Spirit Airlines Reports Second Quarter 2017 Results

Company Release - 7/27/2017 6:30 AM ET

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* Seasonal Summer Service
** Seasonal Winter Service

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

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

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

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

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

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

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

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

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

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

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

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

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

Special Items

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

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense

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

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

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

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

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

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

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

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

Calculation of Return on Invested Capital, non-GAAP

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

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


Investor Relations Contact:
DeAnne GabelInvestorRelations@spirit.com

Media Contact:
Paul BerryPaul.Berry@spirit.com

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Source: Spirit Airlines, Inc.