Spirit Airlines, Inc.
Oct 28, 2014

Spirit Airlines Announces Record Third Quarter 2014 Results: Third Quarter 2014 Adjusted Net Income Increases 27.6 Percent to $73.9 Million

MIRAMAR, Fla., Oct. 28, 2014 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (Nasdaq:SAVE) today reported third quarter 2014 financial results.

"I want to say thank you to our team members for their contributions to our strong third quarter performance, achieving a record third quarter adjusted operating margin of 21.3 percent3," said Ben Baldanza, Spirit's Chief Executive Officer. "During the third quarter, the benefits of improved operational performance helped to offset cost pressures which included additional pilot costs as a result of new crew duty and rest rules as mandated under FAR 117 and the phasing of our growth. Our Bare Fare™ plus Frill Control™ business model continues to perform very well, and we are excited about the new markets we have planned for next year and are committed to successfully execute on our growth plans."

Revenue Performance

For the third quarter 2014, Spirit's total operating revenue was $519.8 million, an increase of 13.8 percent compared to the third quarter 2013. The increase was primarily driven by our growth in flight volume and higher operating yields.

Total revenue per available seat mile ("RASM") for the third quarter 2014 was 12.45 cents, a decrease of 0.8 percent compared to the third quarter 2013. A year-over-year increase in average stage length for the third quarter 2014 contributed 0.4 percentage points to the decline in RASM. In addition, average load factor for the third quarter 2014 declined 1.5 pts, in part due to increased margin accretive flying on non-peak travel days (Tuesday/Wednesday), contributing to the decrease in RASM.

Passenger flight segment ("PFS") volume for the third quarter 2014 grew 11.2 percent year over year, and the Company's total revenue per PFS for the third quarter 2014 increased 2.4 percent year over year to $138.54 driven by increases in both ticket and non-ticket revenue per PFS. Demand and pricing strength in the peak summer travel period drove the increase in ticket revenue per PFS and an increase in seat revenues was the primary driver of non-ticket per PFS.

Cost Performance

Total operating expenses for the third quarter 2014, excluding $10.4 million of special items4, increased 12.5 percent to $409.2 million on a capacity increase of 14.7 percent. Including special items, total operating expenses increased 16.9 percent year over year to $419.6 million.

Spirit reported third quarter 2014 cost per available seat mile excluding special items and fuel ("Adjusted CASM ex-fuel")4 of 5.92 cents, an increase of 1.0 percent compared to the same period last year. Higher salary, wages, and benefits, landing fees and other rents, and depreciation and amortization per ASM were partially offset by lower passenger re-accommodation expense (recorded within Other operating expense) as a result of improved operational reliability.

During the third quarter 2014, the Company became aware of an underpayment of Federal Excise Tax ("FET") for fuel purchases during the period between July 1, 2009 and August 31, 2014. The commencement of the period in which the Company underpaid FET coincided with a change in its fuel service provider that took place in July 2009. In its calculation for economic fuel price for the third quarter 2014, the Company excluded the prior years' additional FET amount of $9.3 million as a special item but included the year-to-date 2014 additional FET amount of $2.1 million.

Selected Balance Sheet and Cash Flow Items

As of September 30, 2014, Spirit had $588.5 million in unrestricted cash and cash equivalents. For the nine months ended September 30, 2014, Spirit incurred capital expenditures of $26.3 million, paid $116.0 million in pre-delivery deposits for future deliveries of aircraft, net of refunds, and recorded an increase of $29.0 million in maintenance deposits, net of reimbursements.

Fleet

In the third quarter 2014, Spirit took delivery of one new A320 aircraft, ending the quarter with 58 aircraft in its fleet. Earlier in the month of October, the Company took delivery of a new A320 aircraft and has six more new A320 aircraft scheduled for delivery by year-end 2014.

Third Quarter 2014 and Other Current Highlights

- Fort Lauderdale and New Orleans (8/1/14) - Boston and West Palm Beach (11/14/14)5
- Houston and New Orleans (8/1/14) - Latrobe/Pittsburgh and Tampa (12/18/14)5
- Houston and Atlanta (8/1/14) - Latrobe/Pittsburgh and Fort Myers (12/19/14)5
- Kansas City and Chicago (8/7/14) - Denver and San Diego (1/5/15)
- Kansas City and Dallas/Fort Worth (8/7/14) - Cleveland and Orlando (1/15/15)
- Kansas City and Detroit (8/7/14) - Cleveland and Tampa (1/15/15)5
- Kansas City and Las Vegas (8/7/14) - Cleveland and Fort Myers (1/15/15)5
- Kansas City and Houston (8/8/14) - Cleveland and Fort Lauderdale (2/5/15)
- Fort Lauderdale and Houston (9/3/14) - Cleveland and Dallas/Fort Worth (2/5/15)
- Houston and San Diego (9/3/14) - Cleveland and Las Vegas (2/5/15)
- Detroit and Atlanta (10/24/14) - Cleveland and Los Angeles (4/16/15)
- Chicago and Atlanta (10/24/14) - Cleveland and Myrtle Beach (4/16/15)5
- Detroit and New Orleans (10/30/14 - Chicago and San Diego (4/16/15)
- Chicago and New Orleans (10/30/14) - Chicago and Philadelphia (4/16/15)

Conference Call/Webcast Detail

Spirit will conduct a conference call to discuss these results today, October 28, 2014, at 10:00 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 customers 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 modern and fuel-efficient all-Airbus fleet, we operate more than 280 daily flights to over 55 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 Income to GAAP Operating Income" table below for more details.

(4) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Income" table below for more details.

(5) Seasonal service only.

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, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. The words "expects," "estimates," "plans," "anticipates," "indicates," "believes," "forecast," "guidance," "outlook," "may," "will," "should," "seeks," "targets" and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements.  Forward-looking statements include, without limitation, statements regarding the Company's intentions and expectations regarding the delivery schedule of aircraft on order, and announced new service routes. All forward-looking statements are based upon information available to the Company at the time the statement is made. The Company has no intent, nor undertakes any obligation, to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations, including the competitive environment in the airline industry; the Company's ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior; the Company's ability to generate non-ticket revenues; and government regulation. 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 and Quarterly Reports on Form 10-Q.

SPIRIT AIRLINES, INC.
Statement of Operations
(in thousands, except per share data)
(unaudited)
             
 Three Months Ended  Nine Months Ended  
 September 30,PercentSeptember 30,Percent
 20142013Change20142013Change
Operating revenues:            
Passenger  $ 317,038  $ 279,499 13.4  $ 873,403  $ 739,515 18.1
Non-ticket 202,731 177,126 14.5 583,690 494,886 17.9
Total operating revenues519,769456,62513.81,457,0931,234,40118.0
             
Operating expenses:            
Aircraft fuel 171,584 144,986 18.3 474,907 411,903 15.3
Salaries, wages and benefits 79,087 66,805 18.4 232,776 192,758 20.8
Aircraft rent 50,009 42,134 18.7 144,618 125,121 15.6
Landing fees and other rents 27,735 22,106 25.5 77,582 61,508 26.1
Distribution 20,202 17,916 12.8 58,930 50,874 15.8
Maintenance, materials and repairs 19,622 16,908 16.1 56,441 43,890 28.6
Depreciation and amortization 11,338 8,475 33.8 33,803 22,403 50.9
Other operating 39,190 38,884 0.8 111,045 110,799 0.2
Loss on disposal of assets 793 165 na 1,658 426 na
Special charges (credits) 18 442 na 45 488 na
Total operating expenses419,578358,82116.91,191,8051,020,17016.8
             
Operating income100,19197,8042.4265,288214,23123.8
             
Other (income) expense:            
Interest expense 878 36 na 1,088 140 na
Capitalized interest (878) (36) na (1,088) (140) na
Interest income (84) (87) (3.4) (235) (308) (23.7)
Other expense 81 115 na 1,557 252 na
Total other (income) expense(3)28na1,322(56)na
             
Income before income taxes100,19497,7762.5263,966214,28723.2
Provision for income taxes 33,194 36,673 (9.5) 94,411 80,562 17.2
Net income $ 67,000  $ 61,103 9.7 $ 169,555  $ 133,725 26.8
Basic earnings per share $ 0.92  $ 0.84 9.5 $ 2.33  $ 1.84 26.6
Diluted earnings per share  $ 0.91  $ 0.84 8.3 $ 2.31  $ 1.83 26.2
             
Weighted average shares, basic 72,755 72,632 0.2 72,727 72,571 0.2
Weighted average shares, diluted 73,303 73,003 0.4 73,284 72,934 0.5
             
     
SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
     
 September 30,December 31,
 20142013
Assets    
Current assets:    
Cash and cash equivalents  $ 588,474  $ 530,631
Accounts receivable, net 26,515 23,246
Deferred income taxes 15,166 16,243
Prepaid expenses and other current assets 73,969 78,955
Total current assets704,124649,075
     
Property and equipment:    
Flight equipment 16,064 9,847
Ground and other equipment 69,676 50,987
Less accumulated depreciation (32,345) (25,221)
  53,395 35,613
Deposits on flight equipment purchase contracts 269,693 157,669
Aircraft maintenance deposits 194,867 161,484
Deferred heavy maintenance, net 128,304 125,288
Other long-term assets 63,171 51,636
Total assets $ 1,413,554  $ 1,180,765
     
Liabilities and shareholders' equity    
Current liabilities:    
Accounts payable  $ 17,954  $ 23,104
Air traffic liability 216,477 167,627
Other current liabilities 160,386 145,262
Total current liabilities394,817335,993
     
Long-term deferred income taxes 47,443 48,916
Deferred credits and other long-term liabilities 25,979 26,739
Shareholders' equity:    
Common stock 7 7
Additional paid-in-capital 523,476 515,331
Treasury stock (3,792) (2,291)
Retained earnings 425,624 256,070
Total shareholders' equity945,315769,117
Total liabilities and shareholders' equity $ 1,413,554  $ 1,180,765
     
     
SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
     
 Nine Months Ended
 20142013
Operating activities:    
Net income  $ 169,555  $ 133,725
Adjustments to reconcile net income to net cash provided by operations:    
Unrealized (gains) losses on open fuel hedge contracts 3,489
Equity-based compensation, net 6,315 3,970
Allowance for doubtful accounts (63) 128
Amortization of deferred gains and losses (228) (452)
Depreciation and amortization 33,803 22,403
Deferred income tax (395) 8,795
Loss on disposal of assets 1,658 426
Capitalized interest (1,088) (139)
Changes in operating assets and liabilities:    
Accounts receivable (3,206) (5,038)
Prepaid maintenance reserves (28,955) (10,166)
Long-term deposits and other assets (36,449) (37,062)
Accounts payable (5,524) (1,206)
Air traffic liability 48,736 49,318
Other liabilities 22,136 5,440
Net cash provided by operating activities206,295173,631
     
Investing activities:    
Pre-delivery deposits for flight equipment, net of refunds (115,955) (41,328)
Purchase of property and equipment (26,261) (17,028)
Net cash used in investing activities(142,216)(58,356)
Financing activities:    
Proceeds from stock options exercised 140 675
Payments on capital lease obligations (922)
Proceeds from sale and leaseback transactions 6,900
Payments to pre-IPO shareholders pursuant to tax receivable agreement (5,643)
Excess tax benefits from equity-based compensation 1,690 1,635
Repurchase of common stock (1,501) (1,106)
Net cash (used in) provided by financing activities(6,236)8,104
Net increase in cash and cash equivalents 57,843 123,379
Cash and cash equivalents at beginning of period530,631416,816
Cash and cash equivalents at end of period $ 588,474  $ 540,195
Supplemental disclosures    
Cash payments for:    
Interest  $ 398  $ 26
Taxes  $ 88,884  $ 60,942
     
       
SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
       
 Three Months Ended September 30,  
Operating Statistics20142013Change
Available seat miles (ASMs) (thousands) 4,174,397 3,637,951 14.7%
Revenue passenger miles (RPMs) (thousands) 3,656,842 3,241,309 12.8%
Load factor (%) 87.6 89.1 (1.5) pts
Passenger flight segments (thousands) 3,752 3,374 11.2%
Block hours 67,704 60,009 12.8%
Departures 26,513 23,704 11.9%
Operating revenue per ASM (RASM) (cents) 12.45 12.55 (0.8)%
Average yield (cents) 14.21 14.09 0.9%
Average ticket revenue per passenger flight segment ($) 84.50 82.84 2.0%
Average non-ticket revenue per passenger flight segment ($) 54.04 52.50 2.9%
Total revenue per passenger flight segment ($) 138.54 135.34 2.4%
CASM (cents) 10.05 9.86 1.9%
Adjusted CASM (cents) (1) 9.80 10.00 (2.0)%
Adjusted CASM ex-fuel (cents) (2) 5.92 5.86 1.0%
Fuel gallons consumed (thousands) 51,688 45,521 13.5%
Average economic fuel cost per gallon ($) 3.13 3.31 (5.4)%
Aircraft at end of period 58 51 13.7%
Average daily aircraft utilization (hours) 12.7 12.8 (0.8)%
Average stage length (miles) 964 956 0.8%
Airports served in the period (3) 55 54 1.9%
       
 Nine Months Ended September 30,  
Operating Statistics20142013Change
Available seat miles (ASMs) (thousands) 11,967,631 10,185,421 17.5%
Revenue passenger miles (RPMs) (thousands) 10,452,588 8,833,712 18.3%
Load factor (%) 87.3 86.7 0.6 pts
Passenger flight segments (thousands) 10,584 9,253 14.4%
Block hours 196,574 170,552 15.3%
Departures 75,427 67,327 12.0%
Operating revenue per ASM (RASM) (cents) 12.18 12.12 0.5%
Average yield (cents) 13.94 13.97 (0.2)%
Average ticket revenue per passenger flight segment ($) 82.52 79.92 3.3%
Average non-ticket revenue per passenger flight segment ($) 55.15 53.49 3.1%
Total revenue per passenger flight segment ($) 137.67 133.41 3.2%
CASM (cents) 9.96 10.02 (0.6)%
Adjusted CASM (cents) (1) 9.86 9.97 (1.1)%
Adjusted CASM ex-fuel (cents) (2) 5.98 5.96 0.3%
Fuel gallons consumed (thousands) 147,766 126,832 16.5%
Average economic fuel cost per gallon ($) 3.15 3.22 (2.2)%
Average daily aircraft utilization (hours) 12.7 12.7 —%
Average stage length (miles) 979 944 3.7%
       

(1) Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below.

(2) Excludes economic fuel expense and special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below.

(3) Includes airports served during the period that had service canceled as of the end of the period. Previously, we reported only airports served during the period with continuing operations.

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 Spirit'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.

 
Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)
     
 Three Months Ended
 September 30,
(in thousands, except CASM data in cents)20142013
Special items include the following:    
Prior years' additional federal excise tax  $ 9,278 $ —
Unrealized (gains) and losses arising from mark-to-market adjustments to outstanding fuel derivatives (5,655)
Loss on disposal of assets 793 165
Special charges 18 442
Premium expense recognized related to fuel option contracts 446
Fuel option premium realized in the period (151)
Total special items:  $ 10,384  $ (5,048)
     
Total operating expenses, as reported  $ 419,578  $ 358,821
Less special items (1) 10,384 (5,048)
Adjusted operating expenses, non-GAAP (2) 409,194 363,869
Less: Economic fuel expense 162,011 150,641
Adjusted operating expenses excluding fuel, non-GAAP (3)  $ 247,183  $ 213,228
     
Available seat miles 4,174,397 3,637,951
     
CASM (cents) 10.05 9.86
Adjusted CASM (cents) (2) 9.80 10.00
Adjusted CASM ex-fuel (cents) (3) 5.92 5.86
     

(1) Special items include additional federal excise tax on a minority of fuel volume for the period beginning July 1, 2009 through December 31, 2013, unrealized gains and losses arising from mark-to-market adjustments to outstanding fuel derivatives, loss on disposal of assets, special charges, premium expense recognized related to fuel option contracts, and realized fuel option premium expense related to options settling in the period.

(2) Excludes special items as referred to above.

(3) Excludes economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below and special items as referred to above.

 
Reconciliation of Adjusted Net Income to GAAP Net Income
(unaudited)
     
 Three Months Ended
 September 30,
(in thousands, except per share data)20142013
Net income, as reported $ 67,000  $ 61,103
Add: Provision for income taxes 33,194 36,673
Income before income taxes, as reported 100,194 97,776
Pre-tax margin, GAAP19.3%21.4%
Add special items (1) 10,384 (5,048)
Income before income taxes, non-GAAP (2) 110,578 92,728
Pre-tax margin, non-GAAP (2)21.3%20.3%
Provision for income taxes (3) 36,634 34,780
Adjusted net income, non-GAAP (2)  $ 73,944  $ 57,948
     
Weighted average shares, diluted 73,303 73,003
     
Adjusted net income per share, diluted$1.01 $0.79
     

(1) See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.

(2) Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above.

(3) Assumes same marginal tax rate as is applicable to GAAP net income. 

     
Reconciliation of Adjusted Operating Income to GAAP Operating Income
(unaudited)
     
 Three Months Ended
 September 30,
(in thousands)20142013
Operating income, as reported $ 100,191  $ 97,804
Operating margin, GAAP19.3%21.4%
Add special items (1) 10,384 (5,048)
Operating income, non-GAAP (2) $ 110,575  $ 92,756
Operating margin (2)21.3%20.3%
     

(1) See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.

(2) Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above.

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
(unaudited)
     
 Three Months Ended
 September 30,
(in thousands, except per gallon data)20142013
Fuel Expense    
Aircraft fuel, as reported  $ 171,584  $ 144,986
Less:    
Prior years' additional federal excise tax 9,278
Impact on fuel expense from unrealized (gains) and losses arising from mark-to-market adjustments to our outstanding fuel derivatives (5,655)
Premium expense recognized related to outstanding fuel option contracts 446
Add: Fuel option premium realized in the period 151  
Economic fuel expense, non-GAAP  $ 162,011  $ 150,641
     
Fuel gallons consumed 51,688 45,521
     
Economic fuel cost per gallon, non-GAAP  $ 3.13  $ 3.31
     
   
Calculation of Return on Invested Capital
(unaudited)  
   
 Twelve Months Ended
(in thousands)September 30, 2014
Operating Income  $ 333,349
Add special items (1) 8,304
Adjustment for aircraft rent 189,234
Adjusted Operating Income (2) 530,887
Tax (35.9%) (3) 190,588
Adjusted Operating Income, after-tax 340,299
Invested Capital  
Total debt $—
Book equity 945,315
Less: Unrestricted cash 588,474
Add: Capitalized aircraft operating leases (7x Aircraft Rent) 1,324,638
Total Invested Capital 1,681,479
   
Return on Invested Capital (ROIC), pre-tax 31.6%
Return on Invested Capital (ROIC), after-tax 20.2%
   

(1) See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.

(2) Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above.

(3) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended September 30, 2014. 

CONTACT: Investor Relations Contact:

         DeAnne Gabel

         InvestorRelations@Spirit.com

         (954) 447-7920

         

         Media Contact:

         Paul Berry

         Paul.Berry@Spirit.com

         (954) 628-4827