Financial Data and Key Metrics Changes - The total operating revenue for Q4 2022 was $227.2 million, a 31.6% increase compared to the same quarter last year [114] - Full year revenue for 2022 reached $894.4 million, marking a 44% increase over 2021 and setting a record for the company [115] - Adjusted pretax income for Q4 2022 was $10.3 million, a 39% improvement over Q4 2021, despite a nearly 44% increase in fuel prices [86] Business Line Data and Key Metrics Changes - Scheduled service TRASM grew 27% year-over-year, with a 14% increase in scheduled service ASMs [87] - Charter revenue increased by 11% in Q4, driven by strong growth in long-term contracts and improvements in ad hoc business [88] - Ad hoc charter revenue for the full year remained about 60% below its peak in 2019, but growth is expected as pilot resources are added [89] Market Data and Key Metrics Changes - The recovery in international demand is a significant factor for Q1 2023, with strong demand observed across Caribbean, Mexican, and Central American markets [20] - Approximately 80% of planned Q1 passenger revenue was already booked, indicating strong demand trends [91] Company Strategy and Development Direction - The company plans to focus on long-term contracted charter revenue and expects significant growth in this area in 2023 [84] - The strategy includes postponing the restart of Hawaiian operations until 2024 to concentrate on building the MSP operation [83] - The company aims to maintain a balance of approximately 25% of block hours allocated to fixed fee contracts to optimize operations [147] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit growth rates by June 2023, aligning growth with peak opportunities [21] - The company anticipates a deceleration in unit cost increases as it grows into its expanded fleet throughout 2023 [90] - Management remains optimistic about the overall demand environment and believes the fundamentals of the diversified business model are strong [92] Other Important Information - The company finished 2022 with $289.4 million in total liquidity, including $264.7 million in unrestricted cash [76] - The expected operating margin for 2023 is between 15% and 20%, assuming a fuel price of $3.58 per gallon [77] - The company completed a $25 million share buyback program in January 2023, repurchasing approximately 1.4 million shares [118] Q&A Session Summary Question: Can you provide more detail on the booking curve and future expectations? - Management indicated that bookings for April are strong, with dramatic year-over-year revenue improvements expected [8] Question: What is the pilot availability situation and expected growth? - Management noted improvements in pilot training and recruitment, expecting block hour growth of around 10% for the year [9] Question: How does the company view its capital expenditures for 2023? - The company plans to add one or two aircraft in 2023, with a significant decrease in CapEx compared to previous years [12] Question: What are the expectations for operating margins in 2023? - Management expressed confidence in returning to historical margin levels, with a focus on achieving double-digit operating margins [36] Question: How does the company plan to manage pilot costs relative to competitors? - Management highlighted that their pilot contract includes rate escalators, which should help manage costs effectively [52]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Commission File Number 001-40217 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, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2005 Cargo Road Minneapolis, Minnesota 55450 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area co ...

Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q3 2022 Earnings Conference Call November 1, 2022 4:30 PM ET Company Participants Chris Allen - Director, Investor Relations Jude Bricker - Chief Executive Officer Dave Davis - President and Chief Financial Officer Conference Call Participants Ravi Shanker - Morgan Stanley Duane Pfennigwerth - Evercore ISI Thomas Fitzgerald - Cowen Michael Linenberg - Deutsche Bank Christopher Stathoulopoulos - Susquehanna Operator Welcome to the Sun Country Airlines Third Q ...

Financial Data and Key Metrics Changes - Revenue in Q2 2022 totaled $219.1 million, a 29% increase compared to Q2 2019, driven by strong demand and block hour growth of 23% [18][7] - Adjusted operating profit for the quarter was $4 million, with an adjusted EPS loss of $0.03 per share, resulting in an adjusted operating margin of 1.8% [16][17] - Average fare increased to $173, which is 22% higher than Q2 2019 [19] - Non-fuel costs per block hour increased by only 3.6% compared to Q2 2019, while adjusted CASM rose by 15% due to reduced capacity [24][25] Business Line Data and Key Metrics Changes - Scheduled service revenue reached $152.6 million, a 22.5% increase over Q2 2019, with scheduled service TRASM growing by 29% [18] - Charter revenue was $42.7 million, a 25% increase over Q2 2019, with over 90% of charter flying under long-term contracts [21][22] - Cargo revenue was $21.2 million, flat compared to Q1 2022 and down 4% versus Q2 2021 due to increased aircraft maintenance [23] Market Data and Key Metrics Changes - Scheduled service TRASM for June was 44% higher than June 2019, and July finished over 40% higher than July 2019, indicating strong revenue trends [18][26] - The company experienced a decline in aircraft utilization relative to pre-COVID periods, with a 30% reduction in passenger fleet utilization in June compared to 2019 [13][28] Company Strategy and Development Direction - The primary focus is to staff the airline to return to 2019 utilization levels as quickly as possible while maintaining operational excellence [7][8] - The company aims for profitable growth, with a projected 20% block hour growth rate for 2023, contingent on high-margin opportunities [52][53] - The company is actively seeking additional aircraft to support growth plans, with advanced discussions on acquiring three more aircraft for late 2023 [54][55] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as record-high fuel prices, a tight labor market, and inflationary pressures but emphasized the resilience of their business model [9][27] - The company expects scheduled service TRASM to exceed 40% higher than Q3 2019, with total revenue projected to increase by 25% to 28% compared to 2019 [26][29] - Management expressed confidence in achieving industry-leading margins as crew constraints are expected to be temporary [14][68] Other Important Information - The company closed Q2 with $308 million in liquidity, including $283 million in cash and $25 million in undrawn revolver [29] - Free cash flow generated during the quarter was over $15 million, excluding aircraft CapEx, indicating strong cash generation despite high fuel prices [29] Q&A Session Summary Question: Can you summarize the training throughput and staffing expectations for Q4? - Management noted significant increases in pilot output and resolved bottlenecks in training, expecting to be fully staffed in the next quarter or two [33][34] Question: Which markets outperformed or underperformed in Q2? - Management identified large markets like Minneapolis to Denver and Dallas as under-capacity allocations that showed significant revenue improvements, while leisure markets did not perform as well [36][37] Question: Was the reduction in long-haul markets due to staffing or fuel prices? - Management confirmed that both factors played a role, but staffing constraints were a significant reason for not adding capacity in high-demand markets like Hawaii [44][46] Question: What are the long-term capacity plans considering current constraints? - Management aims for a 20% block hour growth rate in 2023, focusing on high-margin opportunities and building out training capacity [52][53] Question: When will the preferential bidding system for pilots be implemented? - Management indicated that the system is not yet in place but is expected to be implemented early next year, which will enhance productivity [49] Question: What are the expectations for achieving double-digit operating margins? - Management believes that returning to pre-COVID utilization levels will be key to achieving double-digit margins, with significant opportunities lost due to current constraints [68][70]

```markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Sun Country Airlines Holdings, Inc., including balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial impacts [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | **$1,506,738** | **$1,380,422** | | Total Liabilities | **$1,010,850** | **$889,833** | | Total Stockholders' Equity | **$495,888** | **$490,589** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Dollars in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Operating Revenue | **$219,067** | **$149,189** | **$445,591** | **$276,802** | | Operating Income | **$3,369** | **$49,789** | **$25,201** | **$80,387** | | Net Income (Loss) | **$(3,922)** | **$52,177** | **$(285)** | **$68,955** | | Basic EPS | **$(0.07)** | **$0.91** | **$0.00** | **$1.30** | | Diluted EPS | **$(0.07)** | **$0.84** | **$0.00** | **$1.20** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | **$(3,922)** | **$52,177** | **$(285)** | **$68,955** | | Other Comprehensive Loss | **$(220)** | **$0** | **$(220)** | **$0** | | Comprehensive Income (Loss) | **$(4,142)** | **$52,177** | **$(505)** | **$68,955** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Condensed Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total Stockholders' Equity | **$495,888** | **$490,589** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | **$37,060** | **$96,804** | | Net Cash Used in Investing Activities | **$(198,961)** | **$(74,151)** | | Net Cash Provided by Financing Activities | **$61,106** | **$222,469** | | Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | **$(100,795)** | **$245,122** | | Cash, Cash Equivalents and Restricted Cash—End of the Period | **$216,990** | **$315,485** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [1. Company Background](index=10&type=section&id=1%20Company%20Background) Sun Country Airlines Holdings, Inc. operates scheduled passenger, air cargo, and charter services, with key equity transactions including its March 2021 IPO and a six-year cargo services contract with Amazon - **Initial Public Offering (IPO)** in **March 2021** generated net proceeds of **$225,329 thousand** from the issuance of **10,454,545 shares** at **$24.00 per share**[20](index=20&type=chunk) - **Amazon Agreement** for cargo services, signed **December 2019**, includes warrants for up to **9,482,606 common shares** at **~$15.17 per share**[24](index=24&type=chunk)[25](index=25&type=chunk) Amazon Warrants Vested | Period | Warrants Vested | | :-------------------------------- | :-------------- | | Six Months Ended June 30, 2022 | **379,304** | | Six Months Ended June 30, 2021 | **379,304** | | Cumulative Vested Warrants (as of June 30, 2022) | **2,022,963** | [2. Basis of Presentation](index=11&type=section&id=2%20Basis%20of%20Presentation) The financial statements are prepared under U.S. GAAP, consolidating Sun Country and its subsidiaries, with management making significant estimates and correcting an immaterial misstatement from 2021 related to lease accounting - An **immaterial misstatement** in 2021 financial statements was identified and corrected, related to improper application of **ASC Topic 842 (Leases)** where aircraft acquisition costs were incorrectly expensed instead of capitalized[29](index=29&type=chunk)[30](index=30&type=chunk) Impact of Revision on 2021 Financials (Dollars in thousands) | Metric (as of Dec 31, 2021) | As Previously Issued | Correction | As Revised | | :-------------------------------- | :------------------- | :--------- | :--------- | | Aircraft and Flight Equipment | **$440,356** | **$6,963** | **$447,319** | | Total Property & Equipment, net | **$573,611** | **$4,907** | **$578,518** | | Retained Earnings | **$594** | **$3,778** | **$4,372** | | Metric (Six Months Ended June 30, 2021) | As Previously Issued | Correction | As Revised | | :-------------------------------- | :------------------- | :--------- | :--------- | | Special Items, net | **$(65,392)** | **$(6,963)** | **$(72,355)** | | Net Income | **$64,169** | **$4,786** | **$68,955** | | Net Cash Provided by Operating Activities | **$89,841** | **$6,963** | **$96,804** | | Purchases of Property & Equipment | **$(66,736)** | **$(6,963)** | **$(73,699)** | - Adopted **ASU 2021-04** (Earnings Per Share, Debt, Compensation, Derivatives) and **ASU 2021-10** (Government Assistance) as of **January 1, 2022**. **ASU 2021-04** had no financial statement impact upon adoption[41](index=41&type=chunk)[42](index=42&type=chunk) [3. Impact of the COVID-19 Pandemic](index=15&type=section&id=3%20Impact%20of%20the%20COVID-19%20Pandemic) The **COVID-19 pandemic** caused a significant decline in passenger demand in 2021, negatively impacting financial results, though demand recovered in **Q2 2022** compared to 2021, with future impact remaining uncertain - Continued recovery in demand from the **COVID-19 pandemic** during **Q2 2022** relative to 2021, but future impact remains uncertain[44](index=44&type=chunk) - Received and recognized **$71,587 thousand** from **PSP2** and **PSP3**, and **$780 thousand** from **CARES Employee Retention Credit** during the six months ended **June 30, 2021**[46](index=46&type=chunk) - The **$45,000 thousand CARES Act Loan** was repaid in full on **March 24, 2021**, using **IPO** proceeds[46](index=46&type=chunk) - As of **June 30, 2022**, the Company was in compliance with all **CARES Act** provisions, including prohibitions on share repurchases and common stock dividends[48](index=48&type=chunk) [4. Revenue](index=16&type=section&id=4%20Revenue) Sun Country generates revenue from Scheduled, Charter, Ancillary, Cargo, and Other services, with total operating revenue seeing significant increases in **Q2** and **YTD 2022** due to passenger demand recovery, while cargo revenue slightly decreased due to maintenance events Total Operating Revenue (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$219,067** | **$149,189** | **47%** | | Six Months Ended June 30 | **$445,591** | **$276,802** | **61%** | Passenger Revenue (Scheduled, Charter, Ancillary) (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$195,362** | **$125,130** | **56%** | | Six Months Ended June 30 | **$397,394** | **$229,325** | **73%** | Cargo Revenue (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$21,190** | **$22,098** | **-4%** | | Six Months Ended June 30 | **$42,243** | **$43,684** | **-3%** | Contract Liabilities (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Air Traffic Liabilities | **$123,958** | **$118,562** | | Loyalty Program Liabilities | **$16,604** | **$19,718** | | Amazon Deferred Up-front Payment | **$3,726** | **$4,200** | | Total Contract Liabilities | **$144,288** | **$142,480** | [5. Earnings per Share](index=18&type=section&id=5%20Earnings%20per%20Share) The company reported a **Net Loss** for both **Q2** and **YTD 2022**, resulting in negative basic and diluted earnings per share, with anti-dilutive securities excluded from diluted **EPS** calculations Net Income (Loss) and EPS | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Net Income (Loss) | **$(3,922)** | **$(285)** | | Basic EPS | **$(0.07)** | **$0.00** | | Diluted EPS | **$(0.07)** | **$0.00** | - Due to the **Net Loss**, **3,529,406** (**Q2 2022**) and **3,676,847** (**YTD 2022**) stock options, restricted stock units, and vested warrants were anti-dilutive and excluded from diluted **EPS** computation[61](index=61&type=chunk) [6. Aircraft](index=19&type=section&id=6%20Aircraft) As of **June 30, 2022**, Sun Country operated a fleet of **53 Boeing 737-NG aircraft**, including **41 passenger** and **12 cargo aircraft** for Amazon, with **six incremental aircraft** acquired and one owned aircraft retired due to damage - As of **June 30, 2022**, the fleet consisted of **53 Boeing 737-NG aircraft** (**41 passenger**, **12 cargo** for Amazon)[64](index=64&type=chunk) Aircraft Fleet Activity (Six Months Ended June 30, 2022) | Type | Dec 31, 2021 | Additions | Reclassifications | Removals | June 30, 2022 | | :-------------------------------- | :----------- | :-------- | :---------------- | :------- | :------------ | | Owned Passenger | **21** | **5** | **1** | **(1)** | **26** | | Finance Leases Passenger | **9** | **1** | **1** | — | **11** | | Operating Leases Passenger | **6** | — | **(2)** | — | **4** | | Cargo Aircraft for Amazon | **12** | — | — | — | **12** | | Total Aircraft Operated | **48** | **6** | — | **(1)** | **53** | - **Aircraft Rent expense** decreased by **42%** (**Q2**) and **43%** (**YTD**) due to the shift from operating leases to owned or finance-leased aircraft[166](index=166&type=chunk)[188](index=188&type=chunk) - One owned aircraft was retired due to damage beyond economic repair, with no financial impact on operations as of **June 30, 2022**[68](index=68&type=chunk)[107](index=107&type=chunk) [7. Debt](index=21&type=section&id=7%20Debt) The company's debt structure includes credit facilities and **EETC**, with the **$90,000 thousand Delayed Draw Term Loan Facility (DDTL)** fully repaid in **YTD 2022** using proceeds from the new **2022-1 EETC**, while the **$25,000 thousand Revolving Credit Facility** remains undrawn - The **$90,000 thousand Delayed Draw Term Loan Facility (DDTL)** was fully repaid in **YTD 2022** using proceeds from the **2022-1 EETC**, resulting in a **$1,557 thousand** loss on extinguishment of debt[76](index=76&type=chunk) - The **$25,000 thousand Revolving Credit Facility** remained undrawn and available as of **June 30, 2022**[76](index=76&type=chunk) - Issued **2022-1 EETC** in **March 2022** for **$188,277 thousand** to finance/refinance **13 aircraft**. Received **$172,507 thousand** for **12 aircraft**, with the remaining **$15,770 thousand** expected by **September 15, 2022**[78](index=78&type=chunk) Long-term Debt (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | 2019-1 EETC Notes Payable | **$194,884** | **$202,984** | | 2022-1 EETC Notes Payable | **$172,507** | **$0** | | Delayed Draw Term Loan Facility | **$0** | **$77,481** | | Other Notes Payable | **$0** | **$466** | | Total Debt | **$367,391** | **$280,931** | | Total Long-term Debt | **$319,733** | **$248,014** | [8. Fuel Derivatives and Risk Management](index=23&type=section&id=8%20Fuel%20Derivatives%20and%20Risk%20Management) Sun Country periodically uses fuel option and swap contracts to manage economic risks from volatile aircraft fuel prices, but as of **June 30, 2022**, there were no outstanding fuel derivative contracts, and the company does not apply hedge accounting - No outstanding fuel derivative contracts as of **June 30, 2022**, or **December 31, 2021**[85](index=85&type=chunk) - **Fuel derivative gains** (non-cash) were **$3,599 thousand** for the six months ended **June 30, 2021**, with none in 2022[87](index=87&type=chunk) [9. Investments](index=24&type=section&id=9%20Investments) The company's investments primarily consist of debt securities and Certificates of Deposit, with **$70,391 thousand** in debt securities purchased in **Q2 2022** and classified as current assets, and unrealized losses considered temporary due to market interest rate increases Investments (June 30, 2022) (Dollars in thousands) | Security Type | Amortized Cost | Fair Value | | :-------------------------------- | :------------- | :--------- | | Municipal Debt Securities | **$26,263** | **$26,180** | | Corporate Debt Securities | **$44,161** | **$43,958** | | Total Available-for-Sale Securities | **$70,424** | **$70,138** | | Certificates of Deposit | **$6,586** | **$6,586** | | Total Investments | **$77,010** | **$76,724** | - Purchased **$70,391 thousand** of debt securities during the quarter ended **June 30, 2022**, classified as current assets due to high liquidity[37](index=37&type=chunk) - Unrealized losses on **Available-for-Sale securities** are considered temporary, resulting from market interest rate increases, not credit quality, and the company intends to hold them to maturity[91](index=91&type=chunk) [10. Fair Value Measurements](index=24&type=section&id=10.%20Fair%20Value%20Measurements) The company measures financial instruments at fair value, classifying cash equivalents, available-for-sale securities, and derivative instruments primarily within Level 2, while non-financial assets are measured at fair value on a nonrecurring basis for impairment assessments using Level 3 inputs Assets Measured at Fair Value on a Recurring Basis (June 30, 2022) (Dollars in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | Cash & Cash Equivalents | **$96,096** | **$116,762** | **$0** | **$212,858** | | Available-for-Sale Securities | **$0** | **$70,138** | **$0** | **$70,138** | | Total | **$96,096** | **$186,900** | **$0** | **$282,996** | - Non-financial assets (**Property & Equipment**, Goodwill, Other Intangible Assets) are measured at fair value on a nonrecurring basis for impairment assessments, using Level 3 inputs[96](index=96&type=chunk)[97](index=97&type=chunk) [11. Income Taxes](index=25&type=section&id=11.%20Income%20Taxes) The effective tax rate for **Q2 2022** was **19.0%** (up from **15.5%** in **Q2 2021**) and for **YTD 2022** was **118.1%** (up from **19.1%** in **YTD 2021**), primarily due to a non-deductible expense related to the **Tax Receivable Agreement (TRA)** liability adjustment Effective Tax Rate | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **19.0%** | **15.5%** | | Six Months Ended June 30 | **118.1%** | **19.1%** | - Increase in effective tax rate primarily due to a non-deductible expense related to the **Tax Receivable Agreement (TRA)** liability adjustment, partially offset by stock compensation benefits[99](index=99&type=chunk) - **TRA liability balance** as of **June 30, 2022**, was **$107,300 thousand**, up from **$98,800 thousand** at **December 31, 2021**[101](index=101&type=chunk) - An **$8,500 thousand** adjustment to the estimated **TRA liability** was recorded in **YTD June 30, 2022**, impacting **Other, net Non-Operating Income (Expense)**[103](index=103&type=chunk) [12. Special Items, net](index=26&type=section&id=12.%20Special%20Items,%20net) **Special Items, net, were $0** for both **Q2** and **YTD 2022**, contrasting with significant net benefits in **Q2** and **YTD 2021** primarily from **CARES Act** grant recognition and employee retention credits Special Items, net (Dollars in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | CARES Act grant recognition | **$0** | **$(39,378)** | **$0** | **$(71,587)** | | CARES Act employee retention credit | **$0** | **$(446)** | **$0** | **$(780)** | | Total Special Items, net | **$0** | **$(39,819)** | **$0** | **$(72,355)** | [13. Commitments and Contingencies](index=26&type=section&id=13.%20Commitments%20and%20Contingencies) The company has various contractual obligations, including lease arrangements, debt repayments, **TRA** payments, and future aircraft purchases, with an owned aircraft retired due to damage and new commitments for a **flight simulator** and an aircraft expected in **Q3 2022** - An owned aircraft was retired due to damage beyond economic repair during the six months ended **June 30, 2022**, with no financial impact on operations as of that date[107](index=107&type=chunk) - Executed an agreement to purchase a **flight simulator** for **$9,745 thousand**, with installments paid in **H1 2022** and **July 2022**[108](index=108&type=chunk) - Gave irrevocable notice to purchase a **finance-leased aircraft** for approximately **$12,000 thousand**, expected to be complete in **September 2022**, financed by **2022-1 EETC** proceeds[109](index=109&type=chunk) [14. Operating Segments](index=27&type=section&id=14.%20Operating%20Segments) Sun Country operates **two segments**: **Passenger and Cargo**, with **Passenger operating income decreased significantly** in **Q2** and **YTD 2022** due to higher aircraft fuel expense, and **Cargo operating income decreased** to a loss in **Q2 2022** and significantly reduced income in **YTD 2022** due to the absence of **CARES Act** payroll support and increased pilot salaries Operating Income (Loss) by Segment (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Passenger Operating Income | **$3,633** | **$34,408** | **$23,751** | **$52,846** | | Cargo Operating Income (Loss) | **$(264)** | **$15,381** | **$1,450** | **$27,541** | - **Passenger operating income decreased significantly** primarily due to increased Aircraft Fuel Expense[201](index=201&type=chunk)[205](index=205&type=chunk) - **Cargo operating income decreased** due to the absence of **CARES Act** payroll support (a benefit in 2021), increased Salaries, Wages, and Benefits (new **CBA**), and decreased block hours from heavy maintenance events[203](index=203&type=chunk)[206](index=206&type=chunk) [15. Subsequent Events](index=27&type=section&id=15.%20Subsequent%20Events) The company evaluated subsequent events from the balance sheet date through **August 10, 2022**, with further details provided in Notes 6 (Aircraft) and 13 (Commitments and Contingencies) - Subsequent events were evaluated through **August 10, 2022**[113](index=113&type=chunk) - Refer to Note 6 and Note 13 for additional information on subsequent events[113](index=113&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, including critical accounting policies, business overview, operational review, and detailed analysis of operating results for **Q2** and **YTD 2022** compared to 2021, along with non-GAAP financial measures and a discussion of liquidity and capital resources [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies key accounting policies requiring significant judgment and estimates, including revenue recognition, asset impairment analysis, and valuation of the **Tax Receivable Agreement (TRA)** liability, noting revisions to previously issued financial statements for an **immaterial misstatement** - Identified critical accounting policies include Revenue Recognition (Scheduled passenger service, Loyalty Program), Asset Impairment Analysis, and Valuation of the **TRA Liability**[116](index=116&type=chunk) - Estimated travel credit breakage of **$5,617 thousand** was recorded in Passenger Revenue for the six months ended **June 30, 2022**. A **10%** change in this rate would impact Passenger Revenue by approximately **$445 thousand**[118](index=118&type=chunk)[120](index=120&type=chunk) - Estimated loyalty points breakage of **$780 thousand** was recognized within Passenger Revenue for the six months ended **June 30, 2022**. A **10%** change in this rate would impact Passenger Revenue by approximately **$99 thousand**[126](index=126&type=chunk) - No impairment was recorded on long-lived assets for any periods presented, and no triggering events were identified during the six months ended **June 30, 2022**, or for the year ended **December 31, 2021**[130](index=130&type=chunk) - A **$10,000 thousand** increase in forecasted taxable income would decrease the **TRA Liability** by approximately **$1,200 thousand**[133](index=133&type=chunk) [Business Overview](index=31&type=section&id=Business%20Overview) Sun Country operates as a hybrid low-cost carrier, strategically deploying resources across its scheduled service, charter, and cargo businesses to achieve high growth, margins, and cash flows, focusing on leisure and VFR passengers, charter customers, and providing **CMI** services to Amazon - Operates as a hybrid low-cost air carrier, dynamically deploying shared resources across scheduled service, charter, and cargo businesses[136](index=136&type=chunk)[137](index=137&type=chunk) - Focuses on leisure and visiting friends and relatives (**VFR**) passengers, charter customers, and providing crew, maintenance, and insurance (**CMI**) services to Amazon[137](index=137&type=chunk) - Maintains a single-family fleet of **Boeing 737-NG aircraft**[138](index=138&type=chunk) - Charter business provides diversification and downside protection with stable demand and pass-through fuel costs, serving customers like the U.S. Department of Defense and sports teams[139](index=139&type=chunk) - Cargo business involves flying **12 Boeing 737-800 cargo aircraft** for Amazon under a **CMI** service model, where Amazon supplies aircraft and covers many operating expenses[140](index=140&type=chunk) [Operations in Review](index=32&type=section&id=Operations%20in%20Review) The company experienced a recovery in demand in **Q2 2022** from the **COVID-19 pandemic**, but operational challenges, including training throughput issues and pilot staffing, along with higher fuel prices, continue to impact the business, though its flexible model allows for service adjustments - Continued recovery in demand from the **COVID-19 pandemic** during **Q2 2022** relative to 2021, but future impact remains uncertain[143](index=143&type=chunk) - Operational challenges, driven by training throughput issues and uncertainties in pilot staffing, along with higher fuel prices, have impacted the Company and the industry[143](index=143&type=chunk)[144](index=144&type=chunk) - The flexible business model allows the company to adjust services in response to market conditions to produce the highest possible returns[144](index=144&type=chunk) [Operating Statistics](index=34&type=section&id=Operating%20Statistics) Operating statistics for **Q2** and **YTD 2022** reflect a strong recovery in scheduled service, with significant increases in departures, passengers, **RPMs**, **ASMs**, and **TRASM** compared to 2021, alongside increased charter block hours and revenue per block hour, despite sharply rising fuel costs and decreased cargo block hours Key Operating Statistics (Three Months Ended June 30) | Metric | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Scheduled Service Departures | **5,674** | **4,921** | **15%** | | Scheduled Service Passengers | **884,088** | **700,019** | **26%** | | Scheduled Service TRASM (cents) | **11.55** | **8.19** | **41%** | | Charter Revenue per Block Hour | **$9,349** | **$7,904** | **18%** | | Fuel Cost per Gallon | **$4.39** | **$2.07** | **112%** | | Total Aircraft Operated (end of period) | **53** | **45** | **18%** | Key Operating Statistics (Six Months Ended June 30) | Metric | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Scheduled Service Departures | **11,901** | **9,244** | **29%** | | Scheduled Service Passengers | **1,806,740** | **1,253,051** | **44%** | | Scheduled Service TRASM (cents) | **10.82** | **7.57** | **43%** | | Charter Revenue per Block Hour | **$9,028** | **$7,829** | **15%** | | Fuel Cost per Gallon | **$3.76** | **$1.99** | **89%** | | Adjusted CASM (cents) | **6.64** | **6.28** | **6%** | | Total Aircraft Operated (end of period) | **53** | **45** | **18%** | [Results of Operations](index=36&type=section&id=Results%20of%20Operations) For **Q2** and **YTD 2022**, **total operating revenues increased significantly** due to passenger demand recovery, but **operating income and net income decreased substantially**, turning into losses, primarily driven by a sharp increase in aircraft fuel expense and higher salaries and wages, with **Special Items, net, were $0** Total Operating Revenues (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$219,067** | **$149,189** | **47%** | | Six Months Ended June 30 | **$445,591** | **$276,802** | **61%** | Net Income (Loss) (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$(3,922)** | **$52,177** | **-108%** | | Six Months Ended June 30 | **$(285)** | **$68,955** | **-100%** | Aircraft Fuel Expense (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$76,947** | **$29,709** | **159%** | | Six Months Ended June 30 | **$141,492** | **$53,984** | **162%** | Salaries, Wages, and Benefits (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$60,298** | **$42,316** | **42%** | | Six Months Ended June 30 | **$119,915** | **$86,392** | **39%** | - **Special Items, net, were $0** for **Q2** and **YTD 2022**, compared to a net benefit of **$39,819 thousand** (**Q2 2021**) and **$72,355 thousand** (**YTD 2021**) primarily from **CARES Act** payroll support[172](index=172&type=chunk)[195](index=195&type=chunk) [Segments](index=46&type=section&id=Segments) **Passenger operating income decreased significantly** in **Q2** and **YTD 2022** due to increased aircraft fuel expense, while **Cargo operating income decreased** to a loss in **Q2 2022** and significantly reduced income in **YTD 2022**, mainly due to the absence of **CARES Act** payroll support and higher pilot salaries from a new **CBA** Operating Income (Loss) by Segment (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Passenger Operating Income | **$3,633** | **$34,408** | **$23,751** | **$52,846** | | Cargo Operating Income (Loss) | **$(264)** | **$15,381** | **$1,450** | **$27,541** | - **Passenger segment's operating income decrease** was mainly driven by the increase in Aircraft Fuel Expense[201](index=201&type=chunk)[205](index=205&type=chunk) - **Cargo segment's operating income decrease** was primarily due to the absence of **CARES Act** payroll support (a benefit in 2021), increased Salaries, Wages, and Benefits from a new pilot **CBA**, and decreased block hours due to heavy maintenance events[203](index=203&type=chunk)[206](index=206&type=chunk) [Non-GAAP Financial Measures](index=49&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures such as **Adjusted Operating Income**, **Adjusted Net Income (Loss)**, **Adjusted EBITDA**, and **Adjusted CASM** to provide a more comparable view of its operating performance, excluding certain non-recurring or volatile items to enhance comparability Adjusted Operating Income (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$3,944** | **$10,765** | | Six Months Ended June 30 | **$26,696** | **$11,960** | Adjusted Net Income (Loss) (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$(1,838)** | **$3,921** | | Six Months Ended June 30 | **$10,504** | **$(998)** | Adjusted EBITDA (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$20,719** | **$24,967** | | Six Months Ended June 30 | **$58,722** | **$38,772** | Adjusted CASM (cents) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **7.14** | **6.40** | | Six Months Ended June 30 | **6.64** | **6.28** | - **Adjusted CASM** excludes fuel costs, costs related to cargo operations, special items, stock compensation expense, and Sun Country Vacations costs to improve comparability[221](index=221&type=chunk)[224](index=224&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity sources include cash, short-term investments, and its **Revolving Credit Facility**, while primary uses are operating expenses, capital expenditures, and debt repayments, with **Total Liquidity decreased** from **December 31, 2021**, to **June 30, 2022**, and **Operating cash flow decreased significantly** in **YTD 2022** Financial Condition and Liquidity (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Cash and Cash Equivalents | **$212,858** | **$309,338** | | Available-for-Sale Securities | **$70,138** | **$0** | | Amount Available Under Revolving Credit Facility | **$25,000** | **$25,000** | | Total Liquidity | **$307,996** | **$334,338** | | Long-term Debt | **$363,543** | **$277,426** | | Finance Lease Obligations | **$249,621** | **$192,155** | | Operating Lease Obligations | **$31,582** | **$76,041** | | Total Debt and Lease obligations | **$644,746** | **$545,622** | | Debt-to-Capital | **0.57** | **0.53** | Sources and Uses of Liquidity (Six Months Ended June 30) (Dollars in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Total Operating Activities | **$37,060** | **$96,804** | | Total Investing Activities | **$(198,961)** | **$(74,151)** | | Total Financing Activities | **$61,106** | **$222,469** | | Net (Decrease) Increase in Cash | **$(100,795)** | **$245,122** | - **Operating cash flow decreased significantly** in **YTD 2022**, impacted by the absence of **CARES Act** grants (a benefit in 2021) and higher fuel costs[246](index=246&type=chunk)[249](index=249&type=chunk) - **Capital expenditures** were **$137,647 thousand** for **YTD 2022**, primarily for aircraft and spare engines, and a **flight simulator**[250](index=250&type=chunk) [Off Balance Sheet Arrangements](index=57&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company's **Off Balance Sheet Arrangements** primarily include indemnities in aircraft and equipment leases, and participation in fuel consortia, with **Pass-through trusts** for **EETC financings** not being direct obligations of Sun Country - Aircraft, equipment, and other leases typically contain **indemnification provisions**[255](index=255&type=chunk) - **Pass-through trusts** for **EETC financings** are not direct obligations of Sun Country, but the underlying equipment notes are[256](index=256&type=chunk)[257](index=257&type=chunk) - Participation in **fuel consortia** at various airports, which are not **variable interest entities (VIEs)** or where the company is not the primary beneficiary, are not reflected on the balance sheet[258](index=258&type=chunk) [Commitments and Contractual Obligations](index=58&type=section&id=Commitments%20and%20Contractual%20Obligations) The company's **Commitments and Contractual Obligations** include aircraft leases, debt repayment, payments under the **TRA**, and **probable future purchases of aircraft**, with recent commitments for a **flight simulator** and an aircraft expected to finalize in **Q3 2022** - **Contractual obligations** include aircraft leases, debt repayment, payments under the **TRA**, and **probable future purchases of aircraft**[260](index=260&type=chunk) - Agreement to purchase a **flight simulator** for **$9,745 thousand**, with initial installments paid in **H1 2022** and **July 2022**[262](index=262&type=chunk) - Irrevocable notice to purchase an aircraft currently under finance lease for approximately **$12,000 thousand**, expected to be completed in **September 2022**[263](index=263&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from aircraft fuel prices and interest rates, with no fuel derivatives in place as of **June 30, 2022**, and a **1-cent per gallon** increase in fuel price would raise aircraft fuel expense by **$172 thousand** per quarter, while a **100 basis point** increase in interest rates would increase annual interest expense by **$250 thousand** if the **Revolving Credit Facility** is fully drawn - No fuel derivative contracts were in place as of **June 30, 2022**[266](index=266&type=chunk) - A **one cent per gallon** increase in the average aircraft fuel price would increase aircraft fuel expense by approximately **$172 thousand** per quarter (excluding reimbursed cargo fuel)[266](index=266&type=chunk) - Exposure to interest rate risk from variable-rate debt (**Revolving Credit Facility**) and short-term investment securities[267](index=267&type=chunk) - Assuming the **$25,000 thousand Revolving Credit Facility** is fully drawn, a **100 basis point** increase in interest rates would result in a corresponding increase in interest expense of approximately **$250 thousand** annually[267](index=267&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) The **CEO** and **CFO** concluded that **disclosure controls and procedures were not effective** as of **June 30, 2022**, due to a **material weakness** in internal control over financial reporting related to accounting for complex non-routine transactions, specifically the application of **ASC Topic 842 (Leases)** to aircraft purchases, though management has performed additional analyses and is implementing a remediation plan - **Disclosure controls and procedures were not effective** as of **June 30, 2022**, due to a **material weakness** in internal control over financial reporting[270](index=270&type=chunk) - The **material weakness** is specifically related to controls over the accounting for complex non-routine transactions, including the application of **ASC Topic 842, Leases**, to the purchase of aircraft subject to an existing operating lease[273](index=273&type=chunk) - Despite the **material weakness**, management concluded that the consolidated financial statements present fairly the company's financial position, results of operations, and cash flows[271](index=271&type=chunk) - Remediation plan includes engaging third-party experts, providing additional internal training, enhancing risk assessment for complex transactions, strengthening review/approval controls, and establishing a technical accounting checklist for lease-related transactions[275](index=275&type=chunk) [PART II. OTHER INFORMATION](index=58&type=section&id=Part%20II.%20Other%20Information) [ITEM 1. LEGAL PROCEEDINGS](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various commercial litigation claims and administrative/regulatory proceedings in the normal course of business, with management believing the ultimate outcome will not have a **material adverse effect** on its financial position, liquidity, or results of operations - Subject to commercial litigation claims and administrative and regulatory proceedings in the normal course of business[277](index=277&type=chunk) - Management believes the ultimate outcome of these proceedings will not have a **material adverse effect** on financial position, liquidity, or results of operations[277](index=277&type=chunk) [ITEM 1A. RISK FACTORS](index=61&type=section&id=Item%201A.%20Risk%20Factors) The company highlights an updated risk factor concerning the identified **material weakness** in internal control over financial reporting, where failure to remediate this weakness could impair accurate and timely financial reporting, adversely affecting investor confidence, business decisions, and potentially leading to regulatory actions or stock delisting - Identified a **material weakness** in internal control over financial reporting, specifically regarding controls over accounting for complex non-routine transactions (e.g., **ASC Topic 842** for aircraft leases)[279](index=279&type=chunk)[280](index=280&type=chunk) - Failure to remediate this **material weakness** could impair the ability to produce accurate financial statements, adversely affect business decisions, harm results of operations, and lead to loss of investor confidence[281](index=281&type=chunk) - Potential consequences include investigations or sanctions by regulatory authorities, delisting actions by Nasdaq, and stockholder lawsuits[281](index=281&type=chunk)[284](index=284&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) For the quarter ended **June 30, 2022**, the company **repurchased 1,823 shares** of common stock at an **average price of $28.74 per share**, reflecting shares withheld from employees to satisfy exercise price and taxes due in connection with stock option exercises Common Stock Repurchases (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | May 1-31, 2022 | **1,823** | **$28.74** | | Total (Quarter Ended June 30, 2022) | **1,823** | **$28.74** | - Shares were **repurchased** as shares withheld from employees to satisfy the exercise price and taxes due in connection with exercises of stock options[285](index=285&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=62&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were **no defaults upon senior securities** reported for the period [ITEM 4. MINE SAFETY DISCLOSURES](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is **not applicable** to the company [ITEM 5. OTHER INFORMATION](index=62&type=section&id=Item%205.%20Other%20Information) **No other information was reported** under this item [ITEM 6. EXHIBITS](index=62&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including **certifications by the Chief Executive Officer and Chief Financial Officer**, and various **Inline XBRL Instance Document** for financial data - Includes **certifications by Sun Country's Chief Executive Officer and President and Chief Financial Officer** (Exhibits 31.1, 31.2, 32)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - Includes **Inline XBRL Instance Document** and Taxonomy Extension Documents (Schema, Calculation, Definition, Labels, Presentation Linkbase Documents, and Cover Page Interactive Data Files)[292](index=292&type=chunk) [SIGNATURES](index=64&type=section&id=Signatures) The report is officially **signed by Dave Davis**, **President and Chief Financial Officer**, on **August 10, 2022** - The report was **signed by Dave Davis**, **President and Chief Financial Officer**, on **August 10, 2022**[294](index=294&type=chunk) ```

Financial Data and Key Metrics Changes - In Q1 2022, the company reported adjusted pretax earnings of $15.7 million and adjusted EPS of $0.20, with revenue reaching a record $226.5 million [15][16] - The adjusted operating margin for Q1 was 10%, which is considered industry-leading [15] - The company achieved a 30% increase in block hours compared to Q1 2019, while ASMs increased by 6.3% [11][16] - The average fare in Q1 was $183, a 7% increase from Q1 2019, with ancillary revenue per passenger at $49, the highest in the company's history [16] Business Line Data and Key Metrics Changes - Charter revenue for the quarter was $32.9 million, with charter revenue per block hour higher than in 2019 [18] - Cargo revenue was $21.1 million, slightly down from the previous year due to planned maintenance checks [21] - Scheduled service TRASM was down 1% compared to Q1 2019, but increased by 4% in March 2022 [17] Market Data and Key Metrics Changes - The company expects total revenue in Q2 2022 to be up 24% to 30% compared to Q2 2019, with block hours projected to be 22% to 26% higher [24] - The company anticipates scheduled service TRASM growth of 25% to 34% over the same period [24] Company Strategy and Development Direction - The company focuses on leveraging synergies between cargo, charter, and scheduled service segments to enhance profitability [9] - Future CapEx can be adjusted based on aircraft prices and interest rates, with plans to acquire 8 aircraft in 2022, 7 of which have already been financed [10][26] - The company aims to maximize profitability in a high-fuel environment while addressing staffing challenges [25] Management's Comments on Operating Environment and Future Outlook - Management noted that demand for air travel has returned to pre-pandemic levels, with strong demand observed since President's Day [6][14] - The company remains profitable and is not reliant on growth to maintain consistent profitability and cash flow [7] - Management expressed confidence in the future, expecting to continue delivering over 20% growth without future CapEx [11][12] Other Important Information - The company ratified a new pilot contract in December, which has helped attract talent and provides cost certainty [12] - The balance sheet remains strong, with $297 million in liquidity and positive free cash flow of approximately $15 million during the quarter [26] Q&A Session Summary Question: Impact of excess capacity from primary cargo customer - Management indicated that cargo schedules remain unchanged and margins are expected to widen as pilot rate increases are outpaced by contract escalations [29][30] Question: Flexibility in charter contracts - Management explained that the charter business has a fixed component under contract, while ad hoc flying provides flexibility based on resource availability [32][34] Question: Composition of block hours - Scheduled service block hours accounted for 66% of total in Q1, with a shift expected towards charter business in Q2 [36] Question: Scheduled service growth and margin protection - Management clarified that capacity adjustments were made in response to high fuel prices, focusing on peak opportunities [39] Question: Pilot hiring and attrition - The company is hiring about 20 pilots per month, with new hire classes full, and attrition has moderated since the new pilot contract [46][50] Question: Ancillary revenue per passenger outlook - Management expects ancillary revenue per passenger to increase due to new products, with a potential rise to over $60 [64] Question: Demand environment amid rising COVID cases - Management reported no changes in demand despite an uptick in COVID cases, with steady increases in average airfare sold [69]

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements for Q1 2022 show total assets increased to $1.42 billion, operating revenue grew 78% to $226.5 million, but net income decreased to $3.6 million due to higher fuel costs and the absence of prior-year CARES Act grants [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a significant increase in total assets to $1.42 billion, primarily driven by investments in property and equipment, while total liabilities also rose to $926.3 million Balance Sheet Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $272,402 | $309,338 | | Total Current Assets | $349,243 | $375,443 | | Total Property & Equipment, net | $675,649 | $573,611 | | Total Assets | $1,419,592 | $1,376,644 | | **Liabilities & Equity** | | | | Total Current Liabilities | $301,476 | $281,651 | | Total Liabilities | $926,301 | $889,833 | | Total Stockholders' Equity | $493,291 | $486,811 | | Total Liabilities and Stockholders' Equity | $1,419,592 | $1,376,644 | - Total assets increased to **$1.42 billion**, primarily due to a **$102 million** increase in net Property & Equipment, reflecting aircraft acquisitions[10](index=10&type=chunk) - Total liabilities rose to **$926.3 million**, driven by increases in finance lease obligations and long-term debt associated with fleet financing[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Operating revenue increased 78% year-over-year to $226.5 million, but net income decreased significantly to $3.6 million due to a 166% surge in aircraft fuel expense and the absence of prior-year special items Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Operating Revenue | $226,525 | $127,611 | | Total Operating Expenses | $204,692 | $102,678 | | Operating Income | $21,833 | $24,933 | | Net Income | $3,637 | $12,416 | | Diluted EPS | $0.06 | $0.24 | - Operating revenue increased by **78% YoY**, driven by a strong recovery in passenger demand[12](index=12&type=chunk) - Aircraft fuel expense surged **166%** to **$64.5 million** from **$24.3 million** in the prior-year quarter, significantly impacting profitability[12](index=12&type=chunk) - Net income declined significantly, influenced by higher operating costs and the absence of the **$26.9 million** net benefit from 'Special Items' (primarily CARES Act grants) recorded in Q1 2021[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations remained stable at $18.2 million, while investing activities focused on property and equipment purchases, and financing activities shifted from IPO proceeds to debt management Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $18,213 | $15,839 | | Net Cash Used in Investing Activities | ($49,628) | ($54,552) | | Net Cash (Used In) Provided by Financing Activities | ($5,883) | $243,968 | | Net (Decrease) Increase in Cash | ($37,298) | $205,255 | - Investing activities primarily consisted of purchases of property and equipment, totaling **$49.7 million** in Q1 2022[16](index=16&type=chunk) - Financing activities in Q1 2021 were dominated by **$235.9 million** in cash received from the company's stock offering (IPO); in Q1 2022, financing activities included **$78.0 million** in proceeds from borrowings, offset by **$77.9 million** in repayments[16](index=16&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail a 78% YoY revenue increase, fleet expansion to 50 aircraft, new debt financing of $188.3 million, and an increased effective tax rate of 43.3% due to a non-deductible TRA expense - The company's fleet grew from **43 aircraft** at the end of Q1 2021 to **50 aircraft** at the end of Q1 2022, with a shift towards more owned and finance-leased aircraft[52](index=52&type=chunk) - In March 2022, the company arranged for the issuance of Class A and Class B pass-through trust certificates (2022-1 EETC) with an aggregate face amount of **$188.3 million** to finance or refinance **13 aircraft**[65](index=65&type=chunk) - The effective tax rate for Q1 2022 was **43.3%**, up from **30.3%** in Q1 2021, primarily due to a non-deductible expense related to the Tax Receivable Agreement (TRA) liability[76](index=76&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes a 78% revenue growth to strong passenger demand recovery, despite a 12% decrease in operating income and a 71% fall in net income due to surging fuel costs and increased salaries, while maintaining strong liquidity and continuing fleet expansion [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Total operating revenues increased 78% to $226.5 million, driven by a 127% rise in scheduled service revenue, while total operating expenses increased 99% to $204.7 million, leading to a 12% decrease in operating income and a 71% decrease in net income Operating Revenues Comparison (in thousands) | Revenue Source | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Scheduled Service | $124,068 | $54,620 | 127% | | Charter Service | $32,879 | $25,805 | 27% | | Ancillary | $45,086 | $23,770 | 90% | | Cargo | $21,053 | $21,585 | (2)% | | **Total Operating Revenues** | **$226,525** | **$127,611** | **78%** | Operating Expenses Comparison (in thousands) | Expense Category | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Aircraft Fuel | $64,544 | $24,274 | 166% | | Salaries, Wages, and Benefits | $59,617 | $44,075 | 35% | | Special Items, net | $0 | ($26,871) | (100)% | | **Total Operating Expenses** | **$204,692** | **$102,678** | **99%** | - The increase in scheduled service revenue was driven by a **44%** increase in departures, a **67%** increase in passengers, and a **36%** increase in the average base fare per passenger, reflecting a strong recovery from the COVID-19 pandemic[115](index=115&type=chunk) [Segment Performance](index=32&type=section&id=Segments) The Passenger segment's operating income increased to $20.1 million due to strong revenue recovery, while the Cargo segment's operating income sharply decreased to $1.7 million, primarily due to the absence of prior-year CARES Act payroll support Segment Operating Income (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Passenger | $20,118 | $12,774 | | Cargo | $1,715 | $12,159 | - Excluding special items from 2021, the Passenger segment's operating income of **$20.1 million** in Q1 2022 compares to an adjusted operating loss of **($5.4) million** in Q1 2021, highlighting the significant operational improvement[135](index=135&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with $272.4 million in cash and $25.0 million available under its Revolving Credit Facility, while securing $188.3 million in new EETC financing for fleet expansion and repaying its $80.5 million DDTL facility Key Liquidity Indicators (in thousands) | Indicator | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $272,402 | $309,338 | | Amount Available Under Revolving Credit Facility | $25,000 | $25,000 | | Total Debt and Lease obligations | $581,466 | $545,622 | - The company plans to grow its passenger fleet to an estimated **50 aircraft** by the end of 2023[167](index=167&type=chunk) - In March 2022, the company arranged for the issuance of the 2022-1 EETC with an aggregate face amount of **$188.3 million** to finance or refinance **13 aircraft**, using the initial proceeds to repay its DDTL facility[175](index=175&type=chunk)[173](index=173&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from aircraft fuel price volatility and interest rate fluctuations on variable-rate debt, with no fuel hedges in place as of March 31, 2022 - The company's main market risks are **aircraft fuel price volatility** and **interest rate fluctuations**[197](index=197&type=chunk) - As of March 31, 2022, the company had no fuel derivative contracts in place to hedge against fuel price volatility[198](index=198&type=chunk) - A **100 basis point** increase in interest rates would result in an approximate **$250,000** annual increase in interest expense on its variable-rate debt, assuming the revolving credit facility is fully utilized[199](index=199&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[200](index=200&type=chunk) - No changes were made in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[201](index=201&type=chunk) Part II. Other Information [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, but does not anticipate a materially adverse effect on its financial position or operations - The company states that the ultimate outcome of current legal proceedings is not expected to have a material adverse effect on its financial position, liquidity, or results of operations[203](index=203&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, were reported - No material changes to the risk factors disclosed in the 2021 10-K were reported[204](index=204&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 incorporati ...

Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q4 2021 Earnings Conference Call February 8, 2022 8:30 AM ET Company Participants Jude Bricker - CEO Dave Davis - President & CFO Gregory Mays - COO & EVP Grant Whitney - Chief Revenue Officer & EVP Chris Allen - Director, IR Conference Call Participants Hunter Keay - Wolfe Research Duane Pfennigwerth - Evercore ISI Brandon Oglenski - Barclays Catherine O'Brien - Goldman Sachs Chris Stathoulopoulos - Susquehanna Financial Group Operator Welcome to the Sun Co ...

Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q3 2021 Earnings Conference Call November 2, 2021 8:30 AM ET Company Participants Chris Allen - Director, Investor Relations Jude Bricker - CEO & Director David Davis - CFO, President & Director Gregory Mays - COO & EVP Grant Whitney - Chief Revenue Officer & EVP Conference Call Participants Noah Chase - Wolfe Research Catherine O'Brien - Goldman Sachs Group Michael Linenberg - Deutsche Bank Brandon Oglenski - Barclays Bank Chris Stathoulopoulos - Susquehann ...