Spirit Airlines(SAVE) - 2023 Q1 - Quarterly Report

Part I. Financial Information Overview of the company's financial performance, condition, and cash flows for the period Item 1. Condensed Consolidated Financial Statements (unaudited) Spirit Airlines reported increased Q1 2023 operating revenues and reduced net loss, alongside growing assets and positive operating cash flow Condensed Consolidated Statements of Operations ($ thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total operating revenues | $1,349,774 | $967,315 | | Total operating expenses | $1,462,169 | $1,178,783 | | Operating income (loss) | $(112,395) | $(211,468) | | Net income (loss) | $(103,911) | $(194,703) | | Diluted earnings (loss) per share | $(0.95) | $(1.79) | Condensed Consolidated Balance Sheets ($ thousands) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,918,083 | $1,993,983 | | Total assets | $9,322,317 | $9,184,774 | | Total current liabilities | $1,752,609 | $1,596,581 | | Total liabilities | $7,852,471 | $7,613,123 | | Total shareholders' equity | $1,469,846 | $1,571,651 | Condensed Consolidated Statements of Cash Flows ($ thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $140,777 | $19,545 | | Net cash used in investing activities | $(67,566) | $(57,619) | | Net cash used by financing activities | $(131,842) | $(47,520) | | Net decrease in cash, cash equivalents, and restricted cash | $(58,631) | $(85,594) | Notes to Condensed Consolidated Financial Statements Notes detail the pending JetBlue merger, revenue disaggregation, special charges, aircraft commitments, and debt adjustments - On July 28, 2022, Spirit entered into a merger agreement with JetBlue, which the U.S. Justice Department filed a suit to block on March 7, 2023, with a trial date set for October 16, 2023[25][31] - As part of the merger agreement, JetBlue made prepayments to Spirit stockholders, including a $2.50 per share "Approval Prepayment" and monthly $0.10 per share "Additional Prepayments", leading to adjustments in the conversion rates of the company's convertible notes[25][28][29] Disaggregated Operating Revenues ($ thousands) | Revenue Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Fare | $608,861 | $418,418 | | Non-fare | $718,612 | $531,326 | | Total passenger revenues | $1,327,473 | $949,744 | | Other | $22,301 | $17,571 | | Total operating revenues | $1,349,774 | $967,315 | - Special charges in Q1 2023 totaled $14.0 million, comprising $7.2 million in merger-related legal and advisory fees and $6.7 million for an employee retention program linked to the JetBlue merger[41] - As of March 31, 2023, the company had firm orders for 107 A320 family aircraft with deliveries through 2027 and commitments to purchase 18 spare engines[61][62] - The company is involved in a class-action lawsuit (Cox, et al. v. Spirit Airlines, Inc.) regarding fees for ancillary services, with a trial set for January 16, 2024, and is challenging a $27.5 million IRS assessment related to federal excise taxes on seat selection charges[70][71] Management's Discussion and Analysis of Financial Condition and Results of Operations Spirit's Q1 2023 revenue grew significantly with improved operating margin, despite rising fuel and labor costs, maintaining strong liquidity Results of Operations Q1 2023 operating revenues surged from higher yield and traffic, offset by significant expense increases from fuel and labor costs Comparative Operating Statistics | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues ($ millions) | $1,349.8 | $967.3 | 39.5% | | Operating income (loss) ($ millions) | $(112.4) | $(211.5) | 46.9% | | Load factor (%) | 80.8% | 77.2% | 3.6 pts | | Average yield (cents) | 12.64 | 10.69 | 18.2% | | TRASM (cents) | 10.22 | 8.25 | 23.9% | | Adjusted CASM ex-fuel (cents) | 7.22 | 6.68 | 8.1% | - Operating revenues increased by $382.5 million (39.5%) due to an 18.2% increase in average yield, an 18.0% increase in traffic (RPMs), and a 3.6 percentage point increase in load factor[134] - Aircraft fuel expense increased by 32.3% to $487.7 million, driven by a 16.3% rise in average economic fuel cost per gallon and a 14.0% increase in fuel consumption[139] - Salaries, wages, and benefits expense increased by 27.2% ($83.3 million), mainly due to significant pay rate increases from the new pilot collective bargaining agreement ratified in January 2023[144] Liquidity and Capital Resources Spirit maintained strong liquidity of $1.7 billion, with operating cash flow supporting debt payments and future aircraft commitments - As of March 31, 2023, the company had $1,696.1 million of liquidity, comprising unrestricted cash and cash equivalents, short-term investment securities, and available funds under its revolving credit facility[155][156] Cash Flow Summary (Q1 2023 vs Q1 2022, $ millions) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $140.8 | $19.5 | | Net Cash Used In Investing Activities | $(67.6) | $(57.6) | | Net Cash Used By Financing Activities | $(131.8) | $(47.5) | - The company has contractual purchase commitments for 107 A320 family aircraft with deliveries through 2027, with financing secured for 48 of these aircraft scheduled for delivery through 2024[161][165][166] Future Contractual Obligations (as of March 31, 2023, $ millions) | Obligation Type | Remainder of 2023 | 2024 - 2025 | 2026 - 2027 | 2028 and beyond | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $207 | $1,546 | $928 | $831 | $3,512 | | Lease obligations | $275 | $687 | $601 | $2,859 | $4,422 | | Flight equipment purchase | $543 | $2,603 | $2,309 | $0 | $5,455 | | Total | $1,209 | $5,160 | $3,949 | $3,761 | $14,079 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risks stem primarily from aircraft fuel price volatility and interest rate fluctuations on the company's fixed-rate debt portfolio - Aircraft fuel expense represented 33.4% of operating expenses for Q1 2023, where a hypothetical 10% increase in average fuel price would have increased annual into-plane aircraft fuel expense by approximately $205 million[208] - As of March 31, 2023, the company did not have any outstanding jet fuel derivatives and has not engaged in fuel derivative activity since 2015[208] - As of March 31, 2023, the company had $3.5 billion in total fixed-rate debt, including senior secured notes, term loans, EETCs, and convertible notes, with no outstanding variable-rate long-term debt[210][211] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures, with no material changes to internal controls over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[215] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected or are reasonably likely to materially affect internal controls[216] Part II. Other Information Details on legal proceedings, risk factors, and equity security transactions Legal Proceedings The company faces a class-action lawsuit on ancillary fees and challenges a $27.5 million IRS tax assessment - The company is defending a class-action lawsuit (Cox, et al. v. Spirit Airlines, Inc.) concerning fees for ancillary products, with a trial set to begin on January 16, 2024[218] - The company is challenging a $27.5 million IRS assessment for federal excise taxes on optional passenger seat selection charges from Q2 2018 to Q4 2020, believing it to be without merit[219] Risk Factors No material changes were reported to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes were reported to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[221] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 82,679 shares of common stock in Q1 2023 from employees for tax withholding purposes Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | January 1-31, 2023 | 75,280 | $20.58 | | February 1-28, 2023 | 0 | $0.00 | | March 1-31, 2023 | 7,399 | $16.56 | | Total | 82,679 | $20.22 | - All stock repurchases were made from employees to cover tax withholding requirements for vested restricted stock and performance share awards[222]