | | 47 | % |
Passenger | 709,490 | | | 592,753 | | | 116,737 | | | 20 | % |
Cargo | 74,437 | | | 65,930 | | | 8,507 | | | 13 | % |
Other | 20,150 | | | 8,607 | | | 11,543 | | | 134 | % |
Total Operating Revenues | 804,077 | | | 667,290 | | | 136,787 | | | 20 | % |
| | | | | | | |
Operating Expenses: | | | | | | | |
Aircraft Fuel | 185,829 | | | 206,334 | | | (20,505) | | | (10) | % |
Salaries, Wages, and Benefits | 223,890 | | | 178,576 | | | 45,314 | | | 25 | % |
Aircraft Rent | 2,281 | | | 7,347 | | | (5,066) | | | (69) | % |
Maintenance | 44,311 | | | 35,794 | | | 8,517 | | | 24 | % |
Sales and Marketing | 26,005 | | | 23,336 | | | 2,669 | | | 11 | % |
Depreciation and Amortization | 64,577 | | | 49,364 | | | 15,213 | | | 31 | % |
Ground Handling | 28,299 | | | 24,838 | | | 3,461 | | | 14 | % |
Landing Fees and Airport Rent | 36,847 | | | 32,708 | | | 4,139 | | | 13 | % |
Other Operating, net | 81,663 | | | 68,401 | | | 13,262 | | | 19 | % |
Total Operating Expenses | 693,702 | | | 626,698 | | | 67,004 | | | 11 | % |
Operating Income | 110,375 | | | 40,592 | | | 69,783 | | | 172 | % |
| | | | | | | |
Non-operating Income (Expense): | | | | | | | |
Interest Income | 7,766 | | | 2,166 | | | 5,600 | | | 259 | % |
Interest Expense | (31,272) | | | (23,097) | | | (8,175) | | | 35 | % |
Other, net | (370) | | | (5,156) | | | 4,786 | | | (93) | % |
Total Non-operating Expense, net | (23,876) | | | (26,087) | | | 2,211 | | | (8) | % |
| | | | | | | |
Income Before Income Tax | 86,499 | | | 14,505 | | | 71,994 | | | 496 | % |
Income Tax Expense | 19,963 | | | 4,113 | | | 15,850 | | | 385 | % |
Net Income | $ | 66,536 | | | $ | 10,392 | | | $ | 56,144 | | | 540 | % |
| | |
"NM" stands for not meaningful |
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)
Results of Operations
For the Nine Months Ended September 30, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
Total Operating Revenues increased by $216,826,$136,787, or 48%20%, to $667,290$804,077 for the nine months ended September 30, 2022 from $450,4642023 as compared to the nine months ended September 30, 2022. The revenue increase was largely driven by an increase in demand for our passenger service offerings during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase in demand resulted in an increase to average total fare per passenger of $8.41, or 5%, to $183.04 for the nine months ended September 30, 2021.2023 as compared to 2022, as well as a 3.7 percentage point increase in Scheduled Service passenger load factor over the same period. The revenue increase was further benefited from a 19% increase in average passenger aircraft, which increased capacity.
Scheduled Service. Scheduled Service revenue increased $25,928, or 8%, to $360,607 for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The table below presents select operating data for Scheduled Service, expressed as year-over-year changes:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change | | % Change |
| 2023 | | 2022 | | |
Departures | 19,456 | | | 17,512 | | | 1,944 | | | 11 | % |
Passengers | 3,093,536 | | | 2,715,707 | | | 377,829 | | | 14 | % |
Average base fare per passenger | $ | 116.57 | | | $ | 123.24 | | | $ | (6.67) | | | (5) | % |
RPMs (thousands) | 3,900,975 | | | 3,565,501 | | | 335,474 | | | 9 | % |
ASMs (thousands) | 4,489,968 | | | 4,284,403 | | | 205,565 | | | 5 | % |
TRASM (cents) | 12.80 | | | 11.27 | | | 1.53 | | | 14 | % |
Passenger load factor | 86.9 | % | | 83.2 | % | | 3.7 | pts | | N/A |
The year-over-year increases in certain Scheduled Service operating data were primarily the result of an increase in demand year-over-year. The year-over-year increase in demand is demonstrated by a 14% increase in passengers, a 3.7 percentage point increase in passenger load factor, and a 14% increase in TRASM. The year-over-year Scheduled Service revenue increase is slightly offset by the introduction of a new Ancillary product during the second quarter of 2022, which reclassified approximately $62,635 of revenue from Scheduled Service to Ancillary during the nine months ended September 30, 2023, as compared to $17,184 during the nine months ended September 30, 2022. This reclassification was further impacted by an increase in rate for the Ancillary product.
Charter Service. Charter Service revenue increased $24,724, or 21%, to $143,250 for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase in Charter Service revenue was largely driven by ana 26% and 23%increase in Charter Service departures and block hours, respectively. Charter Service revenue per block hour was materially consistent year-over-year.
Ancillary. Ancillary revenue increased $66,085, or 47%, to $205,633 for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Ancillary revenue was $66.47 per passenger in the nine months ended September 30, 2023, up $15.08 or 29%, from the nine months ended September 30, 2022. Ancillary revenue benefited from the introduction of a new Ancillary product during the second quarter of 2022, which reclassified approximately $62,635 of revenue from Scheduled Service to Ancillary during the nine months ended September 30, 2023, as compared to $17,184 during the nine months ended September 30, 2022. The 14% increase in Scheduled Service passengers during the period resulted in greater sales of air travel-related services, such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, itinerary service fees, other fees and on-board sales. The increase in Ancillary revenue was further supported by rate increases for our Ancillary products.
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. Revenue from Cargo services increased $8,507, or 13%, to $74,437 for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The increase was primarily driven by an 16% and 7% increase in demandCargo departures and block hours, respectively. Revenue during the nine months ended September 30, 2023 also benefited from the annual rate escalation included in the ATSA, which went into effect on December 13, 2022.
Other. Other revenue increased $11,543, or 134%, to $20,150 for passenger servicethe nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Other revenue in the current year benefited from $11,742 of rental revenue associated with the five Aircraft Held for Operating Lease acquired during the first half of 2023.
Operating Expenses
Aircraft Fuel. We believe Aircraft Fuel expense, excluding indirect fuel credits, is the best measure of the effect of fuel prices on our business as it consists solely of direct fuel expenses that are related to our operations and is consistent with how management analyzes our operating performance. This measure is defined as GAAP Aircraft Fuel expense, excluding indirect fuel credits that are recognized within Aircraft Fuel expense, but are not directly related to our Fuel Cost per Gallon.
The primary components of Aircraft Fuel expense are shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change | | % Change |
| 2023 | | 2022 | | |
Total Aircraft Fuel Expense | $ | 185,829 | | | $ | 206,334 | | | $ | (20,505) | | | (10) | % |
Indirect Fuel Credits | 827 | | | 598 | | | 229 | | | 38 | % |
Aircraft Fuel Expense, Excluding Indirect Fuel Credits | $ | 186,656 | | | $ | 206,932 | | | $ | (20,276) | | | (10) | % |
Fuel Gallons Consumed (thousands) | 59,734 | | | 54,322 | | | 5,412 | | | 10 | % |
Fuel Cost per Gallon, Excluding Indirect Fuel Credits | $ | 3.12 | | | $ | 3.81 | | | $ | (0.69) | | | (18) | % |
Aircraft Fuel expense decreased by 10% year-over-year primarily due to an 18% decrease in the average fuel cost per gallon, slightly offset by a 10% increase in consumption. The price of fuel during the nine months ended September 30, 2022 as compared to 2021, which was significantly impacted by a decrease in passenger demand due to the COVID-19 pandemic.global geopolitical events.
Scheduled ServiceSalaries, Wages, and Benefits. Scheduled service revenueSalaries, Wages, and Benefits expense increased by $132,774,$45,314, or 66%25%, to $334,679$223,890 for the nine months ended September 30, 2022 from $201,9052023, as compared to the nine months ended September 30, 2022. The year-over-year increase in Salaries, Wages, and Benefits was due to a 14% increase in employee headcount, an acceleration of stock-based compensation expense recognized during the current year for our time-based and performance-based stock options, and increased per unit costs for pilots and flight crews to support the current flight schedule. For more information on the acceleration of stock-based compensation for our time-based and performance-based stock options, see Note 7 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Aircraft Rent. Aircraft Rent expense decreased $5,066, or 69%, to $2,281 for the nine months ended September 30, 2021. The table below presents select operating data for scheduled service:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
The significant year-over-year increases in all scheduled service operating data was primarily the result of the continued recovery in demand from the COVID-19 pandemic in2023, as compared to the nine months ended September 30, 2022 relative to the same period in 2021. The year-over-year increase in demand is demonstrated by a 40% increase in TRASM, 19% increase in departures, a 33% increase in passengers, and a 24% increase in the average base fare per passenger. The year-over-year revenue increase is slightly offset by the introduction of a new Ancillary product, which reclassified approximately $17,200 of revenue from Scheduled Service to Ancillary.
Charter Service. Charter service revenue increased $30,015, or 34%, to $118,526 for the nine months ended September 30, 2022, from $88,511 for the nine months ended September 30, 2021. Charter revenue per block hour was $9,118 for the nine months ended September 30, 2022, as compared to $8,179 for the nine months ended September 30, 2021, for an increase of 11%. The increase in Charter service revenue was driven by the increase in rates and a 20% increase in Charter block hours2022. Aircraft Rent expense decreased primarily due to the continued recoverycomposition of our aircraft fleet continuing to shift from the COVID-19 pandemicaircraft under operating leases (expense is recorded within Aircraft Rent) to owned aircraft or finance leases (expense is recorded through Depreciation and new charter agreements that began operations during 2022. Rates in 2021 suffered from significant competitive pressure because other carriers had excess aircraft, crew,Amortization and resources to operate charter capacity.
AncillaryInterest Expense). Ancillary revenue increased by $52,922, or 61%, to $139,548 for the nine months ended As of September 30, 2023 and 2022, from $86,626 for the nine months ended September 30, 2021. The 33% increase in scheduled passengers during the period resulted in greater sales of air travel-related services, such as: baggage fees, seat selection and upgrade fees, and on-board sales. Ancillary revenue for the nine months ended September 30, 2022 was further benefited by the introduction of a new a new ancillary product that began in the second quarter of 2022 and reclassified approximately $17,200 of revenue from Scheduled Service to Ancillary. Ancillary revenue was $51.39 per passenger in the nine months ended September 30, 2022, up $8.89, or 21%, from the nine months ended September 30, 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.
Cargo. Revenue from cargo services decreased by $2,154, or 3%, to $65,930 for the nine months ended September 30, 2022, from $68,084 for the nine months ended September 30, 2021. The number of departures was materially consistent year-over-year; however, block hours declined 4%. The year-over-year decrease in block hours was primarily driven by heavy maintenance events. Operational factors and an approximately $1,700 revenue benefit recognized in 2021 also contributed to the year-over-year revenue decrease.we
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)
operated no and two aircraft under operating leases, respectively. Accordingly, Aircraft Rent expense is expected to be nominal in future periods. The acquisition of new aircraft through operating leases is at the discretion of management.
OtherMaintenance. Other revenue was $8,607 Maintenance expense increased $8,517, or 24%, to $44,311 for the nine months ended September 30, 2022,2023, as compared to $5,338the nine months ended September 30, 2022. The increase in Maintenance expense was primarily driven by higher maintenance costs due to the year-over-year increase in the size of our fleet and operations, as well as an increase in heavy maintenance events and unscheduled repair events.
Sales and Marketing. Sales and Marketing expense increased $2,669, or 11%, to $26,005 for the nine months ended September 30, 2021.2023, as compared to the nine months ended September 30, 2022. The year-over-year increase was primarily driven by anapproximately $2,700 increase in revenue from Sun Country Vacationscredit card processing and other travel agent fees, as a result of higher year-over-yearthe 14% increase in Scheduled Service passengers. These increases were partially offset by a decrease in global distribution system expenses due to a new indirect distribution method that reduced the fees paid for bookings.
Operating Expenses
Aircraft FuelDepreciation and Amortization. We believe Aircraft Fuel expense, excluding derivativesDepreciation and other items, is the best measure of the effect of fuel prices on our business as it consists solely of items associated with fuel for our operations and is consistent with how management analyzes our operating performance. This measure is defined as GAAP Aircraft Fuel expense, excluding gains related to fuel hedge derivative contracts and certain costs that are recognized within Aircraft Fuel expense, but are not directly related to our Fuel Cost per Gallon.
The primary components of Aircraft Fuel expense are shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | % |
The increase in Aircraft Fuel expense was mainly driven by the 83% increase in the average price per gallon of fuel, and a 20% increase in fuel gallons consumed resulting from a recovery in demand as demonstrated by a 19% increase in passenger service block hours.
Salaries, Wages, and Benefits. Salaries, Wages, and BenefitsAmortization expense increased $48,761,$15,213, or 38%31%, to $178,576$64,577 for the nine months ended September 30, 2022,2023, as compared to $129,815the nine months ended September 30, 2022. The increase was primarily due to the impact of a change in the composition of our aircraft fleet that results in an increased number of owned aircraft and aircraft under finance leases (the expense is recorded as Depreciation and Amortization and Interest Expense). As of September 30, 2023 and 2022, there were 47 and 40 aircraft that were owned or under finance leases, respectively.
Ground Handling. Ground Handling expense increased $3,461, or 14%, to $28,299 for the nine months ended September 30, 2021.2023, as compared to the nine months ended September 30, 2022. The increase was primarily driven by the new Collective Bargaining Agreement ("CBA") for our pilots, which went into effect in the first quarter of 2022, increased per unit costs, and an15% increase in Passenger Service block hours. The employee headcountsegment departures as a result of September 30, 2022 was 2,354,our expanding operations, as comparedwell as rate increases due to 2,014 as of September 30, 2021, for an increase of 340, or 17%. The increase in employee headcount was to support all lines of business during the ongoing recovery from the impacts of the COVID-19 pandemic.inflationary and market pressures.
AircraftLanding Fees and Airport Rent. AircraftLanding Fees and Airport Rent expense decreased $5,992,increased $4,139, or 45%13%, to $7,347$36,847 for the nine months ended September 30, 2022,2023, as compared to $13,339the nine months ended September 30, 2022. The increase was primarily driven by the 15% increase in Passenger segment departures as a result of our expanding operations, as well as rate increases due to inflationary and market pressures.
Other Operating, net. Other operating, net increased $13,262, or 19%, to $81,663 for the nine months ended September 30, 2021. Aircraft Rent expense decreased primarily due2023, as compared to the composition of our aircraft fleet shifting from aircraft under operating leases (expense is recorded within Aircraft Rent) to owned aircraft or finance leases (expense is recorded through Depreciation and Amortization and Interest Expense). Specifically, in the first nine months of 2022, we executed lease amendments which modified two aircraft from operating leases to finance leases and purchased two aircraft previously classified as operating leases. For the nine months ended September 30, 2022, primarily due to increased departures, which resulted in higher crew costs and 2021, there were an average of four and eight aircraft under operating leases, respectively.catering expenses.
Non-operating Income (Expense)
MaintenanceInterest Income. Maintenance materials and repair expenseInterest income increased $5,624,by $5,600, or 19%259%, to $35,794$7,766 for the nine months ended September 30, 2022, as compared2023. The increase was primarily due to $30,170the change in our investment strategy, which led to the purchase of debt securities in May 2022. The continued rise in interest rates also contributed to the increase over the prior year.
Interest Expense. Interest expense increased $8,175, or 35%, to $31,272 for the nine months ended September 30, 2021.2023, as compared to the nine months ended September 30, 2022. The change was primarily due to a 19% increase in maintenance expenseowned aircraft that were financed or refinanced with debt proceeds. This includes the term loan credit facility for the purpose of financing the five Aircraft Held for Operating Lease purchased during the first half of 2023, which was primarily drivenfinanced in a higher interest rate environment. The year-over-year increase was partially offset by increased departures and block hours acrossa $1,557 loss on extinguishment of debt incurred during the nine months ended September
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)
Passenger segment, an increase in maintenance events for the Cargo fleet, and increased per unit costs due to incremental contract labor spend.
Sales and Marketing. Sales and Marketing expense increased $6,934, or 42%, to $23,336 for the nine months ended September 30, 2022 as compared to $16,402 for the nine months ended September 30, 2021. Passenger revenue increased 57% between these two periods leading to a nearly $6,500 in increased credit card processing and global distribution system fees during this time period.
Depreciation and Amortization. Depreciation and Amortization expense increased $7,832, or 19%, to $49,364 for the nine months ended September 30, 2022, as compared to $41,532 for the nine months ended September 30, 2021. The increase was primarily duerelated to the impact of a change in the composition of our aircraft fleet to an increased number of owned aircraft and aircraft under finance leases (the expense is recorded as Depreciation and Amortization and Interest Expense). For the nine months ended September 30, 2022 and 2021, there was an average of 25 and 19 owned aircraft and 11 and six finance leases, respectively.
Ground Handling. Ground Handling expense increased $5,184, or 26%, to $24,838 for the nine months ended September 30, 2022, as compared to $19,654 for the nine months ended September 30, 2021. The increase was primarily driven by the 20% increase in Passenger segment departures due to the resultrepayment of the continued recovery in demand from the COVID-19 pandemic and new charter agreements that began operations during 2022.
Landing Fees and Airport Rent. Landing Fees and Airport Rent increased $3,102, or 10%, to $32,708 for the nine months ended September 30, 2022, as compared to $29,606 for the nine months ended September 30, 2021. The increase was primarily driven by the 20% increase in Passenger segment departures due to the result of the continued recovery in demand from the COVID-19 pandemic and new charter agreements that began operations during 2022.
Special Items, net. There were no Special Items recorded during the nine months ended September 30, 2022. Special Items had a net benefit of $72,419 for the nine months ended September 30, 2021. The net benefit was primarily driven by the payroll support received under the CARES Act, of which the Cargo segment was allocated $18,401. These credits within the Cargo segment results were based on the respective segment salaries, wages, and benefits.DDTL. For more information on Special Items,the Company's Debt, see Note 126 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Other, Operating, net. Other, operating, net increased $18,375,decreased $4,786, or 37%,93% to $68,401a net expense of $370 for the nine months ended September 30, 2022,2023, as compared to $50,026the nine months ended September 30, 2022. The change over prior year was primarily due to the $5,000 adjustment to increase the estimated TRA liability incurred during the prior year, partially offset by offering expenses of $640 in connection with the secondary offering during the first quarter of 2023.
Income Tax. The Company's effective tax rate for the nine months ended September 30, 2021, mainly due2023 was 23.1% compared to increased departures within the Passenger segment, which resulted in higher crew and other employee travel costs, catering expenses, and other operational overhead costs.
Non-operating Income (Expense)
Interest Income. Interest income was $2,16628.4% for the nine months ended September 30, 20222022. The decrease in the effective tax rate was primarily due to the change$5,000 non-deductible adjustment of the TRA liability in investment strategy which ledthe prior period, partially offset by stock compensation benefits. For more information on the TRA liability, see Note 10 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Segments
For the Three Months Ended September 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| Passenger | | Cargo | | Total | | Passenger | | Cargo | | Total |
Operating Revenues | $ | 222,817 | | $ | 26,059 | | $ | 248,876 | | $ | 198,013 | | $ | 23,687 | | $ | 221,700 |
| | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | |
Aircraft Fuel | 61,157 | | 22 | | 61,179 | | 64,763 | | 80 | | 64,843 |
Salaries, Wages, and Benefits | 54,527 | | 18,014 | | 72,541 | | 44,051 | | 14,610 | | 58,661 |
Aircraft Rent | 22 | | — | | 22 | | 1,949 | | — | | 1,949 |
Maintenance | 11,679 | | 3,651 | | 15,330 | | 7,290 | | 3,728 | | 11,018 |
Sales and Marketing | 7,569 | | — | | 7,569 | | 6,827 | | — | | 6,827 |
Depreciation and Amortization | 22,756 | | 6 | | 22,762 | | 17,152 | | 29 | | 17,181 |
Ground Handling | 9,382 | | — | | 9,382 | | 8,666 | | 3 | | 8,669 |
Landing Fees and Airport Rent | 13,858 | | 100 | | 13,958 | | 12,823 | | 103 | | 12,926 |
Other Operating, net | 22,252 | | 4,875 | | 27,127 | | 19,030 | | 5,205 | | 24,235 |
Total Operating Expenses | 203,202 | | 26,668 | | 229,870 | | 182,551 | | 23,758 | | 206,309 |
Operating Income (Loss) | $ | 19,615 | | $ | (609) | | $ | 19,006 | | $ | 15,462 | | $ | (71) | | $ | 15,391 |
| | | | | | | | | | | |
Operating Margin % | 8.8 | % | | (2.3) | % | | 7.6 | % | | 7.8 | % | | (0.3) | % | | 6.9 | % |
Passenger. Passenger Operating Income increased $4,153 to the purchase of debt securities during 2022. Interest income$19,615 for the ninethree months ended September 30, 2021 was nominal.
Interest Expense. Interest expense increased $3,610, or 19%, to $23,097 for the nine months ended September 30, 2022,2023, as compared to $19,487 for the nine months ended September 30, 2021. The increase was primarily due to a larger mix of owned aircraft that were financed or refinanced with the proceeds from the 2022-1 EETC, as well as an increase in aircraft accounted for as finance leases during the ninethree months ended September 30, 2022. These amountsThe Operating Margin Percentage for the three months ended September 30, 2023 increased 1.0 percentage point, as compared to the three months ended September 30, 2022. The increases in Passenger Operating Income and Operating Margin were slightly offsetdriven by $2,327an increase in the average passenger aircraft in the third quarter of capitalized interest. For more information2023, as compared to the same period of 2022, which increased capacity and ASMs. This resulted in a significant increase in departures and passengers
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)
with relatively similar quarter-over-quarter per unit revenues for both Scheduled Service and Charter Service. Passenger Operating Income and Operating Margin for the three months ended September 30, 2023 also benefited from a 6% quarter-over-quarter decrease in Aircraft Fuel expense due to a 19% decrease in the average fuel cost per gallon, partially offset by a 17% increase in consumption. The price of fuel during the three months ended September 30, 2022 was significantly impacted by global geopolitical events. For more information on the Company's Debt, see changes in the components of Operating Income for the Passenger segment, refer to the Results of Operations discussion aboveNote 7. Cargo. ofCargo Operating Loss increased by $538, to $609 for the Condensed Consolidated Financial Statementsthree months ended September 30, 2023, as compared to the three months ended September 30, 2022. Operating Margin Percentage for the three months ended September 30, 2023 decreased 2.0 percentage points, as compared to the three months ended September 30, 2022. The decrease was primarily driven by a quarter-over-quarter increase in Salaries, Wages, and Benefits due to an increase in employee head count, as well as per unit costs, to support operations. The changes in Operating Loss and Operating Margin Percentage were partially offset by the annual rate escalation included in Part I, Item Ithe ATSA, which went into effect on December 13, 2022. For more information on the components of this report.Operating Income for the Cargo segment, refer to the Results of Operations discussion above.
Segments
For the Nine Months Ended September 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| Passenger | | Cargo | | Total | | Passenger | | Cargo | | Total |
Operating Revenues | $ | 729,640 | | $ | 74,437 | | $ | 804,077 | | $ | 601,360 | | $ | 65,930 | | $ | 667,290 |
| | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | |
Aircraft Fuel | 185,770 | | 59 | | 185,829 | | 206,254 | | 80 | | 206,334 |
Salaries, Wages, and Benefits | 171,080 | | 52,810 | | 223,890 | | 138,436 | | 40,140 | | 178,576 |
Aircraft Rent | 2,281 | | — | | 2,281 | | 7,347 | | — | | 7,347 |
Maintenance | 33,339 | | 10,972 | | 44,311 | | 25,665 | | 10,129 | | 35,794 |
Sales and Marketing | 26,005 | | — | | 26,005 | | 23,336 | | — | | 23,336 |
Depreciation and Amortization | 64,527 | | 50 | | 64,577 | | 49,282 | | 82 | | 49,364 |
Ground Handling | 28,299 | | — | | 28,299 | | 24,828 | | 10 | | 24,838 |
Landing Fees and Airport Rent | 36,545 | | 302 | | 36,847 | | 32,386 | | 322 | | 32,708 |
Other Operating, net | 66,813 | | 14,850 | | 81,663 | | 54,614 | | 13,787 | | 68,401 |
Total Operating Expenses | 614,659 | | 79,043 | | 693,702 | | 562,148 | | 64,550 | | 626,698 |
Operating Income (Loss) | $ | 114,981 | | $ | (4,606) | | $ | 110,375 | | $ | 39,212 | | $ | 1,380 | | $ | 40,592 |
| | | | | | | | | | | |
Operating Margin % | 15.8 | % | | (6.2) | % | | 13.7 | % | | 6.5 | % | | 2.1 | % | | 6.1 | % |
Other, netPassenger.. Other, net decreased $23,661 Passenger Operating Income increased $75,769 to a net expense of $5,156$114,981 for the nine months ended September 30, 2022,2023, as compared to net benefit $18,505the nine months ended September 30, 2022. Passenger Operating Margin Percentage for the nine months ended September 30, 2021. The decrease was primarily due to the $5,000 adjustment to increase the estimated TRA liability as of September 30, 2022,2023 increased 9.3 percentage points, 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 Note 11 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Income Tax. The Company's effective tax rate for the nine months ended September 30, 2021 was 28.4% compared to 18.3% for the nine months ended September 30, 2021.2022. The increase in the effective tax rate was primarily due to the non-taxable adjustment of the TRA liability, partially offset by stock compensation benefits.
Passenger Operating Income and
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)
Segments
For the Three Months Ended September 30, 2022 and 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% |
Passenger. Passenger Operating Income increased by $2,650 to $15,462 for the three months ended September 30, 2022 from $12,812 for the three months ended September 30, 2021. The increase in Passenger Operating Income was driven by an expansion in demand for passenger service during 2022 as compared to 2021, which was significantly impacted by the COVID-19 pandemic. Operating Margin Percentage for the three months ended September 30, 2022 decreased by 1%, as compared to the three months ended September 30, 2021. The Operating Margin Percentage decrease was primarily driven by the quarter-over-quarter increase in Aircraft Fuel Expense, slightly offset by increases in revenue across all Passenger segment business lines. For
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)
more information on the changes in the components of Operating Income for the Passenger segment, refer to the Results of Operations discussion above.
Cargo. Cargo Operating Income decreased by $8,580, resulting in an Operating Loss of $71 for the three months ended September 30, 2022, as compared to Operating Income of $8,509 for the three months ended September 30, 2021. Operating Margin Percentage decreased by 35%, to break-even, over the same periods. The decrease was primarily driven by a quarter-over-quarteryear-over-year increase in Salaries, Wages, and Benefits driven by the new CBAdemand for our pilots that went into effect in the beginning of 2022, a quarter-over-quarter increase in Maintenance Expense for the Cargo fleet due topassenger service, as well as an increase in maintenance eventsthe average passenger aircraft which increased capacity and per unit costs, and a revenue benefit recognized in the prior period. For more information on the components of Operating Income for the Cargo segment, refer to the Results of Operations discussion above, where we describe the cargo expenses embedded within each financial statement line item.
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)
Segments
For the Nine Months Ended September 30, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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% |
Passenger.ASMs. Passenger Operating Income decreased by $26,446 to $39,212and Operating Margin for the nine months ended September 30, 20222023 also benefited from $65,658 fora 10% year-over-year decrease in Aircraft Fuel expense due to an 18% decrease in the average fuel cost per gallon, slightly offset by a 10% increase in consumption. The price of fuel during the nine months ended September 30, 2021. Operating Margin Percentage, Excluding Special Items, net increased2022 was significantly impacted by 4%, to 7%, from 3% over the same periods. The year-over-year decrease in Passenger Operating Income is primarily driven by the allocated payroll support received under the CARES Act during the first half of 2021, recognized within Special Items, net, as well as the increase in Aircraft Fuel Expense and Salaries, Wages, and Benefits. The increase in Operating Margin Percentage, Excluding Special Items, net was primarily driven by the year-over-year increases in revenue across all Passenger segment business lines, slightly offset by the increases in Aircraft Fuel Expense and Salaries,
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)
Wages, and Benefits.global geopolitical events. For more information on the changes in the components of Operating Income for the Passenger segment, refer to the Results of Operations discussion above.
Cargo.Cargo had an Operating Loss of $4,606 for the nine months ended September 30, 2023, as compared to Operating Income decreased by $34,670 toof $1,380 for the nine months ended September 30, 2022, as compared to $36,050a decrease of $5,986. Operating Margin Percentage for the nine months ended September 30, 2021. Operating Margin Percentage, Excluding Special Items, net2023 decreased by 24%,8.3 percentage points, as compared to 2%, over the same periods.nine months ended September 30, 2022. The decrease in Operating Income was primarily driven by the allocated payroll support received under the CARES Act during the first half of 2021, recognized within Special Items, net, a revenue benefit recognized in the prior period, a year-over-year increase in Salaries, Wages, and Benefits driven by the new CBAdue to an increase in employee head count, an increase in per unit costs for our pilots that went into effect in the beginning of 2022, decreased block hoursto support operations, 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 recognizedincreased operating expenses as a result of an increase in departures. The decreases in Operating Loss and Operating Margin Percentage were partially offset by the allocated payroll support received underannual rate escalation included in the CARES Act during the first half of 2021.ATSA, which went into effect on December 13, 2022. For more information on the components of Operating Income for the Cargo segment, refer to the Results of Operations discussion above, where we describe the cargo expenses embedded within each financial statement line item.above.
Non-GAAP Financial Measures
We sometimes use information that is derived from the Condensed Consolidated Financial Statements, but that is not presented in accordance with GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies. We believe certain charges included in our operating expenses on a GAAP basis make it difficult to compare our current period results to prior periods as well as future periods and guidance. The tables below show a reconciliation of non-GAAP financial measures used in this reportReport to the most directly comparable GAAP financial measures.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income and Adjusted EBITDA
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted EBITDA are non-GAAP measures included as supplemental disclosure because we believe they are useful indicators of our operating performance. Derivations of Operating Income and net incomeNet Income are well recognized performance measurements in the airline industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted EBITDAThe measures described above have limitations as analytical tools. Some of the limitations applicable to these measures include: Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted EBITDAthey do not reflect the impact of certain cash and non-cash charges resulting from matters we consider not to be indicative of our ongoing operations; and other companies in our industry may calculate Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted EBITDAthese non-GAAP measures differently than we do, limiting each measure’s usefulness as a comparative measure. Because of these limitations, the following non-GAAP measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP and may not be the same as or comparable to similarly titled measures presented by other companies due to the possible differences in the method of calculation and in the items being adjusted.
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 the foregoing reasons, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income and Adjusted EBITDA have significant limitations which affect their use as indicators of our profitability. Accordingly, readers are cautioned not to place undue reliance on this information.
The following table presents the reconciliation of Operating Income to Adjusted Operating Income, and Adjusted Operating Income Margin for the periods presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 12 of the Company's Condensed Consolidated Financial Statements. |
(b) | This represents the one-time costs to establish the TRA liability with our TRA holders. See Note 11 of the Company’s Condensed Consolidated Financial Statements. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Adjusted Operating Income Margin Reconciliation: | | | | | | | |
Operating Revenue | $ | 248,876 | | $ | 221,700 | | $ | 804,077 | | $ | 667,290 |
Operating Income | 19,006 | | 15,391 | | 110,375 | | 40,592 |
| | | | | | | |
Stock Compensation Expense | 1,039 | | 487 | | 8,132 | | 1,981 |
Adjusted Operating Income | $ | 20,045 | | $ | 15,878 | | $ | 118,507 | | $ | 42,573 |
| | | | | | | |
Operating Income Margin | 7.6 | % | | 6.9 | % | | 13.7 | % | | 6.1 | % |
Adjusted Operating Income Margin | 8.1 | % | | 7.2 | % | | 14.7 | % | | 6.4 | % |
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 following table presents the reconciliation of Net Income to Adjusted Net Income for the periods presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Adjusted Net Income Reconciliation: | | | | | | | |
Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | 66,536 | | | $ | 10,392 | |
| | | | | | | |
Stock Compensation Expense | 1,039 | | | 487 | | | 8,132 | | | 1,981 | |
Gain on Asset Transactions, net (a) | — | | | (239) | | | — | | | (318) | |
Loss on refinancing credit facility | — | | | — | | | — | | | 1,557 | |
Secondary offering costs | — | | | — | | | 640 | | | — | |
TRA adjustment (b) | — | | | (3,500) | | | (357) | | | 5,000 | |
Income tax effect of adjusting items, net (c) | (239) | | | (57) | | | (2,018) | | | (741) | |
Adjusted Net Income | $ | 8,391 | | | $ | 7,368 | | | $ | 72,933 | | | $ | 17,871 | |
_________________________
| | | | | |
(a) | TheDue to changes in the Company’s operations, management determined that, beginning in the fourth quarter of 2022, certain asset transactions will no longer be included as adjustments include Special Items, net, as presentedto Adjusted Net Income because these transactions are part of our recurring operations. This change was made prospectively beginning in Note 12the fourth quarter of the Company's Condensed Consolidated Financial Statements.2022, and no prior period amounts have been adjusted. |
(b) | This represents the one-time costs to establish the TRA liability with our TRA holders. See Note 11 of the Company’s Condensed Consolidated Financial Statements. |
(c) | This represents the adjustment to the TRA for the period, which is recorded in Non-Operating Income (Expense). |
(d)(c) | 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. |
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 following table presents the reconciliation of Net Income to Adjusted EBITDA for the periods presented below.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Adjusted EBITDA Reconciliation: | Adjusted EBITDA Reconciliation: | | | | | | | | Adjusted EBITDA Reconciliation: | | | | | | | |
Net Income | Net Income | $ | 10,677 | | | $ | 13,379 | | | $ | 10,392 | | | $ | 82,334 | | Net Income | $ | 7,591 | | | $ | 10,677 | | | $ | 66,536 | | | $ | 10,392 | |
Special Items, net (a) | — | | | (65) | | | — | | | (72,419) | | |
Stock Compensation Expense | Stock Compensation Expense | 487 | | | 964 | | | 1,981 | | | 4,577 | | Stock Compensation Expense | 1,039 | | | 487 | | | 8,132 | | | 1,981 | |
(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) | | |
Gain on Asset Transactions, net (a) | | Gain on Asset Transactions, net (a) | — | | | (239) | | | — | | | (318) | |
Secondary offering costs | | Secondary offering costs | — | | | — | | | 640 | | | — | |
TRA adjustment (b) | | TRA adjustment (b) | — | | | (3,500) | | | (357) | | | 5,000 | |
Interest Income | Interest Income | (1,610) | | | (28) | | | (2,166) | | | (52) | | Interest Income | (2,480) | | | (1,610) | | | (7,766) | | | (2,166) | |
Interest Expense | Interest Expense | 7,493 | | | 6,286 | | | 23,097 | | | 19,487 | | Interest Expense | 11,403 | | | 7,493 | | | 31,272 | | | 23,097 | |
Provision for Income Taxes | Provision for Income Taxes | 2,253 | | | 2,140 | | | 4,113 | | | 18,444 | | Provision for Income Taxes | 2,477 | | | 2,253 | | | 19,963 | | | 4,113 | |
Depreciation and Amortization | Depreciation and Amortization | 17,181 | | | 14,710 | | | 49,364 | | | 41,532 | | Depreciation and Amortization | 22,762 | | | 17,181 | | | 64,577 | | | 49,364 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 32,742 | | | $ | 36,954 | | | $ | 91,463 | | | $ | 75,726 | | Adjusted EBITDA | $ | 42,792 | | | $ | 32,742 | | | $ | 182,997 | | | $ | 91,463 | |
_________________________
| | | | | |
(a) | TheDue to changes in the Company’s operations, management determined that, beginning in the fourth quarter of 2022, certain asset transactions will no longer be included as adjustments include Special Items, net, as presentedto Adjusted Net Income because these transactions are part of our recurring operations. This change was made prospectively beginning in Note 12the fourth quarter of the Company's Condensed Consolidated Financial Statements.2022, and no prior period amounts have been adjusted. |
(b) | This represents the one-time costs to establish the TRA liability with our TRA holders. See Note 11 of the Company’s Condensed Consolidated Financial Statements.
|
(c) | This represents the adjustment to the TRA for the period, which is recorded in Non-Operating Income (Expense). |
CASM and Adjusted CASM
Cost per Available Seat Mile (“CASM”)CASM is a key airline cost metric defined as operating expenses divided by total available seat miles. Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, depreciation recognized on our aircraft and flight equipment held for operating lease, stock-based compensation, certain commissions and other costs of selling our vacation products from this measure as these costs are unrelated to our airline operations and improve comparability to our peers. Adjusted CASM is an important measure used by management and by our Board of Directors in assessing quarterly and annual cost performance. Adjusted CASM is commonly used by industry analysts and we believe it is an important metric by which they compare our airline to others in the industry, although other airlines may exclude certain other costs in their calculation of Adjusted CASM. The measure is also the subject of frequent questions from investors.
Adjusted CASM excludes fuel costs. By excluding volatile fuel expenses that are outside of our control from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can lead to a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management and investors to understand the impact and trends in company-specific cost drivers, such as labor rates, aircraft costs and maintenance costs, and productivity, which are more controllable by management.
We have excluded costs related to the cargo operations and depreciation recognized on our aircraft and flight equipment held for operating lease as these operations do not create ASMs. The cargo expenses in the reconciliation below are different from the total operating expenses for our Cargo segment in the “Segment Information” table presented above, due to several items that are included in the Cargo segment, but have been captured in other line items used in the Adjusted CASM calculation. The five Aircraft Held for Operating Lease
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)
were acquired during the “Segment Information” table presented above, due to several items that are included innine months ended September 30, 2023. Depreciation expense on these aircraft materially began during the Cargo segment, but have been captured in other line items used in the Adjusted CASM calculation.three months ended June 30, 2023. Adjusted CASM further excludes special items and other adjustments, as defined in the relevant reporting period, that are not representative of the ongoing costs necessary to our airline operations and may improve comparability between periods. We also exclude stock compensation expense when computing Adjusted CASM. The Company’s compensation strategy includes the use of stock-based compensation to attract and retain employees and executives and is principally aimed at aligning their interests with those of our stockholders and long-term employee retention, rather than to motivate or reward operational performance for any period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any period.
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 foregoingaforementioned 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.
The following tables present the reconciliation of CASM to Adjusted CASM.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 |
| Operating Expenses | | Per ASM (in cents) | | Operating Expenses | | Per ASM (in cents) |
CASM | $ | 229,870 | | | 12.83 | | | $ | 206,309 | | | 13.28 | |
Less: | | | | | | | |
Aircraft Fuel | 61,179 | | | 3.41 | | | 64,843 | | | 4.17 | |
Stock Compensation Expense | 1,039 | | | 0.06 | | | 487 | | | 0.03 | |
Cargo expenses, not already adjusted above | 26,417 | | | 1.48 | | | 23,569 | | | 1.52 | |
Sun Country Vacations | 200 | | | 0.01 | | | 193 | | | 0.01 | |
Aircraft and Flight Equipment Held for Operating Lease, Depreciation Expense | 2,192 | | | 0.12 | | | — | | | — | |
Adjusted CASM | $ | 138,843 | | | 7.75 | | | $ | 117,217 | | | 7.55 | |
| | | | | | | |
ASM (thousands) | 1,791,485 | | | | | 1,553,483 | | | |
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 following tables present the reconciliation of CASM to Adjusted CASM.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 12 of the Company's Condensed Consolidated Financial Statements. |
(b) | This represents the one-time costs to establish the TRA liability with our TRA holders. See Note 11 of the Company’s Condensed Consolidated Financial Statements. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Operating Expenses | | Per ASM (in cents) | | Operating Expenses | | Per ASM (in cents) |
CASM | $ | 693,702 | | | 12.57 | | | $ | 626,698 | | | 12.25 | |
Less: | | | | | | | |
Aircraft Fuel | 185,829 | | | 3.37 | | | 206,334 | | | 4.03 | |
Stock Compensation Expense | 8,132 | | | 0.14 | | | 1,981 | | | 0.04 | |
Cargo expenses, not already adjusted above | 77,195 | | | 1.40 | | | 64,007 | | | 1.25 | |
Sun Country Vacations | 902 | | | 0.02 | | | 810 | | | 0.02 | |
Aircraft and Flight Equipment Held for Operating Lease, Depreciation Expense | 4,466 | | | 0.08 | | | — | | | — | |
Adjusted CASM | $ | 417,178 | | | 7.56 | | | $ | 353,566 | | | 6.91 | |
| | | | | | | |
ASM (thousands) | 5,516,826 | | | | | 5,114,134 | | | |
Liquidity and Capital Resources
The airline business is capital intensive. Our ability to successfully execute our business strategy is largely dependent on the continued availability of capital with attractive terms and maintaining sufficient liquidity. We have historically funded our operations and capital expenditures primarily through cash from operations, proceeds from stockholders’ capital contributions, the issuance of promissory notes, and debt financing.
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)
Our primary sources of liquidity as of September 30, 20222023 included our existing cash and cash equivalents of $131,912$26,967 and short-term investments of $135,170,$153,290, our expected cash generated from operations, and the $24,650 of available funds from the Revolving Credit Facility as of September 30, 2022.Facility. In addition, we had restricted cash of $14,163$10,953 as of September 30, 2022,2023, which generally consists of cash received as prepayment for chartered flights that is maintained in separate escrow accounts in accordance with DOT regulations requiring that charter revenue receipts received prior to the date of transportation are maintained in a separate third-party escrow account. The restrictions are released once the charter transportation is provided.
Our primary uses of liquidity are for operating expenses, capital expenditures, lease rentals and maintenance reserve deposits, debt repayments, working capital requirements, and other general corporate purposes. Our single largest capital expenditure requirement relates to the acquisition of aircraft. We do not maintain an aircraft whichorder book; instead, we enter into aircraft transactions on an opportunistic basis based on market conditions, our prevailing level of liquidity and capital market availability. As a result, we are not locked into large future capital expenditures. We have historically acquired aircraft through operating leases, finance leases, and debt. Our management team retains broad discretion to allocate liquidity.
We believe that our unrestricted cash and cash equivalents, short-term investments, and availability under our Revolving Credit Facility, combined with expected future cash flows from operations, will be sufficient to fund our operations and meet our debt payment obligations for at least the next twelve months. However, we cannot predict what the effect on our business and financial position might be from a change in the competitive environment in which we operate or from events beyond our control, such as volatile fuel prices, economic conditions, pandemics, weather-related disruptions, the impact of airline bankruptcies, restructurings or consolidations, U.S. military actions, regulations, or acts of terrorism.
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)
Aircraft – As of September 30, 2022, we operated a2023, our fleet consisted of 5459 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 levelATSA, and five Aircraft Held for Operating Lease. During the nine months ended September 30, 2023, the Company acquired five Aircraft Held for Operating Lease for total consideration of liquidity and capital market availability. We may also enter into new operating leases on an opportunistic basis. approximately $158,000.
For more information on our fleet and probable future aircraft acquisitions, see Note 64 and Note 12 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. For more information on the purchase of five Aircraft Held for Operating Lease, see Note 5 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. Maintenance Deposits - In addition to funding the acquisition of aircraft, we are required by certain of 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 Sheets. As of September 30, 2022,2023, we had $30,925$42,363 of total Lessor Maintenance Deposits.
Investments - The Company invests itsWe invest our cash and cash equivalents in highly liquid securities with strong credit ratings. As of September 30, 2022,2023, the Company held $128,569$146,519 of debt securities, all of which are classified as current assets because of their highly liquid nature and availability to be converted into cash to fund current operations. Given the significant portion of our portfolio held in cash and cash equivalents and the high credit quality of our debt security investments, we do not anticipate fluctuations in the aggregate fair value of our investments to have a material impact on our liquidity or capital position.
We also hold $6,771 of Certificates of Deposit that are included in Investments on the Condensed Consolidated Balance Sheets as of September 30, 2023.
CARES Act -Credit Facilities - We use our Credit Facilities to provide liquidity support for general corporate purposes and to finance the acquisition of aircraft.
As of September 30, 2023, the Company had $24,650 of the $25,000 Revolving Credit Facility available due to $350 being pledged to support a letter of credit, and no balance drawn. The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and a minimum liquidity, as defined within the Credit Agreement, of $30,000 at the close of any business day. The Company was in compliance with these covenants as of September 30, 2023.
Debt - At our discretion, we obtain debt financing through the issuance of pass-through trust certificates to purchase, or refinance aircraft. For more information on our credit facilities or debt, see Note 6 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. In December 2019, we issued the 2019-1 EETC, for the purpose of financing or refinancing 13 used aircraft. In March 2022, the Company issued the 2022-1 EETC for the purpose of financing or refinancing 13 aircraft. During 2021,the nine months ended September 30, 2023, we received grants totaling $71,587executed a term loan credit facility with a face amount of $119,200 for the purpose of financing the five Aircraft Held for Operating Lease. The loan is to be repaid monthly over 7 years. During the lease term, payments collected from the Treasury under PSP2lessee will be applied directly to the repayment of principal and PSP3. We alsointerest on the term loan credit facility. The Aircraft Held for Operating Lease, as well as the related lease payments received a CARES Act Loan of $45,000 in October 2020, which was repaid in full on March 24, 2021 using proceeds from the IPO.lessee, are pledged as collateral.
In accordance withThe interest rate on the $71,587term loan credit facility is determined by using a base rate, which resets monthly, plus an applicable margin, and a fixed credit spread adjustment of grants received under0.1%. The applicable margin during the CARES Act, we are requiredlease term is fixed at 3.75%, and is subsequently reduced to comply with3.25% once the relevant provisionsaircraft have been redelivered to the Company and a LTV ratio calculation is completed at the end of the CARES Act and the related implementing agreements.lease term. The provisions related to the requirement that certain levels of commercial air service be maintained, if ordered by the DOT, and the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends, have lapsedinterest rate in effect as of the date of this filing. Restrictions on the payment of certain executive
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)
compensation continue through April 1, 2023. We were in compliance with the CARES Act provisions as of September 30, 2022.2023 was 9.2%. To the extent that the LTV exceeds 75% at the end of the lease term, a principal prepayment will be required in order to reduce the ratio to 75%. If at any point within 12 months of the end of the lease term for each respective aircraft the Company deems it probable that a principal prepayment will be required in order to reduce the LTV ratio to 75%, and such amount can be reasonably estimated, the estimated principal prepayment amount will be reclassified from Long-term Debt, net to Current Maturities of Long-Term Debt, net on the Company's Condensed Consolidated Balance Sheets. In the event a principal prepayment is required, amounts received under the end of lease maintenance compensation clause may be applied towards the prepayment.
TRA Liability - During the nine months ended September 30, 2023, we made a payment of $2,425 to the TRA holders. Payments will be made in future periods as Pre-IPO Tax Attributes are utilized. For more information on the CARES Act provisions,TRA liability, see Note 310 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report. Credit Facilities - The Company uses its Credit Facilities to provide liquidity support for general corporate purposesLiquidity and to finance the acquisition of aircraft. On February 10, 2021, we entered into a Credit Agreement which includes a $25,000 Revolving Credit Facility and a $90,000 DDTL. The proceeds from the Revolving Credit Facility can be used for general corporate purposes, whereas the proceeds from the DDTL were to be used solely to finance the acquisition of aircraft or engines to be registered in the United States. The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($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 this covenant as of September 30, 2022.
During 2021, the Company drew $80,500 on the DDTL to purchase six aircraft, which were previously under operating leases.The Company repaid the outstanding balance for the DDTL in full in March 2022 using proceeds it received from the 2022-1 EETC. No amounts under the DDTL are available to the Company as of September 30, 2022. As of September 30, 2022, the Company had $24,650 of the $25,000 Revolving Credit Facility available and no balance drawn.
Debt - At our discretion, we obtain debt financing through the issuance of pass-through trust certificates to purchase, or refinance, aircraft. In December 2019, we issued the 2019-1 EETC, for the purpose of financing or refinancing 13 used aircraft.
In March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. The 2022-1 EETC is secured by a lien on the financed or refinanced aircraft and is cross collateralized by the other aircraft financed through the issuance. Total appraised value of the aircraft and engines financed by the 2022-1 EETC was approximately $259,688 as of the original date of the agreement.
For more information on our credit facilities or debt, see Note 7 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Condition IndicatorsThe table below presents the major indicators of financial condition and liquidity:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 131,912 | | | $ | 309,338 | | Cash and Cash Equivalents | $ | 26,967 | | | $ | 92,086 | |
Available-for-Sale Securities | Available-for-Sale Securities | 128,569 | | | — | | Available-for-Sale Securities | 146,519 | | | 172,635 | |
Amount Available Under Revolving Credit Facility | Amount Available Under Revolving Credit Facility | 24,650 | | | 25,000 | | Amount Available Under Revolving Credit Facility | 24,650 | | | 24,650 | |
Total Liquidity | Total Liquidity | $ | 285,131 | | | $ | 334,338 | | Total Liquidity | $ | 198,136 | | | $ | 289,371 | |
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Total Debt | $ | 370,197 | | | $ | 277,426 | | |
Total Debt, net | | Total Debt, net | $ | 435,105 | | | $ | 352,235 | |
Finance Lease Obligations | Finance Lease Obligations | 255,128 | | | 192,155 | | Finance Lease Obligations | 263,281 | | | 251,296 | |
Operating Lease Obligations | Operating Lease Obligations | 27,789 | | | 76,041 | | Operating Lease Obligations | 19,394 | | | 26,132 | |
Total Debt and Lease Obligations | 653,114 | | | 545,622 | | |
Total Debt, net, and Lease Obligations | | Total Debt, net, and Lease Obligations | 717,780 | | | 629,663 | |
Stockholders' Equity | Stockholders' Equity | 508,005 | | | 490,589 | | Stockholders' Equity | 519,361 | | | 492,712 | |
Total Invested Capital | Total Invested Capital | $ | 1,161,119 | | | $ | 1,036,211 | | Total Invested Capital | $ | 1,237,141 | | | $ | 1,122,375 | |
| Debt-to-Capital | 0.56 | | | 0.53 | | |
Debt-to-Capital Ratio | | Debt-to-Capital Ratio | 0.58 | | | 0.56 | |
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)
Sources and Uses of Liquidity
| | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | $ | | % |
| 2023 | | 2022 | | Change | | Change |
Total Operating Activities | $ | 102,651 | | | $ | 71,671 | | | $ | 30,980 | | | 43 | % |
| | | | | | | |
Investing Activities: | | | | | | | |
Purchases of Property & Equipment | (210,641) | | | (177,658) | | | (32,983) | | | 19 | % |
Purchases of Investments | (82,574) | | | (130,529) | | | 47,955 | | | (37) | % |
Proceeds from the Maturities of Investments | 110,850 | | | — | | | 110,850 | | | NM |
Other, net | 4,087 | | | 10,577 | | | (6,490) | | | (61) | % |
Total Investing Activities | (178,278) | | | (297,610) | | | 119,332 | | | (40) | % |
| | | | | | | |
Financing Activities: | | | | | | | |
Common Stock Repurchases | (55,051) | | | — | | | (55,051) | | | NM |
Proceeds from Borrowings | 119,200 | | | 188,277 | | | (69,077) | | | (37) | % |
Repayment of Finance Lease Obligations | (16,390) | | | (37,842) | | | 21,452 | | | (57) | % |
Repayment of Borrowings | (35,475) | | | (95,305) | | | 59,830 | | | (63) | % |
Other, net | (1,665) | | | (901) | | | (764) | | | 85 | % |
Total Financing Activities | 10,619 | | | 54,229 | | | (43,610) | | | (80) | % |
Net Decrease in Cash | $ | (65,008) | | | $ | (171,710) | | | $ | 106,702 | | | (62) | % |
"Cash" consists of Cash, Cash Equivalents and Restricted Cash
"NM" stands for not meaningful
Operating Cash Flow Activities
Operating activities in the nine months ended September 30, 20222023 provided $71,671,$102,651, as compared to providing $116,358$71,671 during the nine months ended September 30, 2021.2022. During the nine months ended September 30, 2022 and 2021,2023, our Net Income was $10,392 and $82,334, respectively.$66,536, as compared to a Net Income in 2021 benefited from $71,587 in grants received underof $10,392 during the CARES Act.nine months ended September 30, 2022.
Our operating cash flow is primarily impacted by the following factors:
Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in Air Traffic Liabilities. Air Traffic Liabilities typically increase during the fall and early winter months as advanced ticket sales grow prior to the late winter and spring peak travel season and decrease during the summer months.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, 2023, $152,292 of revenue recognized in Passenger revenue was included in the $157,995 of Air Traffic Liabilities as of December 31, 2022. The balance of Air Traffic Liabilities as of September 30, 2023 was materially unchanged year-over-year.
Aircraft Fuel. Aircraft Fuel expense represented approximately 33%27% and 26%33% of our total operating expense for the nine months ended September 30, 20222023 and 2021,2022, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. Fuel consumption increasedcost per gallon decreased by 20%18% year-over-year due to the impact of global geopolitical events on the price of fuel during the nine months ended September 30, 2022 compared to prior year, consistent with2022. Fuel consumption increased passengers asby 10% during the impactnine months ended
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)
September 30, 2023, compared to the prior year as a result of the pandemic subsides. Additionally, the costincrease in fleet size and total operations. We expect volatility in Aircraft Fuel prices per gallon increased by 83% year-over-year. We expect a trend of higher year-over-year fuel costs per gallon to continue forthroughout the remainder of 20222023 due to current market conditions further exacerbated byand global geopolitical events.
CARESAct. During As capacity has grown due to the nine months ended September 30, 2022increase in the year-over-year average passenger aircraft during the period, we did not receive any funding from the CARES Act. During the nine months ended September 30, 2021, we received $71,587 in CARES Act grants and $848 in employee retention tax credits. expect that fuel consumption will remain higher for full year 2023 as compared to 2022.
Investing Cash Flow Activities
Capital Expenditures. Our capital expenditures were $177,658$210,641 and $118,016$177,658 for the nine months ended September 30, 2023 and 2022, respectively. Our capital expenditures during the nine months ended September 30, 2023 primarily included the purchase of five Aircraft Held for Operating Lease and 2021, respectively.one incremental aircraft for our passenger fleet. 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 other miscellaneous projects. The final installment on
Investments. During the flight simulator will be remittednine months ended September 30, 2023, the Company's net investment activity resulted in cash inflows of $28,276 due to the seller upon receipt and installation. Thematuring debt securities exceeding purchases of investments. These maturing cash inflows were used to fund the purchase of 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 related2023. During the second quarter of 2022 we changed our investment strategy which led to the purchasespurchase of seven aircraft, six of which were existing aircraft previously under operating leases.
Investments. During 2022, the Company purchased $130,529 of investments. Primarily all of these purchases were debt securities, which are classified as Current Assets because of their highly liquid nature and availability to be converted into cash to fund current operations.investments during the nine months ended September 30, 2022.
Financing Cash Flow Activities
IPO.Debt In March 2021, we completed our IPO. In total, 10,454,545 shares were issued and. During the net proceeds tonine months ended September 30, 2023, the Company were $225,329 after deducting underwriting discounts and commissions, and other offering expenses.executed a term loan credit facility with a face amount of $119,200 for the purpose of financing the five Aircraft Held for Operating Lease. The proceeds from the IPO were immediately usedloan is to repay our $45,000 loan with the U.S. Treasury, plus interest.
Debt.be repaid monthly over 7 years. In March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. Five of these aircraft were owned fleet assets previously financed by the DDTL, which was repaid with the proceeds from the 2022-1 EETC.
For additional information regarding these financing arrangements, see Note 7 ofThe Company is required to make bi-annual principal and interest payments on the Notes2022-1 EETC each March and September, through March 2031. The Company is required to make bi-annual principal and interest payments on the Condensed Consolidated Financial Statements included in Part I, Item I of this report.2019-1 EETC each June and December, through December 2027.Finance Leases. Our repayments of finance lease obligations were $37,842$16,390 and $9,113$37,842 for the nine months ended September 30, 20222023 and 2021,2022, respectively. During the nine months ended September 30, 2022, the Company exercised the purchase options onpurchased two aircraft previously classified as a finance leaseslease using proceeds from the issuance of the 2022-1 EETC. The resulting cash outflows are recorded as payments for finance lease obligations. There were no similar aircraft transactions during the nine months ended September 30, 2021.2023. As of September 30, 2023 and 2022, the Company had 13 and 11 aircraft finance leases, respectively.
Off Balance Sheet Arrangements
IndemnitiesCommon Stock Repurchases. . Our aircraft, equipment and other leases and certain operating agreements typically contain provisions requiring us, asDuring the lessee, to indemnifynine months ended September 30, 2023, the other parties to those agreements, including certainCompany repurchased 3,307,541 shares of those parties’ related persons, against virtually any liabilities that might arise from the use or operationits Common Stock at an average price of $16.64 per share. The repurchases were part of a secondary public offering of the aircraft or such other equipment. We believe that our insurance covers mostCompany's shares by the Apollo Stockholder, as well as open market purchases completed in the second and third quarters. For more information on the stock repurchase program and this purchase, see Note 11 of our exposurethe Condensed Consolidated Financial Statements included in Part I, Item I of this report.Other. During the nine months ended September 30, 2023, the Company made a payment of $2,425 to liabilities and related indemnities associated with the leases described above.TRA holders. For more information on the payment of the TRA, see Note 10 of the Condensed Consolidated Financial Statements included in Part I, Item I of this report.
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)
Off Balance Sheet Arrangements
Pass-Through Trusts. We have equipment notes outstanding issued underFor a detailed discussion on the 2019-1 EETC and 2022-1 EETC. Generally, the structurenature of the EETC financings consistsCompany's Off Balance Sheet Arrangements, see “Management’s Discussion and Analysis of pass-through trusts created by us to issue pass-through certificates, which represent fractional undivided interestsOperations” in the respective pass-through trusts and are not obligations of Sun Country. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by us and secured by our aircraft. The payment obligations under the equipment notes are those of Sun Country. We use these certificates to finance or refinance aircraft purchases. The obligations are listed inPart II, NoteItem 7 ofin our 2022 10-K. There have been no material changes to the Condensed Consolidated Financial Statements included in Part I, Item I of this report.Fuel Consortia. We currently participate in fuel consortia at Minneapolis-Saint Paul International Airport, Las Vegas International Airport, Dallas-Fort Worth International Airport, San Diego International Airport, Los Angeles International Airport, Seattle Tacoma International Airport, Portland International Airport, Phoenix Sky Harbor International Airport, Orlando International Airport, Southwest Florida International Airport and San Francisco International Airport and we expectCompany's Off Balance Sheet Arrangements as compared to expand our participation with other airlines in fuel consortia and fuel committees at our airports where economically beneficial. These agreements generally include cost-sharing provisions and environmental indemnities that are generally joint and several among the participating airlines. Consortia that are governed by interline agreements are either, (i) not variable interest entities (“VIEs”) because they are not legal entities, or (ii) are variable interest entities, but the Company is not deemed the primary beneficiary. Therefore, these agreements are not reflected on our Condensed Consolidated Balance Sheets. There are no assets or liabilities on our Balance Sheets related to these VIEs, since our participation is limited to purchasing aircraft fuel.2022 10-K.
We have no other off-balance sheet arrangements.
Commitments and Contractual Obligations
We have contractual obligations comprised of aircraft leases and supplemental maintenance reserves, payments of debt, interest, other lease arrangements, and the TRA.
During the second quarter of 2022, an owned aircraft was retired due to the aircraft sustaining damage beyond economic repair. The best estimate of this event was recorded as of the 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.
During the nine months ended September 30, 2022, the Company executed an agreement to purchase a flight simulator at a total purchase price of $9,745. To date, $8,781 has been remitted to the seller. The remaining purchase price will be remitted to the seller upon receipt and installation of the simulator. Payments for the simulator are accounted for within Property & Equipment on the Condensed Consolidated Balance Sheets as of September 30, 2022.
For additional information, refer toSee Note 1312 Commitments and Contingencies to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Except as described herein,10-Q for more information regarding commitments and contractual obligations.Recently Adopted Accounting Pronouncements
During the nine months ended September 30, 2023, there were no recently adopted accounting standards that had a material impact to the Company.
Critical Accounting Policies and Estimates
Our unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of the Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. For more information on our critical accounting policies, see “Management’s Discussion and Analysis of Operations” sections within Part II, Item 7, respectively, in our 2022 10-K. There have been no material changes into our contractual obligationscritical accounting policies and commitments other than inestimates as compared to the ordinary course of business since our fiscal year ended December 31, 2021.2022 10-K.
SUN COUNTRY AIRLINES HOLDINGS, INC
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risks in the ordinary course of our business. These risks include commodity price risk, specifically with respect to aircraft fuel, as well as interest rate risk. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Accordingly, actual results may differ from the information provided below.
Aircraft Fuel. Unexpected pricing changes of aircraft fuel could have a material adverse effect on our business, results of operations and financial condition. To hedge the economic risk associated with volatile aircraft fuel prices, we periodically enter into fuel collars, which allows us to reduce the overall cost of hedging, but may prevent us from participating in the benefit of downward price movements. In the past, we have also entered into fuel option and swap contracts. We had no hedges in place at September 30, 2022.2023. We do not hold or issue option or swap contracts for trading purposes. We currently do not expect to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions. Based on our forecasted scheduled service and charter fuel consumption for the fourth quarter of 2022,2023, we estimate that a one cent per gallon increase in the average aircraft fuel price would increase aircraft fuel expense by approximately $175$200 excluding reimbursed fuel from cargo fuel.and certain charter customers.
Interest Rates. We have exposure to market risk associated with changes in interest rates related to the interest expense from our variable-rate debt and our short-term investment securities. A change in market interest rates would impact interest expense under the Revolving Credit Facility, totaling $25,000 in principal capacity. During$119,200 term loan credit facility used to finance the first quarter, we repaid the outstanding balance of the DDTL using proceeds from the 2022-1 EETC, which terminated the DDTL. We are unable to draw any additional amounts from the DDTL and no longer face any exposure to market risk on this portion of our Credit Facilities. Assuming the Revolving Credit Facility is fully drawn, aAircraft Held for Operating Lease. A 100 basis point increase in interest rates on the September 30, 2023 balance of the term loan would result in a corresponding increase in interest expense of approximately $250$1,121 annually. As of the date of this filing, the entire term loan credit facility had been drawn. The Company also maintains a $25,000 Revolving Credit Facility with a variable interest rate that is impacted by market conditions. As of September 30, 2023, the Company had $24,650 of financing available through the Revolving Credit Facility, as $350 had been pledged to support a letter of credit. As of September 30, 2023, no amounts on the Revolving Credit Facility had been drawn.
Our short-term investment securities are primarily comprised of fixed-rate debt investments. An increase in market interest rates decreases the market value of fixed-rate investments. Conversely, a decrease in market interest rates increases the market value. The fair market value of our short-term investments with exposure to interest rate risk was $128,569$146,519 as of September 30, 2022. These investments are highly liquid and are available to be quickly converted into known amounts of cash to fund current operations.2023. The Company limits its investments to investment grade quality securities. Given these factors and that a significant portion of our portfolio is held in cash and cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures arerepresent controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time 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 reports filed or submitted under the Exchange Act is accumulated and communicated to our Management,management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 underIn connection with the preparation of this Form 10-Q, pursuant to Rule 13a-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation ofhas evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022. 2023.
Based upon thison the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and Chief Financial Officer have concluded that due to the existence of the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and
SUN COUNTRY AIRLINES HOLDINGS, INC
15d-15(e) under the Exchange Act) were not effective as of September 30, 20222023, due to provide reasonable assurance that the information required to be 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 Management as appropriate to allow timely decisions regarding required disclosure. In light of this fact, Management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknessweaknesses 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.described below.
Material WeaknessWeaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We previously disclosed in our QuarterlyAnnual Report on Form 10-Q10-K as of June 30,December 31, 2022 that Managementmanagement identified a material weakness in the Company's internal control over financial reporting. Specifically, Management's controls over the accounting for complex, non-routine transactions were not designed or implemented to operate with a sufficient level of precision. This included controls addressing the application of ASC Topic 842, Leases, to the purchase of aircraft subject to an existing operating lease.
ThisDuring the quarter ended June 30, 2023, management identified an additional material weakness in the Company’s internal control deficiencyover financial reporting. Specifically, the Company did not have an effective risk assessment process to identify and assess the risks of misstatement associated with the utilization of a third-party service organization's hosted IT solution for automating the processing of vendor invoices (i.e., scanning, routing, approving, and preparing the recording of invoices) and hosting of related information. As a result, management’s information technology general controls (“ITGCs”) over the IT application used by the service organization and process-level controls over the procurement activities carried out by the third-party service organization were not designed or implemented to operate at a sufficient level of precision. The Company also did not obtain a System and Organization Controls ("SOC") Report from the third-party that would provide evidence of design, implementation, and operating effectiveness of such controls within the service organization’s framework of internal controls.
These control deficiencies did not result in a material misstatement of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q or our prior period consolidated annual or interim financial statements. However, theeach of these control deficiency createddeficiencies create a reasonable possibility that a material misstatement to the annual or interim consolidated financial statements wouldwill not have beenbe prevented or detected on a timely basis. Accordingly, Managementmanagement has concluded that thiseach control deficiency constituted a material weakness.weakness in the Company's internal control over financial reporting and our internal control over financial reporting was not effective as of September 30, 2023.
Remediation Plan
Management has begun supplementingis continuing to supplement and enhance the Company's system of internal control over financial reporting through actions responsive to each identified material weakness. The remediation plan for the material weakness associated with accounting for complex, non-routine transactions, includes the following actions:following:
•Hired a technical accounting specialist and manager after the material weakness occurred;
•Provided additional training on how to utilize external technical accounting research resources;
•EngagingReviewed all existing internal accounting policies and accounting guidance memos for completeness and the appropriate accounting guidance, including those surrounding leases;
•Established a policy to provide additional guidance surrounding the use of third-party specialists;
•Enhanced the design of financial reporting controls, specifically sub-certifications and review of non-routine transactions including updating the lease accounting checklist;
•Engaged third-party specialists, as necessary, to review Management’smanagement’s analysis and conclusions on the accounting for non-routine transactions involving the application of complex accounting standards; and
•ContinuingContinued to review and make necessary changes to the overall design of our risk assessment and review controls over accounting for complex, non-routine transactions, including lease-related transactions.transactions;
•Re-designed the overall design of our risk assessment process with utilization of a new third-party tool; and
•Established a policy and internal controls surrounding transactions related to a new lessor relationship.
We have made significant progress in accordance with our remediation plan; however,plan related to the material weakness in controls over the accounting for complex, non-routine transactions since the filing of our June 30, 2023 10-Q as follows:
•Continued to engage third-party technical accounting specialists to review management's conclusions on the accounting for non-routine transactions occurring in the third quarter of 2023;
•Continued to perform management's controls surrounding the accounting for complex, non-routine transactions, including those associated with the acquisition and related financing of additional aircraft, and those involved with becoming a first-time aircraft lessor; and
•Provided "refresher" training on how to utilize external technical accounting research resources.
The remediation plan for the material weakness associated with the controls over the utilization of a third-party service organization's hosted IT solution for automating the processing of vendor invoices and hosting of related information, includes the following:
•Understand the timing and scope of the third-party service organization's attestation report to determine whether the attestation will be adequate and performed in a timely manner to cover our fiscal year;
•Where a SOC attestation is not completed, explore alternative solutions including, but not limited to, a) bringing the application on premise so the necessary IT infrastructure and related processes and controls surrounding the IT application can be entirely within the Company’s control, and b) evaluating other service providers that are able to provide a SOC attestation report; and
•Enhance the design and operation of manual internal controls within the Company, including tracking and reviewing of vendor invoices outside of the third-party service organization’s application and processes, in the event an adequate and timely SOC attestation report is not available from the third-party service organization and other viable solutions are not pursued.
We have made significant progress in accordance with our remediation plan related to the material weakness in controls over the utilization of a third-party service organization’s hosted IT solution for automating the processing of vendor invoices and hosting of related information since the filing of our June 30, 2023 10-Q as follows:
•Established and tested the IT infrastructure necessary to operate the vendor’s application on premise;
•Completed the move of the historical data and implemented internal processes and controls surrounding the IT application in order to operate it entirely within the Company’s control; and
•Continuing to enhance the risk assessment process and design of our process-level controls over procurement activities so they operate at a sufficient level of precision.
Each material weakness will not be considered remediated until a sustained period of time has passed to allow management to test the design and operationaloperating effectiveness of the new or enhanced controls implemented as a result of the corrective actions. We believe that our remediation planplans will be sufficient to remediate the identified material weaknessweaknesses and strengthen our internal control over financial reporting. However, as we continue to evaluate and work to improve our internal control over financial reporting, Managementmanagement may determine that additional measures to address the identified control deficiencies or modifications to the remediation planplans are necessary. Therefore, we cannot assure you when the Company will remediate the material weaknessweaknesses identified above, nor can we be certain that additional actions will not be required and what the costs of any such additional actions may be. Moreover, we cannot assure you that additional material weaknesses will not arise in the future.
SUN COUNTRY AIRLINES HOLDINGS, INC
Despite the existence of these material weaknesses, our management believes that the Condensed Consolidated Financial Statements included in this Quarterly Report present fairly, in all material respects, the Company's financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Changes in Internal Control Over Financial Reporting
Other than the changes made as part of the remediation planplans described above, there has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. We currently believe that the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on our financial position, liquidity or results of operations.
ITEM 1A. RISK FACTORS
We have disclosed under the heading “Risk Factors” in our 20212022 10-K,March 31, 2023 10-Q, and June 30, 2023 10-Q, 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 our 20212022 10-K, March 31, 2023 10-Q, June 30, 2023 10-Q and the risk factorfactors 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. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Risks Related to Ownership of Our Common StockIndustry
As previously disclosed, we have identified a material weakness in our internal control over financial reportingTerrorism, war, and if we are unable to remediate this material weakness, weother events may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
As disclosed in Part I, Item 4, “Controls and Procedures,” we have previously disclosed the identification of a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The control deficiency described below created a reasonable possibility that a material misstatement to the annual or interim consolidated financial statements would not have been prevented 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 accounting for complex, non-routine transactions were not designed or implemented to operate with a sufficient level of precision. This included controls addressing the application of ASC Topic 842, Leases, to the purchase of aircraft subject to an existing operating lease.
Failure to have effective internal control over financial reporting and disclosure controls and procedures could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of our 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, in some circumstances, failure to
SUN COUNTRY AIRLINES HOLDINGS, INC
maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities.
As described in Part 1, Item 4, Management began supplementing the system of internal control over financial reporting to address the material weakness. Such remediation measures may require additional time and resources and there is no assurance that these initiatives will ultimately have the intended effects. As Management continues to evaluate and work to improve our internal control over financial reporting, Management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when the Company will remediate such weakness, nor can we be certain that additional actions will not be required and what costs of any such additional actions may be. In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts nor that additional material weaknesses will not arise in the future or that Management has identified all material weaknesses. If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement 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.
If we fail to remediate the material weakness and maintain effective internal control over financial reporting or disclosure controls and procedures, we may not be able to rely on the integrity of our financial results, which could result in inaccurate 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 regulations. Any of these could result in delisting actions by the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, stockholder investigations and lawsuits, and could adversely affect our business and the trading price of our common stock. The potential consequences of any material weakness could have a material adverse effect onharm our business, results of operations and financial condition.
The continued threat of terrorism and heightened security and military action in response thereto, or any other current or future acts of terrorism, war (such as the Hamas-Israel and the Russia-Ukraine military conflicts), and other events (such as economic sanctions and trade restrictions, including those related to the foregoing) may cause further disruptions to the economies of the United States and other countries and create further uncertainties or could otherwise negatively impact our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.The following table summarizes the Company's repurchases of Common Stock for the quarter ended September 30, 2023. All stock repurchases during the quarter reflect shares repurchased pursuant to the Company's stock repurchase program and shares withheld from employees to satisfy the taxes due in connection with grants of stock under the Company's equity incentive plans. The shares of Common Stock withheld to satisfy tax withholding obligations are considered to be "issuer purchases" of shares that are required to be disclosed pursuant to this Item, but are not considered to be part of the Company's stock
repurchase program. For more information on the Company's stock repurchase program, see Note 11 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Approximate Dollar Value ($ in thousands) of Shares that May Yet be Purchased Under Plan (2) |
July 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 2,759 | |
August 1-31, 2023 (1) | | 1,236,023 | | | 15.45 | | | 1,236,023 | | | 13,667 | |
September 1-30, 2023 | | 904,767 | | | 15.11 | | | 904,767 | | | — | |
Total | | 2,140,790 | | | $ | 15.30 | | | 2,140,790 | | | $ | — | |
__________________________
(1)On August 1, 2023, the Company's Board of Directors authorized the addition of $30,000 to the Company's existing stock repurchase program, which increased the total amount of authorization remaining to repurchase shares of the Company's Common Stock as of that date to $32,759.
(2)Subsequent to September 30, 2023, the Company's Board of Directors authorized the addition of $25,000 to the Company's existing stock repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.Our directors and executive officers may purchase or sell shares of our common stock in the market from time to time, including pursuant to equity trading plans adopted in accordance with Rule 10b5-1 under the Exchange Act ("Rule 10b5-1") and in compliance with guidelines specified by the Company. In accordance with Rule 10b5-1 and the Company’s insider trading policy, directors, officers and certain employees who, at such time, are not in possession of material non-public information about the Company are permitted to enter into written plans that pre-establish amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s equity plans ("Rule 10b5-1 Trading Plans"). Under a Rule 10b5-1 Trading Plan, a broker executes trades pursuant to parameters established by the director or executive officer when entering into the plan, without further direction from them. The following table describes contracts, instructions or written plans for the sale or purchase of our securities adopted, terminated or modified by our directors and executive officers during the three months ended September 30, 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Title | | Adoption, Termination or Modification | | Date of Adoption, Termination or Modification | | Duration of Plan (Scheduled Expiration Date of Plan) | | Number of Securities to be Purchased (Sold) under the Plan |
Dave Davis, President and Chief Financial Officer | | Termination | | August 21, 2023 | | December 29, 2023 | | (162,422) |
Dave Davis, President and Chief Financial Officer | | Adoption | | August 21, 2023 | | May 3, 2024 | | (350,720) |
ITEM 6. EXHIBITS
(a)Exhibits
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101.INS* | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104* | Cover Page Interactive Data Files (formatted as inline XBRL and contained in Exhibit 101) |
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* | Filed herewith |
# | Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request. |
SUN COUNTRY AIRLINES HOLDINGS, INC
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Sun Country Airlines Holdings, Inc. (Registrant) |
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| /s/ Dave Davis |
| Dave Davis |
| President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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November 2, 20227, 2023 | |