Spirit Airlines Reports First Quarter 2016 Adjusted Pre-Tax Margin of 21.3 Percent (1)

Company Release - 4/26/2016 6:30 AM ET

MIRAMAR, Fla., April 26, 2016 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported first quarter 2016 financial results.

  • Adjusted net income for the first quarter 2016 was $72.3 million ($1.01 per diluted share)1.  GAAP net income for the first quarter 2016 was $61.9 million ($0.86 per diluted share).

  • Adjusted pre-tax margin for the first quarter 2016 was 21.3 percent1.  On a GAAP basis, pre-tax margin for the first quarter 2016 was 18.2 percent.
  • Unrestricted cash and cash equivalents as of March 31, 2016 was $902.8 million.
  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended March 31, 2016 was 28.3 percent2.

“I want to thank our Spirit team members for their contributions in achieving these solid first quarter results.  The pricing environment remains very competitive, but we aren't just sitting passively by.  We have upgraded our pricing systems, made modest revisions to our schedules, and adjusted our approach to inventory management, all of which have produced improvements to our revenue results," said Bob Fornaro, Spirit’s Chief Executive Officer.  "As we head into the peak summer travel months, we are focused on continued cost and revenue execution, improving our operational reliability and providing friendly customer service."

Revenue Performance
For the first quarter 2016, Spirit's total operating revenue was $538.1 million, an increase of 9.1 percent compared to the first quarter 2015, driven by an increase in flight volume, partially offset by a decrease in operating yields.

Total revenue per passenger flight segment ("PFS") for the first quarter 2016 decreased 13.0 percent, or $16.08, year over year to $107.88, primarily driven by a 20.5 percent decrease, or $14.06, in ticket revenue per PFS.  Non-ticket revenue declined 3.7 percent, or $2.02, year over year on a per flight segment basis to $53.23.  Although non-ticket revenue per passenger segment remains relatively stable, the Company has experienced modest pressure on take rates for certain ancillary items which it believes is correlated to low fare levels in its markets.

Cost Performance
Adjusted operating expense for the first quarter 2016 increased 10.2 percent, or $39.0 million, to $420.4 million3 on a capacity increase of 26.5 percent year over year.  During the first quarter 2016, the Company purchased two A319 aircraft it formerly financed under operating lease agreements which resulted in lease termination charges.  GAAP total operating expenses, including special items of $16.4 million4 that are primarily driven by lease termination charges, increased 13.7 percent, or $52.7 million, year over year to $436.8 million.

Economic fuel expense decreased 23.5 percent, or $24.7 million, year over year on a 24.4 percent increase in fuel volume.  This decrease was driven by a 37.4 percent decrease in the average economic fuel cost per gallon compared to the same period last year.

Spirit reported first quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel (“Adjusted CASM ex-fuel”)3 of 5.59 cents, a decrease of 2.3 percent compared to the same period last year, driven primarily by lower aircraft rent per ASM.  The decrease in aircraft rent per ASM was driven by a change in the mix of leased (rent recorded under aircraft rent) and purchased (depreciation recorded under depreciation and amortization) aircraft.  This benefit was partially offset by higher other operating expense related to increased passenger re-accommodation expense, and higher depreciation and amortization expense related to the depreciation of aircraft.  Additionally, during the first quarter 2016, the Company and its flight attendants, represented by the Association of Flight Attendants - CWA (AFA), reached a tentative agreement for a five-year contract.  During the first quarter 2016, labor expense per ASM was higher year over year due to the accrual of a one-time ratification incentive payment of $8.4 million related to this tentative agreement.

"Our greatest competitive strength is our relative cost advantage.  We are focused on getting better all the time and doing so while maintaining, or improving upon, our relative cost advantage," said Ted Christie, Spirit's Chief Financial Officer.  "After adjusting for the economic impact of our tentative flight attendant agreement, including the $8.4 million ratification incentive accrual, we are confident we can hold the line on costs and now estimate our full year 2016 adjusted CASM ex-fuel will be about flat year over year."

During the first quarter 2016, Spirit took delivery of 4 new aircraft (2 A320ceo and 2 A321ceo aircraft), ending the quarter with 83 aircraft in its fleet.

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, April 26, 2016, at 8:30 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 US airline, we operate more than 400 daily flights to 56 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 to GAAP Net Income" table below for more details.
(2)  See "Calculation for Return on Invested Capital" table below for more details.
(3)  See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.
(4)  See "Special Items" table 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. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this report. 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. Additional 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. You should carefully consider the risks described below and the other information in this report. If any of the following risks materialize, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. 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 these and other 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   
 March 31, Percent 
 2016 2015 Change 
Operating revenues:      
Passenger$272,626  $273,466  (0.3) 
Non-ticket265,517  219,889  20.8  
Total operating revenues538,143  493,355  9.1  
Operating expenses:      
Aircraft fuel85,982  112,426  (23.5) 
Salaries, wages and benefits116,410  88,961  30.9  
Aircraft rent52,202  52,788  (1.1) 
Landing fees and other rents34,807  30,546  13.9  
Distribution22,933  20,497  11.9  
Maintenance, materials and repairs20,940  19,160  9.3  
Depreciation and amortization23,109  14,863  55.5  
Other operating64,045  43,843  46.1  
Loss on disposal of assets214  595  (64.0) 
Special charges16,202  425  nm  
Total operating expenses436,844  384,104  13.7  
Operating income101,299  109,251  (7.3) 
Other (income) expense:      
Interest expense8,060  2,812  nm  
Capitalized interest(3,325) (2,533) 31.3  
Interest income(1,566) (134) nm  
Other expense70  72  (2.8) 
Total other (income) expense3,239  217  nm  
Income before income taxes98,060  109,034  (10.1) 
Provision for income taxes36,140  40,032  (9.7) 
Net income$61,920  $69,002  (10.3) 
Basic earnings per share$0.87  $0.94  (7.4) 
Diluted earnings per share$0.86  $0.94  (8.5) 
Weighted average shares, basic71,572  73,054  (2.0) 
Weighted average shares, diluted71,777  73,370  (2.2) 

Statements of Comprehensive Income
(unaudited, in thousands)
 Three Months Ended
 March 31,
 2016 2015
Net income$61,920  $69,002 
Unrealized loss on interest rate derivative instruments, net of
deferred tax benefit of $0 and $940
Interest rate swap losses reclassified into earnings$90  $ 
Other comprehensive income (loss)$90  $(1,594)
Comprehensive income$62,010  $67,408 

Balance Sheets
(unaudited, in thousands)
 March 31, December 31,
 2016 2015
Current assets:   
Cash and cash equivalents$902,809  $803,632 
Accounts receivable, net32,469  28,266 
Aircraft maintenance deposits79,276  73,415 
Prepaid income taxes  72,278 
Prepaid expenses and other current assets54,760  48,749 
Total current assets1,069,314  1,026,340 
Property and equipment:   
Flight equipment1,031,886  827,282 
Ground and other equipment93,724  82,459 
Less accumulated depreciation(76,703) (65,524)
 1,048,907  844,217 
Deposits on flight equipment purchase contracts289,835  286,837 
Long-term aircraft maintenance deposits196,470  206,485 
Deferred heavy maintenance, net80,144  89,127 
Other long-term assets78,578  77,539 
Total assets$2,763,248  $2,530,545 
Liabilities and shareholders’ equity   
Current liabilities:   
Accounts payable$23,017  $17,043 
Air traffic liability263,430  216,831 
Current maturities of long-term debt53,012  49,637 
Other current liabilities228,137  182,729 
Total current liabilities567,596  466,240 
Long-term debt less current maturities655,103  596,693 
Long-term deferred income taxes242,602  221,481 
Deferred gains and other long-term liabilities20,179  20,821 
Shareholders’ equity:   
Common stock7  7 
Additional paid-in-capital545,377  544,277 
Treasury stock, at cost(126,779) (116,182)
Retained earnings860,674  798,754 
Accumulated other comprehensive loss(1,511) (1,546)
Total shareholders’ equity1,277,768  1,225,310 
Total liabilities and shareholders’ equity$2,763,248  $2,530,545 

Statement of Cash Flows
(unaudited, in thousands)
 Three Months Ended March 31,
 2016 2015
Operating activities:   
Net income61,920  69,002 
Adjustments to reconcile net income to net cash provided by operations:   
Unrealized losses on open derivative contracts, net  3,783 
Losses reclassified from other comprehensive income90   
Equity-based compensation1,790  1,985 
Allowance for doubtful accounts (recoveries)25  31 
Amortization of deferred gains and losses1,968  164 
Depreciation and amortization23,109  14,863 
Deferred income tax expense (benefit)21,066  (5,560)
Loss on disposal of assets214  595 
Lease termination cost16,202   
Changes in operating assets and liabilities:   
Accounts receivable(4,229) (5,444)
Aircraft maintenance deposits(12,311) (12,317)
Prepaid Income Taxes72,278   
Long-term deposits and other assets(8,495) (6,160)
Accounts payable4,703  433 
Air traffic liability46,473  79,350 
Other liabilities33,296  28,810 
Net cash provided by operating activities258,099  169,535 
Investing activities:   
Pre-delivery deposits for flight equipment, net of refunds(50,358) (50,388)
Capitalized interest(2,575) (1,700)
Purchase of property and equipment(159,829) (184,609)
Net cash used in investing activities(212,762) (236,697)
Financing activities:   
Proceeds from issuance of long-term debt73,914  185,000 
Proceeds from stock options exercised88  15 
Payments on debt and capital lease obligations(9,749) (2,968)
Excess tax benefit (deficiency) from equity-based compensation(778) 7,877 
Repurchase of common stock(9,601) (10,943)
Debt issuance costs(34) (2,976)
Net cash provided by financing activities53,840  176,005 
Net increase in cash and cash equivalents99,177  108,843 
Cash and cash equivalents at beginning of period803,632  632,784 
Cash and cash equivalents at end of period$902,809  $741,627 
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$3,430  $11 
Income taxes paid, net of refunds$(64,158) $9,883 

Selected Operating Statistics (unaudited)
 Three Months Ended March 31,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)5,983,005  4,729,463  26.5%
Revenue passenger miles (RPMs) (thousands)5,070,313  4,017,559  26.2%
Load factor (%)84.7  84.9  (0.2) pts
Passenger flight segments (thousands)4,988  3,980  25.3%
Block hours93,545  77,035  21.4%
Departures35,160  29,044  21.1%
Total operating revenue per ASM (TRASM) (cents)8.99  10.43  (13.8)%
Average yield (cents)10.61  12.28  (13.6)%
Average ticket revenue per passenger flight segment ($)54.65  68.71  (20.5)%
Average non-ticket revenue per passenger flight segment ($)53.23  55.25  (3.7)%
Total revenue per passenger flight segment ($)107.88  123.96  (13.0)%
CASM (cents)7.30  8.12  (10.1)%
Adjusted CASM (cents) (1)7.03  8.06  (12.8)%
Adjusted CASM ex-fuel (cents) (2)5.59  5.72  (2.3)%
Fuel gallons consumed (thousands)70,550  56,723  24.4%
Average economic fuel cost per gallon ($)1.22  1.95  (37.4)%
Aircraft at end of period83  70  18.6%
Average daily aircraft utilization (hours)12.8  12.7  0.8%
Average stage length (miles)995  991  0.4%
  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 an analytical tool.  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
 March 31,
(in thousands)2016 2015
Operating special items include the following (1):   
Unrealized losses (gains) related to fuel derivative contracts$  $1,695 
Loss on disposal of assets214  595 
Special charges16,202  425 
Total operating special items$16,416  $2,715 

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
 Three Months Ended
 March 31,
(in thousands, except CASM data in cents)2016 2015
Total operating expenses, as reported$436,844  $384,104 
Less operating special items (1)16,416  2,715 
Adjusted operating expenses, non-GAAP (2)420,428  381,389 
Less: Economic fuel expense85,982  110,731 
Adjusted operating expenses excluding fuel, non-GAAP (3)$334,446  $270,658 
Available seat miles5,983,005  4,729,463 
CASM (cents)7.30  8.12 
Adjusted CASM (cents) (2)7.03  8.06 
Adjusted CASM ex-fuel (cents) (3)5.59  5.72 
  1. Special items include unrealized gains and losses related to outstanding outstanding fuel derivative contracts, loss on disposal of
    assets, and special charges.  Special charges for the first quarter 2016 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 to GAAP Net Income
 Three Months Ended
 March 31,
(in thousands, except per share data) 2016   2015 
Net income, as reported$61,920  $69,002 
Add: Provision for income taxes36,140  40,032 
Income before income taxes, as reported98,060  109,034 
Pre-tax margin, GAAP18.2% 22.1%
Add operating special items (1)16,416  2,715 
Income before income taxes, non-GAAP (2)114,476  111,749 
Adjusted pre-tax margin, non-GAAP (2)21.3% 22.7%
Provision for income taxes (3)42,190  41,029 
Adjusted net income, non-GAAP (2)(3)$72,286  $70,720 
Weighted average shares, diluted71,777  73,370 
Adjusted net income per share, diluted (2)(3)$1.01  $0.96 

Reconciliation of Adjusted Operating Income to GAAP Operating Income
 Three Months Ended
 March 31,
(in thousands)2016 2015
Operating income, as reported$101,299  $109,251 
Operating margin, GAAP18.8% 22.1%
Add operating special items (1)16,416  2,715 
Adjusted operating income, non-GAAP (2)$117,715  $111,966 
Adjusted operating margin, non-GAAP (2)21.9% 22.7%
  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 believes economic fuel expense is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. Economic fuel expense is defined as into-plane fuel expense, realized gains or losses on derivative contracts, plus the economic premium expense related to fuel option contracts in the period the option is benefiting. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding and the timing of premium gain or loss recognition on our outstanding fuel option contracts. Many industry analysts evaluate airline results using economic fuel expense, and it is used in our internal management reporting.

Reconciliation of Economic Fuel Expense to GAAP Fuel Expense
 Three Months Ended
 March 31,
(in thousands, except per gallon data)2016 2015
Fuel expense   
Aircraft fuel, as reported$85,982  $112,426 
Unrealized losses (gains) related to fuel derivative contracts  1,695 
Economic fuel expense, non-GAAP$85,982  $110,731 
Fuel gallons consumed70,550  56,723 
Economic fuel cost per gallon, non-GAAP$1.22  $1.95 

Calculation of Return on Invested Capital
 Twelve Months Ended
(in thousands)March 31, 2016
Operating Income$501,170 
Add operating special items (1)12,098 
Adjustment for aircraft rent210,945 
Adjusted operating income (2)724,213 
Tax (36.9%) (3)267,235 
Adjusted operating income, after-tax456,978 
Invested Capital   
Total debt$708,115 
Book equity1,277,768 
Less: Unrestricted cash902,809 
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,476,615 
Total invested capital2,559,689 
Return on invested capital (ROIC), pre-tax (2)28.3%
Return on invested capital (ROIC), after-tax (2)(3)17.9%
  1. Special items include unrealized gains or losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges primarily related to lease termination costs in the first quarter 2016.
  2. Excludes special items as described above.
  3. Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended March 31, 2016. 

Investor Relations Contact:
DeAnne GabelInvestorRelations@Spirit.com
(954) 447-7920

Media Contact:
Paul BerryPaul.Berry@Spirit.com
(954) 628-4827

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Source: Spirit Airlines, Inc.