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Spirit Airlines Reports First Quarter 2017 Results

/EIN News/ -- MIRAMAR, Fla., April 28, 2017 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported first quarter 2017 financial results.

  • GAAP net income for the first quarter 2017 was $31.9 million ($0.46 per diluted share), or $35.6 million ($0.51 per diluted share)1 excluding special items.
     
  • GAAP operating margin for the first quarter 2017 was 10.0 percent, or 11.0 percent excluding special items1.
     
  • Spirit ended the first quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $918.4 million.
     
  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended March 31, 2017 was 21.0 percent2.

“During the first quarter, our team did an excellent job serving our customers while overcoming challenges caused by the tragic Fort Lauderdale airport event in early January, as well as dealing with various winter storms.  Despite these and other challenges, we continue to make progress in improving our operational reliability. Our on-time performance3 improved 10.2 percentage points to 75.5 percent for the first quarter 2017.  While we still have a ways to go to reach our desired operational goals, I thank the entire Spirit team for their contributions,” said Bob Fornaro, Spirit’s President and Chief Executive Officer.

Revenue Performance
For the first quarter 2017, Spirit's total operating revenue was $591.7 million, an increase of 10.0 percent compared to the first quarter 2016, driven by an 11.9 percent increase in flight volume.

Total revenue per available seat mile (TRASM) for the first quarter 2017 decreased 4.2 percent compared to the same period last year, driven primarily by the calendar shift of Easter which is estimated to have accounted for approximately 3.5 percentage points of the year-over-year decline.  In addition, it is estimated that the tragic Fort Lauderdale airport event and winter storm Helena together contributed another 0.75 percentage points of decline year over year in the first quarter 2017 TRASM.

On a per passenger flight segment basis, total revenue for the first quarter 2017 decreased 1.5 percent year over year to $106.24.

Cost Performance
For the first quarter 2017, total GAAP operating expense, including special items of $5.9 million4 primarily related to lease termination charges, increased 21.9 percent, or $95.5 million, year over year to $532.3 million.  Adjusted operating expense for the first quarter 2017 increased 25.2 percent, or $106.0 million to $526.5 million5.  The increase in both GAAP and adjusted operating expense was primarily driven by higher fuel rates and an increase in flight volume.

Aircraft fuel expense increased in the first quarter 2017 by 62.6 percent, or $53.8 million, compared to the same period last year, due to a 45.1 percent increase in the cost of fuel per gallon and a 12.1 percent increase in fuel gallons consumed.

Spirit reported first quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.62 cents5, an increase of 0.5 percent compared to the same period last year, driven primarily by higher depreciation and amortization and other operating expenses per ASM, largely offset by lower salaries, wages and benefits and lower aircraft rent per ASM.

"Although our TRASM for the first quarter 2017 was down year over year, primarily due to the timing shift of Easter, we continue to see good traction from our ticket and non-ticket revenue initiatives.  Furthermore, our booking trends for the second quarter 2017 indicate we will see solid sequential improvement in TRASM, even without including the benefit from the Easter holiday shift," said Ted Christie, Spirit's Executive Vice President and Chief Financial Officer. "On the cost side, our team did a good job holding the line on Adjusted CASM ex-fuel despite headwinds from amortization expense related to heavy maintenance events, depreciation related to purchased aircraft, and higher ground handling rates and other inflationary pressures that resulted in higher other operating expense."

Labor
Spirit and its pilots, represented by the Airline Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.

Fleet
Spirit took delivery of three new A321ceo aircraft and two used A319 aircraft during the first quarter 2017, ending the quarter with 100 aircraft in its fleet.

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, April 28, 2017, at 9:00 a.m. ET.  A live audio webcast of the conference call will be available to the public on a listen-only basis at http://ir.spirit.com.  An archive of the webcast will be available under Webcasts & Presentations for 60 days.

About Spirit Airlines:
Spirit Airlines (NASDAQ:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major U.S. airline, we operate more than 440 daily flights to 60 destinations in the U.S., Latin America and the Caribbean. Come save with us at www.spirit.com.


Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1)  See "Reconciliation of Adjusted Net Income, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(2)  See "Calculation for Return on Invested Capital" table below for more details.
(3)  As defined by the Department of Transportation.
(4) See "Special Items" table for more details.
(5)  See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. References in this report to “Spirit,” “we,” “us,” “our,” or the “Company” shall mean Spirit Airlines, Inc., unless the context indicates otherwise.  Additional information concerning certain factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.


SPIRIT AIRLINES, INC.
Statement of Operations
(unaudited, in thousands, except per share data)
 
    Three Months Ended    
    March 31,   Percent
    2017   2016   Change
Operating revenues:            
Passenger   $ 299,762     $ 272,626     10.0  
Non-ticket   291,984     265,517     10.0  
Total operating revenues   591,746     538,143     10.0  
             
Operating expenses:            
Salaries, wages and benefits   127,138     116,410     9.2  
Aircraft fuel   139,782     85,982     62.6  
Aircraft rent   57,070     52,202     9.3  
Landing fees and other rents   40,448     34,807     16.2  
Depreciation and amortization   31,509     23,109     36.3  
Maintenance, materials and repairs   26,312     20,940     25.7  
Distribution   26,498     22,933     15.5  
Special charges   4,776     16,202     nm  
Loss on disposal of assets   1,105     214     nm  
Other operating   77,703     64,045     21.3  
Total operating expenses   532,341     436,844     21.9  
             
Operating income   59,405     101,299     (41.4 )
             
Other (income) expense:            
Interest expense   12,473     8,060     54.8  
Capitalized interest   (3,580 )   (3,325 )   7.7  
Interest income   (1,313 )   (1,566 )   (16.2 )
Other expense   3     70     nm  
Total other (income) expense   7,583     3,239     nm  
             
Income before income taxes   51,822     98,060     (47.2 )
Provision for income taxes   19,887     36,140     (45.0 )
Net income   $ 31,935     $ 61,920     (48.4 )
Basic earnings per share   $ 0.46     $ 0.87     (47.1 )
Diluted earnings per share   $ 0.46     $ 0.86     (46.5 )
             
Weighted average shares, basic   69,348     71,572     (3.1 )
Weighted average shares, diluted   69,592     71,777     (3.0 )


SPIRIT AIRLINES, INC.
Statements of Comprehensive Income
(unaudited, in thousands)
 
    Three Months Ended
    March 31,
    2017   2016
Net income   $ 31,935     $ 61,920  
Unrealized gain (loss) on short-term investment securities,
net of deferred taxes of ($8) and $0
  (13 )    
Interest rate derivative losses reclassified into earnings,
net of taxes of $31 and $33

  53     57  
Other comprehensive income (loss)   $ 40     $ 57  
Comprehensive income   $ 31,975     $ 61,977  


SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
 
    March 31,   December 31,
    2017   2016
Assets        
Current assets:        
Cash and cash equivalents   $ 818,110     $ 700,900  
Short-term investment securities   100,294     100,155  
Accounts receivable, net   48,692     41,136  
Aircraft maintenance deposits   125,758     87,035  
Prepaid expenses and other current assets   53,677     46,619  
Total current assets   1,146,531     975,845  
         
Property and equipment:        
Flight equipment   1,608,959     1,461,525  
Ground property and equipment   136,126     126,206  
Less accumulated depreciation   (140,535 )   (122,509 )
    1,604,550     1,465,222  
Deposits on flight equipment purchase contracts   330,523     325,688  
Long-term aircraft maintenance deposits   170,631     199,415  
Deferred heavy maintenance, net   71,870     75,534  
Other long-term assets   114,509     110,223  
Total assets   $ 3,438,614     $ 3,151,927  
         
Liabilities and shareholders’ equity        
Current liabilities:        
Accounts payable   39,612     15,193  
Air traffic liability   308,958     206,392  
Current maturities of long-term debt   92,672     84,354  
Other current liabilities   231,932     226,011  
Total current liabilities   673,174     531,950  
         
Long-term debt, less current maturities   991,722     897,359  
Deferred income taxes   327,660     308,143  
Deferred gains and other long-term liabilities   17,712     19,868  
Shareholders’ equity:        
Common stock   7     7  
Additional paid-in-capital   553,820     551,004  
Treasury stock, at cost   (219,726 )   (218,692 )
Retained earnings   1,095,568     1,063,633  
Accumulated other comprehensive loss   (1,323 )   (1,345 )
Total shareholders’ equity   1,428,346     1,394,607  
Total liabilities and shareholders’ equity   $ 3,438,614     $ 3,151,927  


SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
 
  Three Months  Ended March 31,
  2017   2016
Operating activities:      
Net income $ 31,935     $ 61,920  
Adjustments to reconcile net income to net cash provided by operations:      
Losses reclassified from other comprehensive income 84     90  
Equity-based compensation 2,816     1,790  
Allowance for doubtful accounts (recoveries) (30 )   25  
Amortization of deferred gains and losses and debt issuance costs 3,351     1,968  
Depreciation and amortization 31,509     23,109  
Deferred income tax expense 19,474     21,066  
Loss on disposal of assets 1,105     214  
Lease termination costs 4,776     16,202  
Changes in operating assets and liabilities:      
Accounts receivable (7,526 )   (4,229 )
Aircraft maintenance deposits (12,774 )   (12,311 )
Prepaid income taxes (846 )   72,278  
Long-term deposits and other assets (21,267 )   (8,495 )
Accounts payable 18,937     4,703  
Air traffic liability 102,207     46,473  
Other liabilities 298     33,296  
Other 113      
Net cash provided by operating activities 174,162     258,099  
Investing activities:      
Purchase of available-for-sale investment securities (24,490 )    
Proceeds from the maturity of available-for-sale investment securities 24,219      
Pre-delivery deposits for flight equipment, net of refunds (44,752 )   (50,358 )
Capitalized interest (1,647 )   (2,575 )
Purchase of property and equipment (112,265 )   (159,829 )
Net cash used in investing activities (158,935 )   (212,762 )
Financing activities:      
Proceeds from issuance of long-term debt 115,526     73,914  
Proceeds from stock options exercised     88  
Payments on debt and capital lease obligations (10,235 )   (9,749 )
Excess tax (deficiency) benefit from equity-based compensation     (778 )
Repurchase of common stock (1,034 )   (9,601 )
Debt issuance costs (2,274 )   (34 )
Net cash provided by financing activities 101,983     53,840  
Net (decrease) increase in cash and cash equivalents 117,210     99,177  
Cash and cash equivalents at beginning of period 700,900     803,632  
Cash and cash equivalents at end of period $ 818,110     $ 902,809  
Supplemental disclosures      
Cash payments for:      
Interest, net of capitalized interest $ 3,943     $ 3,430  
Income taxes paid, net of refunds $ 2,881     $ (64,158 )
Non-cash transactions:      
Capital expenditures funded by capital lease borrowings $ (130 )   $ (31 )


SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
  Three Months Ended March 31,    
Operating Statistics 2017   2016   Change
Available seat miles (ASMs) (thousands) 6,875,899     5,983,005     14.9 %
Revenue passenger miles (RPMs) (thousands) 5,613,422     5,070,313     10.7 %
Load factor (%) 81.6     84.7     (3.1 ) pts
Passenger flight segments (thousands) 5,570     4,988     11.7 %
Block hours 104,035     93,545     11.2 %
Departures 39,330     35,160     11.9 %
Total operating revenue per ASM (TRASM) (cents) 8.61     8.99     (4.2 )%
Average yield (cents) 10.54     10.61     (0.7 )%
Average ticket revenue per passenger flight segment ($) 53.82     54.65     (1.5 )%
Average non-ticket revenue per passenger flight segment ($) 52.42     53.23     (1.5 )%
Total revenue per passenger flight segment ($) 106.24     107.88     (1.5 )%
CASM (cents) 7.74     7.30     6.0 %
Adjusted CASM (cents) (1) 7.66     7.03     9.0 %
Adjusted CASM ex-fuel (cents) (2) 5.62     5.59     0.5 %
Fuel gallons consumed (thousands) 79,064     70,550     12.1 %
Average economic fuel cost per gallon ($) 1.77     1.22     45.1 %
Aircraft at end of period 100     83     20.5 %
Average daily aircraft utilization (hours) 11.9     12.8     (7.0 )%
Average stage length (miles) 985     995     (1.0 )%

(1) Excludes special items.
(2) Excludes economic fuel expense and special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis.  These non-GAAP financial measures have limitations as analytical tools.  Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Special Items          
(unaudited)          
          Three Months Ended
          March 31,
(in thousands)         2017   2016
Operating special items include the following (1):                                              
Loss on disposal of assets         1,105     214  
Special charges         4,776     16,202  
Total operating special items         $ 5,881     $ 16,416  


Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)
     
    Three Months Ended
              March 31,
(in thousands, except CASM data in cents)   2017   2016
Total operating expenses, as reported   $ 532,341     $ 436,844  
Less operating special items (1)   5,881     16,416  
Adjusted operating expenses, non-GAAP (2)   526,460     420,428  
Less: Economic fuel expense   139,782     85,982  
Adjusted operating expenses excluding fuel, non-GAAP (3)   $ 386,678     $ 334,446  
         
Available seat miles                                 6,875,899     5,983,005  
         
CASM (cents)   7.74     7.30  
Adjusted CASM (cents) (2)   7.66     7.03  
Adjusted CASM ex-fuel (cents) (3)   5.62     5.59  

(1) Special items include loss on disposal of assets and special charges.  Special charges are primarily related to lease termination costs.
(2) Excludes operating special items.
(3) Excludes operating special items and economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below.


Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income
to GAAP Net Income
(unaudited)
 
  Three Months Ended
  March 31,
(in thousands, except per share data)   2017     2016
Net income, as reported $ 31,935     $ 61,920  
Add: Provision for income taxes   19,887       36,140  
Income before income taxes, as reported   51,822       98,060  
Pre-tax margin, GAAP   8.8 %     18.2 %
Add operating special items (1) $ 5,881     $ 16,416  
Adjusted income before income taxes, non-GAAP (2)   57,703       114,476  
Adjusted pre-tax margin, non-GAAP (2)   9.8 %     21.3 %
Add:  Total other (income) expense   7,583       3,239  
Adjusted operating income, non-GAAP(2)   65,286       117,715  
Adjusted operating margin, non-GAAP(2)   11.0 %     21.9 %
       
Provision for adjusted income taxes (3)   22,144       42,190  
Adjusted net income, non-GAAP (2)(3) $ 35,559     $ 72,286  
       
Weighted average shares, diluted   69,592       71,777  
                   
Adjusted net income per share, diluted (2)(3) $   0.51     $   1.01  
       
Total operating revenues $ 591,746     $ 538,143  

(1) See "Special Items" for more details.
(2) Excludes operating special items.
(3) Assumes same marginal tax rate as is applicable to GAAP net income. 

The Company believes economic fuel expense is the best measure of the effect fuel prices are currently having on its business, because it most closely approximates the net cash outflow associated with purchasing fuel used for its operations during the period. Economic fuel expense is defined as into-plane fuel expense, realized gains or losses on derivative contracts, plus the economic premium expense related to fuel option contracts in the period the option is benefiting. The key difference between aircraft fuel expense as recorded in its statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding and the timing of premium gain or loss recognition on its outstanding fuel option contracts. Many industry analysts evaluate airline results using economic fuel expense, and it is used in our internal management reporting.


Reconciliation of Economic Fuel Expense to GAAP Fuel Expense
(unaudited)
 
    Three Months Ended
    March 31,
(in thousands, except per gallon data)                                                                   2017   2016
Fuel expense        
Aircraft fuel, as reported   $ 139,782     $ 85,982  
         
Fuel gallons consumed   79,064     70,550  
         
Economic fuel cost per gallon, non-GAAP   $ 1.77     $ 1.22  


Calculation of Return on Invested Capital
 (unaudited)
 
      Twelve Months Ended
(in thousands)     March 31, 2017
Operating income     $ 401,767  
Add operating special items (1)     30,841  
Adjustment for aircraft rent             206,543  
Adjusted operating income (2)     639,151  
Tax (37.1%) (3)     237,125  
Adjusted operating income, after-tax     $ 402,026  
Invested capital:      
Total debt     $ 1,084,394  
Book equity     1,428,346  
Less: Unrestricted cash, cash equivalents & short-term investments     918,404  
Add: Capitalized aircraft operating leases (7x Aircraft Rent)     1,445,801  
Total invested capital     $ 3,040,137  
       
Return on invested capital (ROIC), pre-tax (2)     21.0 %
Return on invested capital (ROIC), after-tax (2)(3)     13.2 %

(1) See "Special Items" for more details.
(2) Excludes special items.
(3) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended March 31, 2017. 

 

Investor Relations Contact:
DeAnne Gabel
InvestorRelations@Spirit.com
(954) 447-7920

Media Contact:
Paul Berry
Paul.Berry@Spirit.com
(954) 628-4827

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