Sun ntry Airlines (SNCY) - 2024 Q2 - Quarterly Report

PART I. Financial Information ITEM 1. Financial Statements Presents Sun Country's unaudited condensed consolidated financial statements and detailed notes for the specified interim periods Condensed Consolidated Balance Sheets - Total Assets decreased by $19,740 thousand (1.2%) from December 31, 2023, to June 30, 2024, primarily due to a decrease in current assets, including cash and investments[3][5] - Total Liabilities decreased by $52,188 thousand (4.7%) over the same period, mainly driven by a reduction in current liabilities, particularly Air Traffic Liabilities[3][5] - Total Stockholders' Equity increased by $32,448 thousand (6.3%) from December 31, 2023, to June 30, 2024[3][5] Condensed Consolidated Balance Sheets (June 30, 2024 vs. December 31, 2023) | Category | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------- | :------------------------ | :---------------------------- | | Assets | | | | Total Current Assets | $213,712 | $271,351 | | Total Property & Equipment, net | $1,002,400 | $968,981 | | Total Other Assets | $387,775 | $383,295 | | Total Assets | $1,603,887 | $1,623,627 | | Liabilities & Stockholders' Equity | | | | Total Current Liabilities | $367,339 | $418,582 | | Total Long-term Liabilities | $689,697 | $690,642 | | Total Liabilities | $1,057,036 | $1,109,224 | | Total Stockholders' Equity | $546,851 | $514,403 | | Total Liabilities and Stockholders' Equity | $1,603,887 | $1,623,627 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | Change (%) | | :----- | :--------------- | :--------------- | :--------- | | Total Operating Revenues | $254,381 | $261,086 | -2.6% | | Total Operating Expenses | $242,016 | $225,499 | +7.3% | | Operating Income | $12,365 | $35,587 | -65.3% | | Income Before Income Tax | $3,084 | $26,750 | -88.5% | | Net Income | $1,812 | $20,618 | -91.2% | | Basic EPS | $0.03 | $0.37 | -91.9% | | Diluted EPS | $0.03 | $0.35 | -91.4% | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | Change (%) | | :----- | :--------------- | :--------------- | :--------- | | Total Operating Revenues | $565,864 | $555,201 | +1.9% | | Total Operating Expenses | $498,323 | $463,831 | +7.4% | | Operating Income | $67,541 | $91,370 | -26.1% | | Income Before Income Tax | $49,642 | $76,432 | -35.0% | | Net Income | $37,125 | $58,946 | -37.0% | | Basic EPS | $0.70 | $1.05 | -33.3% | | Diluted EPS | $0.67 | $0.99 | -32.3% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :----- | :--------------- | :--------------- | | Net Income | $1,812 | $20,618 | | Other Comprehensive (Loss) Income | $(16) | $(246) | | Comprehensive Income | $1,796 | $20,372 | Condensed Consolidated Statements of Comprehensive Income (Six Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :----- | :--------------- | :--------------- | | Net Income | $37,125 | $58,946 | | Other Comprehensive (Loss) Income | $(155) | $143 | | Comprehensive Income | $36,970 | $59,089 | Condensed Consolidated Statements of Changes in Stockholders' Equity - Total Stockholders' Equity increased by $32,448 thousand from December 31, 2023, to June 30, 2024, primarily driven by net income of $35,313 thousand for the first quarter and $1,812 thousand for the second quarter, and increases in additional paid-in capital[11] - Common stock repurchases and excise tax resulted in a decrease of $11,596 thousand in treasury stock during the first quarter of 2024[11] Changes in Stockholders' Equity (December 31, 2023 to June 30, 2024) | Item | December 31, 2023 (Thousands) | June 30, 2024 (Thousands) | | :--- | :---------------------------- | :------------------------ | | Common Stock Amount | $589 | $592 | | Treasury Stock Amount | $(94,341) | $(105,914) | | Additional Paid-In Capital | $513,988 | $521,036 | | Retained Earnings | $94,229 | $131,354 | | Accumulated Other Comprehensive (Loss) Income | $(62) | $(217) | | Total Stockholders' Equity | $514,403 | $546,851 | Condensed Consolidated Statements of Cash Flows - Operating cash flow decreased significantly from $95,693 thousand in 2023 to $38,872 thousand in 2024[14] - Investing activities shifted from a net outflow of $168,041 thousand in 2023 to a net inflow of $3,522 thousand in 2024, primarily due to lower purchases of property & equipment[14] - Financing activities resulted in a net outflow of $72,037 thousand in 2024, a significant change from the net inflow of $63,631 thousand in 2023, driven by common stock repurchases and debt repayments[14] Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2024 (Thousands) | 2023 (Thousands) | | :----------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | $38,872 | $95,693 | | Net Cash Provided by (Used in) Investing Activities | $3,522 | $(168,041) | | Net Cash Provided by (Used in) Financing Activities | $(72,037) | $63,631 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(29,643) | $(8,717) | | Cash, Cash Equivalents and Restricted Cash—End of the Period | $34,037 | $94,211 | Notes to the Condensed Consolidated Financial Statements 1. Basis of Presentation Financial statements are unaudited, prepared under U.S. GAAP, and subject to seasonal variations and market volatility - The Company's unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP and include all necessary recurring adjustments for fair presentation[17] - Operating results are subject to seasonal variations in air travel demand, volatility of aircraft fuel prices, and macroeconomic conditions, meaning interim results may not be indicative of full-year performance[18] 2. Revenue Operating revenues are diversified across passenger and cargo services, with an expanded Amazon cargo agreement and varied segment performance - Sun Country's operating revenues are derived from Scheduled Service (base fares), Charter (DoD, sports, casinos), Ancillary (baggage, seat selection), Cargo (Amazon), and Other (vacations, rental revenue)[19] - The Amended and Restated Air Transportation Services Agreement (A&R ATSA) with Amazon will increase the number of 737-800 cargo aircraft operated by Sun Country from 12 to 20, with the first additional aircraft starting service in Q1 2025 and all eight operational by Q3 2025[20][21] Operating Revenues by Category (Three Months Ended June 30) | Category | 2024 (Thousands) | 2023 (Thousands) | Change (%) | | :------- | :--------------- | :--------------- | :--------- | | Scheduled Service | $88,078 | $111,467 | -20.9% | | Charter | $51,009 | $49,626 | +2.8% | | Ancillary | $77,308 | $66,773 | +15.8% | | Passenger (Total) | $216,395 | $227,866 | -5.0% | | Cargo | $25,447 | $25,017 | +1.7% | | Other | $12,539 | $8,203 | +52.8% | | Total Operating Revenues | $254,381 | $261,086 | -2.6% | Operating Revenues by Category (Six Months Ended June 30) | Category | 2024 (Thousands) | 2023 (Thousands) | Change (%) | | :------- | :--------------- | :--------------- | :--------- | | Scheduled Service | $229,272 | $264,124 | -13.2% | | Charter | $98,321 | $95,813 | +2.6% | | Ancillary | $163,466 | $135,198 | +20.9% | | Passenger (Total) | $491,059 | $495,135 | -0.8% | | Cargo | $49,395 | $48,378 | +2.1% | | Other | $25,410 | $11,688 | +117.4% | | Total Operating Revenues | $565,864 | $555,201 | +1.9% | Contract Assets and Liabilities (June 30, 2024 vs. December 31, 2023) | Category | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------- | :------------------------ | :---------------------------- | | Total Contract Assets | $1,099 | $1,493 | | Air Traffic Liabilities | $116,877 | $157,996 | | Loyalty Program Liabilities | $13,272 | $13,737 | | Amazon Contract Liabilities | $1,811 | $2,225 | | Total Contract Liabilities | $131,960 | $173,958 | 3. Earnings per Share Basic and diluted earnings per share significantly decreased, with anti-dilutive securities excluded from diluted EPS calculations - The Company excluded 4,856,996 and 4,543,986 stock options, RSUs, and warrants from diluted EPS calculations for the three and six months ended June 30, 2024, respectively, due to their anti-dilutive effect[29] Earnings Per Share (Three Months Ended June 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic EPS | $0.03 | $0.37 | | Diluted EPS | $0.03 | $0.35 | | Basic Shares | 52,689,408 | 56,084,759 | | Diluted Shares | 54,792,848 | 59,712,048 | Earnings Per Share (Six Months Ended June 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic EPS | $0.70 | $1.05 | | Diluted EPS | $0.67 | $0.99 | | Basic Shares | 52,861,973 | 56,364,170 | | Diluted Shares | 55,095,265 | 59,630,008 | 4. Aircraft The fleet consists of 63 Boeing 737-NG aircraft, with recent additions and extended lease terms for subleased aircraft - As of June 30, 2024, Sun Country's fleet consisted of 63 Boeing 737-NG aircraft (58 Boeing 737-800s and five Boeing 737-900ERs)[33] - During the six months ended June 30, 2024, the Company acquired one incremental owned aircraft and took control of two aircraft through finance lease arrangements. Lease expiry terms for two subleased aircraft were extended through Q2 and Q4 2025, after which they will be redelivered to the Company and inducted into the passenger fleet[33] Aircraft Fleet Activity (Six Months Ended June 30, 2024) | Category | December 31, 2023 | Additions | Reclassifications | Removals | June 30, 2024 | | :------- | :---------------- | :-------- | :---------------- | :------- | :------------ | | Passenger Owned | 29 | 1 | 1 | — | 31 | | Passenger Finance leases | 13 | 1 | (1) | — | 13 | | Cargo Operated for Amazon | 12 | — | — | — | 12 | | Owned Aircraft Held for Operating Lease | 5 | — | — | — | 5 | | Subleased Aircraft | 1 | 1 | — | — | 2 | | Total Aircraft | 60 | 3 | — | — | 63 | Aircraft Depreciation, Amortization, and Rent Expense (Six Months Ended June 30) | Expense Type | 2024 (Thousands) | 2023 (Thousands) | | :----------- | :--------------- | :--------------- | | Owned Depreciation | $28,507 | $26,315 | | Finance Leased Amortization | $11,167 | $9,558 | | Operating Leased Aircraft Rent | $0 | $2,259 | | Total | $39,674 | $38,132 | 5. Debt The company maintains a revolving credit facility and long-term debt, with total debt decreasing and all financial covenants met - The Company has a $25,000 thousand Revolving Credit Facility, with $24,393 thousand available as of June 30, 2024, and was in compliance with all financial covenants[37] - The Term Loan Credit Facility, used to finance five Owned Aircraft Held for Operating Lease, had an interest rate of 9.2% as of June 30, 2024[40] Long-term Debt Breakdown (June 30, 2024 vs. December 31, 2023) | Debt Type | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | | :-------- | :------------------------ | :---------------------------- | | 2019-1 EETC | $119,208 | $138,423 | | 2022-1 EETC | $148,653 | $158,775 | | Term Loan Credit Facility | $101,011 | $108,442 | | Total Debt | $368,872 | $405,640 | | Less: Unamortized debt issuance costs | $(3,372) | $(3,995) | | Less: Current Maturities of Long-term Debt, net | $(75,911) | $(74,177) | | Total Long-term Debt, net | $289,589 | $327,468 | Future Maturities of Outstanding Debt (as of June 30, 2024) | Period | Debt (Thousands) | Amortization of Issuance Costs (Thousands) | Net Debt (Thousands) | | :----- | :--------------- | :----------------------------------------- | :------------------- | | Remainder of 2024 | $38,620 | $(566) | $38,054 | | 2025 | $80,003 | $(956) | $79,047 | | 2026 | $61,151 | $(709) | $60,442 | | 2027 | $65,176 | $(525) | $64,651 | | 2028 | $36,363 | $(337) | $36,026 | | Thereafter | $87,559 | $(279) | $87,280 | | Total | $368,872 | $(3,372) | $365,500 | 6. Investments Investments primarily comprise available-for-sale debt securities, with recoverable unrealized losses due to market interest rate changes - Unrealized losses on available-for-sale securities as of June 30, 2024, were due to increases in market interest rates and are considered recoverable[46] - The Company also holds Certificates of Deposit totaling $6,399 thousand as of June 30, 2024[45] Debt Securities by Type (June 30, 2024) | Security Type | Amortized Cost (Thousands) | Gross Unrealized Gains (Thousands) | Gross Unrealized Losses (Thousands) | Fair Value (Thousands) | | :------------ | :------------------------- | :------------------------- | :-------------------------- | :--------------------- | | Corporate Debt Securities | $50,755 | $0 | $(167) | $50,588 | | U.S. Government Agency Securities | $51,436 | $0 | $(122) | $51,314 | | Total Available-for-Sale Securities | $102,191 | $0 | $(289) | $101,902 | 7. Fair Value Measurements Certain assets are measured at fair value on a recurring basis, categorized into Level 1 and Level 2 inputs Assets Measured at Fair Value on a Recurring Basis (June 30, 2024) | Asset | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | Total (Thousands) | | :---- | :------------------ | :------------------ | :------------------ | :---------------- | | Cash & Cash Equivalents | $26,864 | $0 | $0 | $26,864 | | Corporate Debt Securities | $0 | $50,588 | $0 | $50,588 | | U.S. Government Agency Securities | $0 | $51,314 | $0 | $51,314 | | Total Assets Measured at Fair Value | $26,864 | $101,902 | $0 | $128,766 | 8. Income Taxes The effective tax rate increased due to stock compensation, while TRA liability decreased with payments made - The increase in the effective tax rate for 2024 was due to the impact of permanent stock compensation items[49] Effective Tax Rate (Three and Six Months Ended June 30) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months | 41.2% | 22.9% | | Six Months | 25.2% | 22.9% | Tax Receivable Agreement (TRA) Liability and Payments | Metric | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | | :----- | :------------------------ | :---------------------------- | | Total TRA Balance | $97,694 | $101,044 | | Current TRA Liability | $7,984 | $3,250 | | Payments to TRA holders (Six Months) | $3,350 | $2,425 | 9. Stockholders' Equity The company repurchased common stock, Amazon warrants vested, and performance-based restricted stock units were issued to employees - During the six months ended June 30, 2024, the Company repurchased 755,284 shares of Common Stock for $11,493 thousand (average price $15.22/share)[52] - As of June 30, 2024, the Company had no remaining Board authorization to repurchase shares[51] - Amazon's cumulative vested warrants reached 3,666,614 as of June 30, 2024, with 442,521 warrants vesting during the six months ended June 30, 2024[53] - Performance-based restricted stock units (PRSUs) were issued to certain employees in Q1 2024, with potential payouts of 50%-150% of a target level (max 259,095 shares)[54] 10. Commitments and Contingencies Contractual obligations exist, and the company is appealing an IRS assessment, with no material adverse effects expected from legal proceedings - The Company is subject to an IRS audit related to federal excise taxes on optional passenger seat selection charges (Oct 2021 - Jun 2023), with an assessment of approximately $2,700 thousand[55] - The Company has appealed the IRS audit results and believes a loss in this matter is not probable, thus no loss contingency has been recognized[55] - Management does not believe other legal proceedings will have a materially adverse effect on the Company's financial position, liquidity, or results of operations[56] 11. Operating Segments Passenger segment operating income and margin declined due to lower fares and higher costs, while Cargo segment operating loss and margin improved Operating Segment Performance (Three Months Ended June 30) | Metric | Passenger 2024 (Thousands) | Cargo 2024 (Thousands) | Passenger 2023 (Thousands) | Cargo 2023 (Thousands) | | :----- | :------------------------- | :--------------------- | :------------------------- | :--------------------- | | Operating Revenues | $228,934 | $25,447 | $236,069 | $25,017 | | Total Operating Expenses | $216,393 | $25,623 | $198,554 | $26,945 | | Operating Income (Loss) | $12,541 | $(176) | $37,515 | $(1,928) | | Operating Margin % | 5.5% | (0.7)% | 15.9% | (7.7)% | Operating Segment Performance (Six Months Ended June 30) | Metric | Passenger 2024 (Thousands) | Cargo 2024 (Thousands) | Passenger 2023 (Thousands) | Cargo 2023 (Thousands) | | :----- | :------------------------- | :--------------------- | :------------------------- | :--------------------- | | Operating Revenues | $516,469 | $49,395 | $506,823 | $48,378 | | Total Operating Expenses | $447,397 | $50,926 | $411,456 | $52,375 | | Operating Income (Loss) | $69,072 | $(1,531) | $95,367 | $(3,997) | | Operating Margin % | 13.4% | (3.1)% | 18.8% | (8.3)% | 12. Subsequent Events No material subsequent events were identified from the balance sheet date through August 2, 2024 - No material subsequent events were identified for the period from June 30, 2024, through August 2, 2024[60] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides detailed analysis of Sun Country's financial condition and results, covering its hybrid low-cost carrier model, operational performance, and liquidity Business Overview Sun Country operates as a hybrid low-cost carrier, leveraging diversified segments for growth, margins, and resilience against market fluctuations - Sun Country is a hybrid low-cost air carrier that dynamically deploys shared resources across its Scheduled Service, Charter, and Cargo businesses to generate high growth, margins, and cash flows with greater resilience[63] - The Scheduled Service business combines low costs (unbundled product, point-to-point, single-family fleet) with a high-quality product (more legroom, complimentary soft drinks, in-flight entertainment, in-seat power)[64] - The Charter business provides diversification and downside protection with large repeat customers (DoD, sports teams, casinos) and the ability to pass through certain costs, including fuel[65][66] - The Cargo business, providing CMI service to Amazon, is asset-light for Sun Country, leveraging existing operational expertise and enabling the company to operate 12 Boeing 737-800 cargo aircraft, increasing to 20 by Q3 2025[67][68] Operations in Review The company aims for high growth as a low-cost carrier, using its diversified model to mitigate market volatility and adapt services - A key component of success is establishing Sun Country as a high growth, low-cost carrier by attracting customers with low fares and delivering a high-quality passenger experience[69] - The diversified business model (leisure/VFR passengers, Charter, Cargo) helps mitigate the impact of economic and industry downturns, as Charter and Cargo businesses can pass on certain costs, including fuel[70] Operating Statistics Operating statistics show increased capacity and growth, but decreased TRASM and total fare per passenger due to industry capacity Key Operating Statistics (Three Months Ended June 30) | Metric | 2024 | 2023 | Change | | :----- | :--- | :--- | :----- | | Departures | 13,610 | 12,495 | +8.9% | | Block hours | 37,281 | 34,230 | +8.9% | | ASMs (thousands) | 2,011,921 | 1,780,340 | +13.0% | | TRASM (cents) | 10.89 | 12.93 | -15.8% | | Load factor | 83.1% | 85.8% | -2.7 pts | | Average base fare per passenger | $75.47 | $110.90 | -32.0% | | Ancillary revenue per passenger | $66.24 | $66.43 | -0.3% | | Total fare per passenger | $141.71 | $177.33 | -20.1% | | Fuel cost per gallon | $2.86 | $2.71 | +5.5% | | Employees at end of period | 3,079 | 2,749 | +12.0% | | CASM (cents) | 12.03 | 12.67 | -5.1% | | Adjusted CASM (cents) | 7.49 | 7.88 | -4.9% | Key Operating Statistics (Six Months Ended June 30) | Metric | 2024 | 2023 | Change | | :----- | :--- | :--- | :----- | | Departures | 26,149 | 24,167 | +8.2% | | Block hours | 75,717 | 69,313 | +9.2% | | ASMs (thousands) | 4,223,807 | 3,725,341 | +13.4% | | TRASM (cents) | 11.77 | 13.45 | -12.5% | | Load factor | 85.4% | 87.0% | -1.6 pts | | Average base fare per passenger | $98.63 | $131.84 | -25.2% | | Ancillary revenue per passenger | $70.32 | $67.49 | +4.2% | | Total fare per passenger | $168.95 | $199.33 | -15.2% | | Fuel cost per gallon | $2.94 | $3.10 | -5.2% | | Employees at end of period | 3,079 | 2,749 | +12.0% | | CASM (cents) | 11.80 | 12.45 | -5.2% | | Adjusted CASM (cents) | 7.28 | 7.47 | -2.6% | Results of Operations (Three Months Ended June 30, 2024 and 2023) Total operating revenues decreased by 3% due to lower passenger fares, while operating expenses increased by 7%, leading to significant declines in operating and net income - Passenger revenue decreased by 5% due to a 20% reduction in Total Fare per passenger, partially offset by a 16% increase in passengers and a 12% increase in average daily aircraft utilization[79] - Other revenue increased by 53% due to higher rental revenue from seven leased aircraft in 2024 compared to five in 2023[80] - Aircraft Fuel expense increased by 19% due to a 6% increase in average fuel cost per gallon and a 13% increase in consumption[82] - Salaries, Wages, and Benefits increased by 5% due to a 12% increase in employee headcount, operational growth, and pilot contractual rate increases[83] - Operating Income decreased by 65% to $12,365 thousand, and Net Income decreased by 91% to $1,812 thousand[78] Operating Revenues (Three Months Ended June 30) | Revenue Category | 2024 (Thousands) | 2023 (Thousands) | Change ($) | Change (%) | | :--------------- | :--------------- | :--------------- | :--------- | :--------- | | Scheduled Service | $88,078 | $111,467 | $(23,389) | (21)% | | Charter | $51,009 | $49,626 | $1,383 | 3% | | Ancillary | $77,308 | $66,773 | $10,535 | 16% | | Passenger (Total) | $216,395 | $227,866 | $(11,471) | (5)% | | Cargo | $25,447 | $25,017 | $430 | 2% | | Other | $12,539 | $8,203 | $4,336 | 53% | | Total Operating Revenues | $254,381 | $261,086 | $(6,705) | (3)% | Operating Expenses (Three Months Ended June 30) | Expense Category | 2024 (Thousands) | 2023 (Thousands) | Change ($) | Change (%) | | :--------------- | :--------------- | :--------------- | :--------- | :--------- | | Aircraft Fuel | $62,188 | $52,360 | $9,828 | 19% | | Salaries, Wages, and Benefits | $79,359 | $75,919 | $3,440 | 5% | | Aircraft Rent | $0 | $779 | $(779) | (100)% | | Maintenance | $17,339 | $15,942 | $1,397 | 9% | | Depreciation and Amortization | $23,631 | $22,355 | $1,276 | 6% | | Ground Handling | $11,368 | $9,747 | $1,621 | 17% | | Landing Fees and Airport Rent | $13,723 | $11,944 | $1,779 | 15% | | Total Operating Expenses | $242,016 | $225,499 | $16,517 | 7% | Results of Operations (Six Months Ended June 30, 2024 and 2023) Total operating revenues increased by 2% driven by rental revenue, but operating expenses rose by 7%, resulting in decreased operating and net income - Passenger revenue decreased by 1% due to a 15% decrease in Total Fare per passenger, partially offset by a 16% increase in passengers and an 11% increase in average daily aircraft utilization[92] - Other revenue increased by 117% due to higher rental revenue from seven leased aircraft in 2024 compared to five in 2023[93] - Aircraft Fuel expense increased by 6% due to a 13% increase in consumption, partially offset by a 5% decrease in average fuel cost per gallon[95] - Salaries, Wages, and Benefits increased by 7% due to a 12% increase in employee headcount, operational growth, and pilot contractual rate increases[96] - Operating Income decreased by 26% to $67,541 thousand, and Net Income decreased by 37% to $37,125 thousand[90] Operating Revenues (Six Months Ended June 30) | Revenue Category | 2024 (Thousands) | 2023 (Thousands) | Change ($) | Change (%) | | :--------------- | :--------------- | :--------------- | :--------- | :--------- | | Scheduled Service | $229,272 | $264,124 | $(34,852) | (13)% | | Charter | $98,321 | $95,813 | $2,508 | 3% | | Ancillary | $163,466 | $135,198 | $28,268 | 21% | | Passenger (Total) | $491,059 | $495,135 | $(4,076) | (1)% | | Cargo | $49,395 | $48,378 | $1,017 | 2% | | Other | $25,410 | $11,688 | $13,722 | 117% | | Total Operating Revenues | $565,864 | $555,201 | $10,663 | 2% | Operating Expenses (Six Months Ended June 30) | Expense Category | 2024 (Thousands) | 2023 (Thousands) | Change ($) | Change (%) | | :--------------- | :--------------- | :--------------- | :--------- | :--------- | | Aircraft Fuel | $132,492 | $124,650 | $7,842 | 6% | | Salaries, Wages, and Benefits | $161,597 | $151,349 | $10,248 | 7% | | Aircraft Rent | $0 | $2,259 | $(2,259) | (100)% | | Maintenance | $34,156 | $28,981 | $5,175 | 18% | | Depreciation and Amortization | $47,440 | $41,815 | $5,625 | 13% | | Ground Handling | $20,522 | $18,917 | $1,605 | 8% | | Landing Fees and Airport Rent | $28,452 | $22,889 | $5,563 | 24% | | Total Operating Expenses | $498,323 | $463,831 | $34,492 | 7% | Segments (Three Months Ended June 30, 2024 and 2023) Passenger segment operating income and margin declined due to lower fares and higher costs, while Cargo segment operating loss and margin improved - Passenger Operating Income decreased by $24,974 thousand to $12,541 thousand, and Operating Margin Percentage decreased by 10.4 percentage points to 5.5%[104] - The decrease in Passenger Operating Income was primarily driven by a 20% reduction in Total Fare per passenger due to increased industry capacity, along with higher operational growth expenses, pilot rate increases, heavy maintenance, and landing fees[104] - Cargo Operating Loss decreased by $1,752 thousand to $176 thousand, and Operating Margin Percentage improved by 7.0 percentage points to (0.7)%[105] - The improvement in Cargo performance was due to rate escalations and scheduling efficiency improvements, offsetting pilot contractual rate increases[105] Segments (Six Months Ended June 30, 2024 and 2023) Passenger segment operating income and margin declined due to lower fares and higher costs, while Cargo segment operating loss and margin improved - Passenger Operating Income decreased by $26,295 thousand to $69,072 thousand, and Operating Margin Percentage decreased by 5.4 percentage points to 13.4%[106] - The decrease in Passenger Operating Income was primarily driven by a 15% decrease in Total Fare per passenger due to increased industry capacity, along with higher operational growth expenses, pilot rate increases, heavy maintenance, and landing fees[106] - Cargo Operating Loss decreased by $2,466 thousand to $1,531 thousand, and Operating Margin Percentage improved by 5.2 percentage points to (3.1)%[107] - The improvement in Cargo performance was due to rate escalations and scheduling efficiency improvements, offsetting pilot contractual rate increases[107] Non-GAAP Financial Measures Non-GAAP measures are used to provide a clearer comparison of operating performance by excluding specific non-core and non-cash items - Non-GAAP measures (Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted CASM) are used to provide a meaningful comparison of results to the airline industry and prior periods[108][109] - Adjusted CASM excludes fuel costs, costs related to cargo operations, depreciation/amortization on certain lease-generating assets, stock-based compensation, and other non-airline operational costs to improve comparability and visibility into non-fuel cost initiatives[117][119][120] Adjusted Operating Income and Margin Reconciliation (Three Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :----- | :--------------- | :--------------- | | Operating Income | $12,365 | $35,587 | | Stock Compensation Expense | $1,570 | $4,415 | | Adjusted Operating Income | $13,935 | $40,002 | | Operating Income Margin | 4.9% | 13.6% | | Adjusted Operating Income Margin | 5.5% | 15.3% | Adjusted Net Income Reconciliation (Six Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :----- | :--------------- | :--------------- | | Net Income | $37,125 | $58,946 | | Stock Compensation Expense | $3,084 | $7,093 | | Secondary offering costs | $0 | $640 | | TRA adjustment | $0 | $(357) | | Income tax effect of adjusting items, net | $(709) | $(1,779) | | Adjusted Net Income | $39,500 | $64,543 | Adjusted EBITDA Reconciliation (Six Months Ended June 30) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :----- | :--------------- | :--------------- | | Net Income | $37,125 | $58,946 | | Stock Compensation Expense | $3,084 | $7,093 | | Interest Income | $(4,248) | $(5,286) | | Interest Expense | $22,189 | $19,869 | | Provision for Income Taxes | $12,517 | $17,486 | | Depreciation and Amortization | $47,440 | $41,815 | | Adjusted EBITDA | $118,107 | $140,206 | CASM and Adjusted CASM Reconciliation (Six Months Ended June 30) | Metric | 2024 (Thousands) | Per ASM (cents) | 2023 (Thousands) | Per ASM (cents) | | :----- | :--------------- | :-------------- | :--------------- | :-------------- | | Operating Expenses | $498,323 | 11.80 | $463,831 | 12.45 | | Less: Aircraft Fuel | $132,492 | 3.14 | $124,650 | 3.35 | | Less: Stock Compensation Expense | $3,084 | 0.07 | $7,093 | 0.19 | | Less: Cargo expenses | $50,248 | 1.19 | $50,778 | 1.36 | | Less: Leased Aircraft, Depreciation and Amortization Expense | $4,320 | 0.10 | $2,273 | 0.06 | | Adjusted CASM | $307,386 | 7.28 | $278,335 | 7.47 | Liquidity and Capital Resources Liquidity sources are sufficient for the next twelve months, with primary uses for operations and capital expenditures, despite a decrease in total liquidity - Primary liquidity sources as of June 30, 2024, include $26,864 thousand in cash and cash equivalents, $108,301 thousand in short-term investments, and $24,393 thousand available from the Revolving Credit Facility[126] - The company believes its liquidity will be sufficient to fund operations and meet debt obligations for at least the next twelve months[128] - Capital expenditures are opportunistic, with no aircraft order book, allowing flexibility in aircraft acquisition[127] - Operating cash flow decreased by 59% due to lower net income and changes in operating assets and liabilities, including a decrease in Air Traffic Liabilities[137][138] - Investing activities shifted to a net inflow, primarily due to significantly lower purchases of property & equipment ($38,231 thousand in 2024 vs. $192,352 thousand in 2023)[137][140] - Financing activities resulted in a net outflow, driven by common stock repurchases ($11,493 thousand) and increased repayments of finance lease obligations ($20,870 thousand) and borrowings ($46,767 thousand)[137][142] Liquidity and Financial Condition Indicators (June 30, 2024 vs. December 31, 2023) | Metric | June 30, 2024 (Thousands) | December 31, 2023 (Thousands) | | :----- | :------------------------ | :---------------------------- | | Cash and Cash Equivalents | $26,864 | $46,279 | | Available-for-Sale Securities | $101,902 | $134,240 | | Amount Available Under Revolving Credit Facility | $24,393 | $24,650 | | Total Liquidity | $153,159 | $205,169 | | Total Debt, net | $365,500 | $401,645 | | Finance Lease Obligations | $297,329 | $277,302 | | Operating Lease Obligations | $17,770 | $18,830 | | Total Debt, net, and Lease Obligations | $680,599 | $697,777 | | Stockholders' Equity | $546,851 | $514,403 | | Total Invested Capital | $1,227,450 | $1,212,180 | | Debt-to-Capital | 0.55 | 0.58 | Sources and Uses of Liquidity (Six Months Ended June 30) | Activity | 2024 (Thousands) | 2023 (Thousands) | Change ($) | Change (%) | | :------- | :--------------- | :--------------- | :--------- | :--------- | | Total Operating Activities | $38,872 | $95,693 | $(56,821) | (59)% | | Total Investing Activities | $3,522 | $(168,041) | $171,563 | (102)% | | Total Financing Activities | $(72,037) | $63,631 | $(135,668) | (213)% | | Net Decrease in Cash | $(29,643) | $(8,717) | $(20,926) | 240% | Off Balance Sheet Arrangements No material changes to Off Balance Sheet Arrangements compared to the 2023 10-K - No material changes to Off Balance Sheet Arrangements compared to the 2023 10-K[144] Commitments and Contractual Obligations Commitments and contractual obligations are detailed in Note 10 of the Condensed Consolidated Financial Statements - Commitments and contractual obligations are detailed in Note 10 of the Condensed Consolidated Financial Statements[145] Recently Adopted Accounting Pronouncements No recently adopted accounting standards materially impacted the company during the six months ended June 30, 2024 - No recently adopted accounting standards had a material impact on the Company during the six months ended June 30, 2024[146] Critical Accounting Policies and Estimates No material changes to critical accounting policies and estimates compared to the 2023 10-K - No material changes to critical accounting policies and estimates compared to the 2023 10-K[148] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from fuel prices and interest rates, with no hedging for fuel and limited impact expected on liquidity from investment fluctuations - A one-cent per gallon increase in the average aircraft fuel price is estimated to increase Aircraft Fuel expense by approximately $205 thousand for Q3 2024[151] - The Company had no fuel option or swap contracts in place to hedge economic risk from volatile fuel prices as of June 30, 2024, and does not currently expect to enter into such contracts[151] - A 100 basis point increase in interest rates on the June 30, 2024, balance of the term loan would result in an approximate $1,010 thousand annual increase in interest expense[152] - The fair market value of short-term investments with interest rate risk was $101,902 thousand as of June 30, 2024; fluctuations are not anticipated to materially impact liquidity or capital position due to investment grade quality and significant cash holdings[153] ITEM 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2024[155] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024[156] PART II. Other Information ITEM 1. Legal Proceedings Management believes ongoing legal proceedings will not materially adversely affect the company's financial position, liquidity, or operations - Management believes current legal proceedings will not have a materially adverse effect on the Company's financial position, liquidity, or results of operations[157] ITEM 1A. Risk Factors No material changes to risk factors previously disclosed in the 2023 10-K - No material changes to risk factors previously disclosed in the 2023 10-K[158] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds[158] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities to report - No defaults upon senior securities[158] ITEM 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[158] ITEM 5. Other Information No directors or executive officers adopted, terminated, or modified Rule 10b5-1 Trading Plans during the quarter - No directors or executive officers adopted, terminated, or modified Rule 10b5-1 Trading Plans during the three months ended June 30, 2024[158] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements and certifications - Key exhibits include the Amended and Restated Air Transportation Services Agreement with Amazon, CEO and CFO certifications, and Inline XBRL documents[159] Signatures - The report was signed by Dave Davis, President and Chief Financial Officer of Sun Country Airlines Holdings, Inc., on August 2, 2024[161]