Sun ntry Airlines (SNCY) - 2022 Q1 - Quarterly Report

Part I. Financial Information Financial Statements 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 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] - Total liabilities rose to $926.3 million, driven by increases in finance lease obligations and long-term debt associated with fleet financing[11] Condensed Consolidated Statements of Operations 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] - Aircraft fuel expense surged 166% to $64.5 million from $24.3 million in the prior-year quarter, significantly impacting profitability[12] - 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] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to the Condensed Consolidated Financial Statements 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] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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] Segment Performance 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] Liquidity and Capital Resources 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] - 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][173] Quantitative and Qualitative Disclosures About Market Risk 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] - As of March 31, 2022, the company had no fuel derivative contracts in place to hedge against fuel price volatility[198] - 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] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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]