Spirit Airlines Reports First Quarter 2017 Results

Company Release - 4/28/2017 6:30 AM ET

MIRAMAR, Fla., April 28, 2017 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported first quarter 2017 financial results.

  • GAAP net income for the first quarter 2017 was $31.9 million ($0.46 per diluted share), or $35.6 million ($0.51 per diluted share)1 excluding special items.
  • GAAP operating margin for the first quarter 2017 was 10.0 percent, or 11.0 percent excluding special items1.
  • Spirit ended the first quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $918.4 million.
  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended March 31, 2017 was 21.0 percent2.

“During the first quarter, our team did an excellent job serving our customers while overcoming challenges caused by the tragic Fort Lauderdale airport event in early January, as well as dealing with various winter storms.  Despite these and other challenges, we continue to make progress in improving our operational reliability. Our on-time performance3 improved 10.2 percentage points to 75.5 percent for the first quarter 2017.  While we still have a ways to go to reach our desired operational goals, I thank the entire Spirit team for their contributions,” said Bob Fornaro, Spirit’s President and Chief Executive Officer.

Revenue Performance
For the first quarter 2017, Spirit's total operating revenue was $591.7 million, an increase of 10.0 percent compared to the first quarter 2016, driven by an 11.9 percent increase in flight volume.

Total revenue per available seat mile (TRASM) for the first quarter 2017 decreased 4.2 percent compared to the same period last year, driven primarily by the calendar shift of Easter which is estimated to have accounted for approximately 3.5 percentage points of the year-over-year decline.  In addition, it is estimated that the tragic Fort Lauderdale airport event and winter storm Helena together contributed another 0.75 percentage points of decline year over year in the first quarter 2017 TRASM.

On a per passenger flight segment basis, total revenue for the first quarter 2017 decreased 1.5 percent year over year to $106.24.

Cost Performance
For the first quarter 2017, total GAAP operating expense, including special items of $5.9 million4 primarily related to lease termination charges, increased 21.9 percent, or $95.5 million, year over year to $532.3 million.  Adjusted operating expense for the first quarter 2017 increased 25.2 percent, or $106.0 million to $526.5 million5.  The increase in both GAAP and adjusted operating expense was primarily driven by higher fuel rates and an increase in flight volume.

Aircraft fuel expense increased in the first quarter 2017 by 62.6 percent, or $53.8 million, compared to the same period last year, due to a 45.1 percent increase in the cost of fuel per gallon and a 12.1 percent increase in fuel gallons consumed.

Spirit reported first quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.62 cents5, an increase of 0.5 percent compared to the same period last year, driven primarily by higher depreciation and amortization and other operating expenses per ASM, largely offset by lower salaries, wages and benefits and lower aircraft rent per ASM.

"Although our TRASM for the first quarter 2017 was down year over year, primarily due to the timing shift of Easter, we continue to see good traction from our ticket and non-ticket revenue initiatives.  Furthermore, our booking trends for the second quarter 2017 indicate we will see solid sequential improvement in TRASM, even without including the benefit from the Easter holiday shift," said Ted Christie, Spirit's Executive Vice President and Chief Financial Officer. "On the cost side, our team did a good job holding the line on Adjusted CASM ex-fuel despite headwinds from amortization expense related to heavy maintenance events, depreciation related to purchased aircraft, and higher ground handling rates and other inflationary pressures that resulted in higher other operating expense."

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

Spirit took delivery of three new A321ceo aircraft and two used A319 aircraft during the first quarter 2017, ending the quarter with 100 aircraft in its fleet.

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, April 28, 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 440 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" table below for more details.
(3)  As defined by the Department of Transportation.
(4) See "Special Items" table for more details.
(5)  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  
  March 31, Percent
  2017 2016 Change
Operating revenues:      
Passenger $299,762  $272,626  10.0 
Non-ticket 291,984  265,517  10.0 
Total operating revenues 591,746  538,143  10.0 
Operating expenses:      
Salaries, wages and benefits 127,138  116,410  9.2 
Aircraft fuel 139,782  85,982  62.6 
Aircraft rent 57,070  52,202  9.3 
Landing fees and other rents 40,448  34,807  16.2 
Depreciation and amortization 31,509  23,109  36.3 
Maintenance, materials and repairs 26,312  20,940  25.7 
Distribution 26,498  22,933  15.5 
Special charges 4,776  16,202  nm 
Loss on disposal of assets 1,105  214  nm 
Other operating 77,703  64,045  21.3 
Total operating expenses 532,341  436,844  21.9 
Operating income 59,405  101,299  (41.4)
Other (income) expense:      
Interest expense 12,473  8,060  54.8 
Capitalized interest (3,580) (3,325) 7.7 
Interest income (1,313) (1,566) (16.2)
Other expense 3  70  nm 
Total other (income) expense 7,583  3,239  nm 
Income before income taxes 51,822  98,060  (47.2)
Provision for income taxes 19,887  36,140  (45.0)
Net income $31,935  $61,920  (48.4)
Basic earnings per share $0.46  $0.87  (47.1)
Diluted earnings per share $0.46  $0.86  (46.5)
Weighted average shares, basic 69,348  71,572  (3.1)
Weighted average shares, diluted 69,592  71,777  (3.0)

Statements of Comprehensive Income
(unaudited, in thousands)
  Three Months Ended
  March 31,
  2017 2016
Net income $31,935  $61,920 
Unrealized gain (loss) on short-term investment securities,
net of deferred taxes of ($8) and $0
Interest rate derivative losses reclassified into earnings,
net of taxes of $31 and $33

 53  57 
Other comprehensive income (loss) $40  $57 
Comprehensive income $31,975  $61,977 

Balance Sheets
(unaudited, in thousands)
  March 31, December 31,
  2017 2016
Current assets:    
Cash and cash equivalents $818,110  $700,900 
Short-term investment securities 100,294  100,155 
Accounts receivable, net 48,692  41,136 
Aircraft maintenance deposits 125,758  87,035 
Prepaid expenses and other current assets 53,677  46,619 
Total current assets 1,146,531  975,845 
Property and equipment:    
Flight equipment 1,608,959  1,461,525 
Ground property and equipment 136,126  126,206 
Less accumulated depreciation (140,535) (122,509)
  1,604,550  1,465,222 
Deposits on flight equipment purchase contracts 330,523  325,688 
Long-term aircraft maintenance deposits 170,631  199,415 
Deferred heavy maintenance, net 71,870  75,534 
Other long-term assets 114,509  110,223 
Total assets $3,438,614  $3,151,927 
Liabilities and shareholders’ equity    
Current liabilities:    
Accounts payable 39,612  15,193 
Air traffic liability 308,958  206,392 
Current maturities of long-term debt 92,672  84,354 
Other current liabilities 231,932  226,011 
Total current liabilities 673,174  531,950 
Long-term debt, less current maturities 991,722  897,359 
Deferred income taxes 327,660  308,143 
Deferred gains and other long-term liabilities 17,712  19,868 
Shareholders’ equity:    
Common stock 7  7 
Additional paid-in-capital 553,820  551,004 
Treasury stock, at cost (219,726) (218,692)
Retained earnings 1,095,568  1,063,633 
Accumulated other comprehensive loss (1,323) (1,345)
Total shareholders’ equity 1,428,346  1,394,607 
Total liabilities and shareholders’ equity $3,438,614  $3,151,927 

Statement of Cash Flows
(unaudited, in thousands)
 Three Months  Ended March 31,
 2017 2016
Operating activities:   
Net income$31,935  $61,920 
Adjustments to reconcile net income to net cash provided by operations:   
Losses reclassified from other comprehensive income84  90 
Equity-based compensation2,816  1,790 
Allowance for doubtful accounts (recoveries)(30) 25 
Amortization of deferred gains and losses and debt issuance costs3,351  1,968 
Depreciation and amortization31,509  23,109 
Deferred income tax expense19,474  21,066 
Loss on disposal of assets1,105  214 
Lease termination costs4,776  16,202 
Changes in operating assets and liabilities:   
Accounts receivable(7,526) (4,229)
Aircraft maintenance deposits(12,774) (12,311)
Prepaid income taxes(846) 72,278 
Long-term deposits and other assets(21,267) (8,495)
Accounts payable18,937  4,703 
Air traffic liability102,207  46,473 
Other liabilities298  33,296 
Net cash provided by operating activities174,162  258,099 
Investing activities:   
Purchase of available-for-sale investment securities(24,490)  
Proceeds from the maturity of available-for-sale investment securities24,219   
Pre-delivery deposits for flight equipment, net of refunds(44,752) (50,358)
Capitalized interest(1,647) (2,575)
Purchase of property and equipment(112,265) (159,829)
Net cash used in investing activities(158,935) (212,762)
Financing activities:   
Proceeds from issuance of long-term debt115,526  73,914 
Proceeds from stock options exercised  88 
Payments on debt and capital lease obligations(10,235) (9,749)
Excess tax (deficiency) benefit from equity-based compensation  (778)
Repurchase of common stock(1,034) (9,601)
Debt issuance costs(2,274) (34)
Net cash provided by financing activities101,983  53,840 
Net (decrease) increase in cash and cash equivalents117,210  99,177 
Cash and cash equivalents at beginning of period700,900  803,632 
Cash and cash equivalents at end of period$818,110  $902,809 
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$3,943  $3,430 
Income taxes paid, net of refunds$2,881  $(64,158)
Non-cash transactions:   
Capital expenditures funded by capital lease borrowings$(130) $(31)

Selected Operating Statistics (unaudited)
 Three Months Ended March 31,  
Operating Statistics2017 2016 Change
Available seat miles (ASMs) (thousands)6,875,899  5,983,005  14.9%
Revenue passenger miles (RPMs) (thousands)5,613,422  5,070,313  10.7%
Load factor (%)81.6  84.7  (3.1) pts
Passenger flight segments (thousands)5,570  4,988  11.7%
Block hours104,035  93,545  11.2%
Departures39,330  35,160  11.9%
Total operating revenue per ASM (TRASM) (cents)8.61  8.99  (4.2)%
Average yield (cents)10.54  10.61  (0.7)%
Average ticket revenue per passenger flight segment ($)53.82  54.65  (1.5)%
Average non-ticket revenue per passenger flight segment ($)52.42  53.23  (1.5)%
Total revenue per passenger flight segment ($)106.24  107.88  (1.5)%
CASM (cents)7.74  7.30  6.0%
Adjusted CASM (cents) (1)7.66  7.03  9.0%
Adjusted CASM ex-fuel (cents) (2)5.62  5.59  0.5%
Fuel gallons consumed (thousands)79,064  70,550  12.1%
Average economic fuel cost per gallon ($)1.77  1.22  45.1%
Aircraft at end of period100  83  20.5%
Average daily aircraft utilization (hours)11.9  12.8  (7.0)%
Average stage length (miles)985  995  (1.0)%

(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
     March 31,
(in thousands)    2017 2016
Operating special items include the following (1):                                       
Loss on disposal of assets    1,105  214 
Special charges    4,776  16,202 
Total operating special items    $5,881  $16,416 

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
  Three Months Ended
            March 31,
(in thousands, except CASM data in cents) 2017 2016
Total operating expenses, as reported $532,341  $436,844 
Less operating special items (1) 5,881  16,416 
Adjusted operating expenses, non-GAAP (2) 526,460  420,428 
Less: Economic fuel expense 139,782  85,982 
Adjusted operating expenses excluding fuel, non-GAAP (3) $386,678  $334,446 
Available seat miles                               6,875,899  5,983,005 
CASM (cents) 7.74  7.30 
Adjusted CASM (cents) (2) 7.66  7.03 
Adjusted CASM ex-fuel (cents) (3) 5.62  5.59 

(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
 March 31,
(in thousands, except per share data) 2017  2016
Net income, as reported$31,935  $61,920 
Add: Provision for income taxes 19,887   36,140 
Income before income taxes, as reported 51,822   98,060 
Pre-tax margin, GAAP 8.8%  18.2%
Add operating special items (1)$5,881  $16,416 
Adjusted income before income taxes, non-GAAP (2) 57,703   114,476 
Adjusted pre-tax margin, non-GAAP (2) 9.8%  21.3%
Add:  Total other (income) expense 7,583   3,239 
Adjusted operating income, non-GAAP(2) 65,286   117,715 
Adjusted operating margin, non-GAAP(2) 11.0%  21.9%
Provision for adjusted income taxes (3) 22,144   42,190 
Adjusted net income, non-GAAP (2)(3)$35,559  $72,286 
Weighted average shares, diluted 69,592   71,777 
Adjusted net income per share, diluted (2)(3)$ 0.51  $ 1.01 
Total operating revenues$591,746  $538,143 

(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 its business, because it most closely approximates the net cash outflow associated with purchasing fuel used for its 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 its 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 its 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)                                                                 2017 2016
Fuel expense    
Aircraft fuel, as reported $139,782  $85,982 
Fuel gallons consumed 79,064  70,550 
Economic fuel cost per gallon, non-GAAP $1.77  $1.22 

Calculation of Return on Invested Capital
   Twelve Months Ended
(in thousands)  March 31, 2017
Operating income  $401,767 
Add operating special items (1)  30,841 
Adjustment for aircraft rent          206,543 
Adjusted operating income (2)  639,151 
Tax (37.1%) (3)  237,125 
Adjusted operating income, after-tax  $402,026 
Invested capital:   
Total debt  $1,084,394 
Book equity  1,428,346 
Less: Unrestricted cash, cash equivalents & short-term investments  918,404 
Add: Capitalized aircraft operating leases (7x Aircraft Rent)  1,445,801 
Total invested capital  $3,040,137 
Return on invested capital (ROIC), pre-tax (2)  21.0%
Return on invested capital (ROIC), after-tax (2)(3)  13.2%

(1) See "Special Items" for more details.
(2) Excludes special items.
(3) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended March 31, 2017. 


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.