SkyWest(SKYW) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The financial statements for the nine months ended September 30, 2023, show a decrease in total assets to $7.06 billion and a significant drop in net income to $16.8 million from $120.1 million year-over-year Consolidated Balance Sheets Total assets decreased to $7.06 billion as of September 30, 2023, from $7.41 billion at year-end 2022, mainly due to a reduction in marketable securities | Balance Sheet Items | Sep 30, 2023 (in thousands USD) | Dec 31, 2022 (in thousands USD) | | :--- | :--- | :--- | | Total Current Assets | $1,161,996 | $1,371,281 | | Total Property and Equipment, net | $5,498,425 | $5,548,480 | | Total Assets | $7,059,118 | $7,414,553 | | Total Current Liabilities | $1,205,670 | $1,172,543 | | Total Long-Term Liabilities | $3,716,750 | $3,894,379 | | Total Liabilities | $4,922,420 | $5,066,922 | | Total Stockholders' Equity | $2,136,698 | $2,347,631 | | Total Liabilities and Stockholders' Equity | $7,059,118 | $7,414,553 | Consolidated Statements of Comprehensive Income For the third quarter of 2023, net income was $23.5 million, a sharp decline from $48.4 million in Q3 2022, primarily due to a decrease in operating revenues from $2.32 billion to $2.18 billion for the nine-month period | Metric (in thousands USD, except EPS) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $766,171 | $789,443 | $2,183,645 | $2,323,680 | | Operating Income | $49,291 | $75,576 | $76,447 | $216,226 | | Net Income | $23,478 | $48,372 | $16,826 | $120,057 | | Diluted EPS | $0.55 | $0.96 | $0.37 | $2.37 | Consolidated Statements of Stockholders Equity Stockholders' equity decreased from $2.35 billion at the end of 2022 to $2.14 billion as of September 30, 2023, primarily driven by the repurchase of treasury stock amounting to $246.5 million - The company repurchased 9.6 million shares of common stock for $244.1 million during the nine months ended September 30, 2023, significantly reducing stockholders' equity[48][15] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operations increased to $511.9 million, investing activities provided $61.0 million, and financing activities used $550.6 million, mainly for stock repurchases and debt payments | Cash Flow Activity (in thousands USD) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $511,907 | $343,535 | | Net Cash from Investing Activities | $61,003 | $(864,569) | | Net Cash from Financing Activities | $(550,564) | $301,463 | | Increase (Decrease) in Cash | $22,346 | $(219,571) | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies and events, including $111.9 million in deferred revenue, $244.1 million in share repurchases, the early lease buyout of 35 CRJ aircraft, and $3.1 billion in total long-term debt - For the nine months ended September 30, 2023, capacity purchase agreements represented approximately 87.2% of flying agreements revenue[23] - The company deferred recognizing revenue on $111.9 million of fixed monthly payments during the nine months ended September 30, 2023, due to amendments in its capacity purchase agreements[28] - During the nine months ended September 30, 2023, the company repurchased 9.6 million shares of common stock for $244.1 million[48] - The company acquired 35 CRJ aircraft under early lease buyout arrangements for $142.4 million during the first nine months of 2023[59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2.9% decrease in Q3 revenue and the significant drop in net income to reduced flight operations caused by pilot availability constraints, leading to deferred revenue and a modest increase in operating expenses Overview SkyWest operates as the largest U.S. regional airline, primarily through capacity purchase agreements, with 493 aircraft in scheduled service as of September 30, 2023, and plans to add 23 new E175 aircraft through 2026 Fleet Summary (Aircraft Count) | Fleet Summary | E175 | CRJ900 | CRJ700 | CRJ200 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Aircraft in scheduled service or under contract | 235 | 37 | 117 | 104 | 493 | | Total Fleet | 235 | 49 | 167 | 156 | 607 | - The company plans to add 3 new E175s with Delta (2023-2024), 19 new E175s with United (2024-2026), and 1 new E175 with Alaska (2025) to improve profitability[97] Results of Operations For Q3 2023, revenues fell 2.9% year-over-year to $766.2 million due to a 10.2% decrease in block hours and deferred revenue, while operating expenses rose slightly by 0.4% Q3 2023 vs Q3 2022 Operational Metrics | Q3 2023 vs Q3 2022 | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total block hours | 290,830 | 323,742 | (10.2)% | | Departures | 180,069 | 194,683 | (7.5)% | | Passengers carried | 10,208,005 | 10,715,415 | (4.7)% | Q3 Operating Expenses (in thousands USD) | Q3 Operating Expenses (in thousands) | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Salaries, wages and benefits | $333,017 | $307,727 | $25,290 | 8.2% | | Aircraft rentals | $2,099 | $16,089 | $(13,990) | (87.0)% | | Total operating expenses | $716,880 | $713,867 | $3,013 | 0.4% | - For the nine months ended Sep 30, 2023, the company deferred recognizing $120.6 million of revenue related to fixed monthly payments, compared to recognizing $40.2 million of previously deferred revenue in the same period of 2022[132] Business Segments The company operates two segments: SkyWest Airlines and SWC, which reported a $30.3 million loss in Q3 2023, and SkyWest Leasing, which remained profitable with a $47.0 million profit Segment Profit (Loss) - Q3 (in thousands USD) | Segment Profit (Loss) - Q3 (in thousands) | 2023 | 2022 | $ Change | | :--- | :--- | :--- | :--- | | SkyWest Airlines and SWC | $(30,269) | $(2,039) | $(28,230) | | SkyWest Leasing | $47,017 | $44,332 | $2,685 | | Total Segment Profit | $16,748 | $42,293 | $(25,545) | Liquidity and Capital Resources As of September 30, 2023, the company maintained a strong liquidity position with $819.5 million in cash and marketable securities, despite using $244.1 million for stock repurchases and having $3.1 billion in long-term debt Liquidity (in thousands USD) | Liquidity (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $125,330 | $102,984 | | Marketable securities | $694,171 | $944,231 | | Total | $819,501 | $1,047,215 | - The company has a firm purchase commitment for 23 new E175 aircraft from Embraer with delivery dates anticipated through 2026[181] - As of September 30, 2023, the company had $3.1 billion of long-term debt, with an average effective interest rate of approximately 4.1%[184] Quantitative and Qualitative Disclosures About Market Risk The company identifies its main market risks as aircraft fuel prices, interest rates, and labor/inflation, with labor costs representing 47.0% of total operating expenses - The company bears the economic risk of fuel price fluctuations on its prorate operations, which accounted for 12.8% of total flying agreements revenue for the nine months ended September 30, 2023[190] - As of September 30, 2023, all long-term debt had fixed interest rates, mitigating interest rate risk on existing debt[191] - Labor and inflation pose a significant risk, as salaries, wages, and benefits represented 47.0% of total operating expenses for the first nine months of 2023[193] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes in internal control over financial reporting during the period - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[197] - No changes in internal control over financial reporting occurred during the nine months ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[198] PART II OTHER INFORMATION Legal Proceedings The company is involved in routine legal actions but does not expect them to have a material adverse effect on its financial position, liquidity, or results of operations - As of September 30, 2023, management believes that the outcome of routine legal actions is not likely to have a material adverse effect on the company[199] Risk Factors This section directs investors to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, and other SEC filings, without introducing new factors - The report refers to the Risk Factors section in the Annual Report on Form 10-K for the year ended December 31, 2022, for a detailed discussion of potential risks[200] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2023, the company repurchased 1.19 million shares of its common stock for approximately $50.0 million, with $135.9 million remaining available for repurchase | Period | Total Shares Purchased | Average Price Paid Per Share | Remaining Authorization (in thousands USD) | | :--- | :--- | :--- | :--- | | July 2023 | 363,957 | $41.21 | $170,922 | | August 2023 | 477,258 | $41.91 | $150,922 | | September 2023 | 350,743 | $42.77 | $135,922 | | Q3 Total | 1,191,958 | $41.95 | $135,922 | Exhibits This section lists the exhibits filed with the Form 10-Q, which primarily include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act, and interactive data files (XBRL) - The exhibits filed with this report include certifications from the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.2), along with Inline XBRL documents[202]