EX-99.1 2 earningsrelease3q18.htm EARNINGS RELEASE 3Q18 Exhibit


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EXHIBIT 99.1


Spirit Airlines Reports Third Quarter 2018 Results

MIRAMAR, Fla., October 24, 2018 - Spirit Airlines, Inc. (NYSE: SAVE) today reported third quarter 2018 financial results.
•
GAAP net income for the third quarter 2018 was $97.5 million ($1.42 per diluted share), or $100.5 million ($1.47 per diluted share)1 excluding special items.

•
GAAP operating margin for the third quarter 2018 was 16.0 percent, or 16.1 percent excluding special items1.

•
Spirit ended the third quarter 2018 with unrestricted cash, cash equivalents, and short-term investments of $875.9 million.

“As our third quarter results show, we are beginning to realize the benefits of the investments we’ve made to improve our business. Our passenger revenue initiatives are allowing us to better optimize yields throughout the booking curve, our ancillary revenue initiatives continue to drive improved results, and we are consistently delivering operational reliability.  In fact, year-to-date, we are among the top airlines for on-time performance as measured by the D.O.T.,” said Robert Fornaro, Spirit’s Chief Executive Officer.  “In addition, over the last three years we have diversified our network, increased density in several key markets to allow for increased connectivity, and culled many of our underperforming routes.  We are just beginning to reap the benefit of all these changes and are excited about the potential to leverage them further.”
 
“Consistently delivering operational reliability is just the beginning in our quest to improve the overall guest experience.  We’ve invested in Spirit Signature Service training for our flight attendants, airport personnel, and other team members, we’ve made enhancements at our airports to lessen queue times, we’ve broadened and diversified our network, and we are adding guest amenities such as the option for inflight Wi-Fi.  These, and more, are part of our Invest in the Guest pledge.  Improving our Guests’ experience, together with our initiatives to drive revenue and our continued determination to maintain our industry-leading low-cost structure, positions us well to deliver strong returns for our shareholders," said Ted Christie, Spirit's President.

Revenue Performance
For the third quarter 2018, Spirit's total operating revenue was $904.3 million, an increase of 31.6 percent compared to the third quarter 2017, driven by a 24.6 percent increase in passenger segments and a 3.0 percent increase in operating yields.

Total operating revenue per available seat mile ("TRASM") for the third quarter 2018 increased 5.5 percent compared to the same period last year. During the third quarter 2018, the Company's results benefited from its strategic network re-orientation, improved yield management processes, non-ticket revenue initiatives, and a strong operating environment.

On a per passenger flight segment basis, total revenue for the third quarter 2018 increased 5.6 percent year over year to $115.11 with fare revenue per passenger flight segment increasing 7.6 percent to $60.67 and non-ticket revenue per passenger flight segment increasing 3.5 percent to $54.442.

1




Cost Performance
For the third quarter 2018, total GAAP operating expenses, increased 30.1 percent year over year to $759.2 million. Adjusted operating expenses for the third quarter 2018 increased 32.0 percent year over year to $758.8 million3. These changes were primarily driven by increases in flight volume, fuel rates, and salaries, wages and benefits.

Aircraft fuel expense increased in the third quarter 2018 by 63.5 percent year over year, largely due to a 34.9 percent increase in the cost of fuel per gallon. Economic fuel cost per gallon in the third quarter 2018 was $2.36 compared to $1.75 for the same period last year.
 
Spirit reported third quarter 2018 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.22 cents3, a decrease of 3.7 percent compared to the same period last year, primarily driven by lower aircraft rent per ASM and better operational performance, partially offset by higher salaries, wages and benefits per ASM.

“Network optimization and improved yield management combined with the team's continued focus to drive ex-fuel costs down, produced an operating margin excluding special items for the third quarter 2018 of 16.1 percent, about flat year over year, despite a significant increase in the cost of fuel and higher pilot rates in connection with our new pilot agreement approved in the first quarter 2018,” said Ted Christie, Spirit's President.

Fleet
Spirit took delivery of two new A320ceo aircraft during the third quarter 2018, ending the quarter with 121 aircraft in its fleet.

New Routes
Asheville - Tampa (09/06/2018)
Houston - San Salvador, El Salvador (09/06/2018)
Newark - Atlanta (09/06/2018)
Greensboro - Tampa (09/06/2018)
Greensboro - Fort Lauderdale (09/06/2018)
Asheville - Fort Lauderdale (09/07/2018)
Asheville - Orlando (09/07/2018)
Houston - Guatemala City, Guatemala (09/07/2018)
Greensboro - Orlando (09/07/2018)

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results tomorrow, October 25, 2018, at 9:30 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 (NYSE: SAVE) is committed to delivering the best value in the sky while providing an exceptional Guest experience.  We are the leader in providing customizable travel options starting with an unbundled fare.  This allows every Guest to pay only for the options they choose - like bags, seat assignments, and refreshments - something we call Á La Smarte.  We make it possible for our Guests to venture further, travel more often, and discover more than ever before.  Our Fit Fleet® is one of the youngest and most fuel-efficient in the U.S.  We operate more than 500 daily flights to 69 destinations in the U.S., Latin America, and the Caribbean, and are dedicated to giving back and improving the communities we serve.  Come save with us at www.spirit.com.  At Spirit Airlines, we go.  We go for you.




2



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 of Total Non-ticket Revenue per Passenger Segment" table below for more details.
(3) 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.


3



SPIRIT AIRLINES, INC.
Condensed Statement of Operations
(unaudited, in thousands, except per share data)


 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
September 30,
 
Percent
 
September 30,
 
Percent

2018

2017
 
Change
 
2018
 
2017
 
Change
Operating revenues:
 
 
 
 

 
 
 
 
 
 
Passenger
$
887,956

 
$
669,072

 
32.7

 
$
2,413,447

 
$
1,922,239

 
25.6

Other
16,374

 
18,155

 
(9.8
)
 
46,792

 
55,130

 
(15.1
)
Total operating revenues
904,330

 
687,227

 
31.6

 
2,460,239

 
1,977,369

 
24.4

 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Aircraft fuel
258,818

 
158,300

 
63.5

 
709,644

 
440,376

 
61.1

Salaries, wages and benefits
185,043

 
134,114

 
38.0

 
527,895

 
391,144

 
35.0

Aircraft rent
42,682

 
53,396

 
(20.1
)
 
134,618

 
163,032

 
(17.4
)
Landing fees and other rents
54,542

 
48,498

 
12.5

 
162,774

 
134,538

 
21.0

Depreciation and amortization
43,773

 
36,840

 
18.8

 
128,764

 
103,680

 
24.2

Maintenance, materials and repairs
37,778

 
26,176

 
44.3

 
99,141

 
81,473

 
21.7

Distribution
37,868

 
29,695

 
27.5

 
103,496

 
85,302

 
21.3

Special charges (credits)
(686
)
 
7,853

 
nm

 
88,656

 
12,629

 
nm

Loss on disposal of assets
1,069

 
516

 
nm

 
6,561

 
3,114

 
nm

Other operating
98,318

 
87,965

 
11.8

 
283,841

 
268,553

 
5.7

Total operating expenses
759,205

 
583,353

 
30.1

 
2,245,390

 
1,683,841

 
33.3

 
 
 
 
 
 
 
 
 
 
 
 
Operating income
145,125

 
103,874

 
39.7

 
214,849

 
293,528

 
(26.8
)
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
21,925

 
15,018

 
46.0

 
60,272

 
41,237

 
46.2

Capitalized interest
(2,657
)
 
(3,203
)
 
(17.0
)
 
(7,205
)
 
(10,125
)
 
(28.8
)
Interest income
(4,776
)
 
(2,605
)
 
83.3

 
(13,272
)
 
(5,746
)
 
131.0

Other expense
302

 
114

 
nm

 
623

 
221

 
nm

Special charges, non-operating
1,744

 
—

 
nm

 
90,357

 
—

 
nm

Total other (income) expense
16,538

 
9,324

 
77.4

 
130,775

 
25,587

 
411.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
128,587

 
94,550

 
36.0

 
84,074

 
267,941

 
(68.6
)
Provision for income taxes
31,107

 
34,506

 
(9.9
)
 
20,262

 
99,395

 
(79.6
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
97,480

 
$
60,044

 
62.3

 
$
63,812

 
$
168,546

 
(62.1
)
Basic earnings per share
$
1.43

 
$
0.87

 
64.4

 
$
0.94

 
$
2.43

 
(61.3
)
Diluted earnings per share
$
1.42

 
$
0.86

 
65.1

 
$
0.93

 
$
2.42

 
(61.6
)

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares, basic
68,254

 
69,370

 
(1.6
)
 
68,243

 
69,363

 
(1.6
)
Weighted average shares, diluted
68,503

 
69,458

 
(1.4
)
 
68,346

 
69,537

 
(1.7
)




4



SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
97,480

 
$
60,044

 
$
63,812

 
$
168,546

Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $(5), $7, $21 and ($6)
(7
)
 
13

 
70

 
(11
)
Interest rate derivative loss reclassified into earnings, net of taxes of $27, $31, $66 and $92
52

 
53

 
172

 
160

Other comprehensive income
$
45

 
$
66

 
$
242

 
$
149

Comprehensive income
$
97,525

 
$
60,110

 
$
64,054

 
$
168,695




 
 
 
 

 
 
 
 



5



SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
Three Months Ended September 30,

 
Operating Statistics
2018

2017

Change
Available seat miles (ASMs) (thousands)
9,579,448


7,681,312


24.7
 %
Revenue passenger miles (RPMs) (thousands)
8,241,771


6,452,529


27.7
 %
Load factor (%)
86.0


84.0


2.0
  pts
Passenger flight segments (thousands)
7,856


6,307


24.6
 %
Block hours
136,723


112,701


21.3
 %
Departures
50,386


42,599


18.3
 %
Total operating revenue per ASM (TRASM) (cents)
9.44


8.95


5.5
 %
Average yield (cents)
10.97


10.65


3.0
 %
Fare revenue per passenger flight segment ($)
60.67


56.38


7.6
 %
Non-ticket revenue per passenger flight segment ($)
54.44


52.58


3.5
 %
Total revenue per passenger flight segment ($)
115.11


108.96


5.6
 %
CASM (cents)
7.93


7.59


4.5
 %
Adjusted CASM (cents) (1)
7.92


7.49


5.7
 %
Adjusted CASM ex-fuel (cents) (2)
5.22


5.42


(3.7
)%
Fuel gallons consumed (thousands)
109,515


90,274


21.3
 %
Average economic fuel cost per gallon ($)
2.36


1.75


34.9
 %
Aircraft at end of period
121


107


13.1
 %
Average daily aircraft utilization (hours)
12.4


11.6


6.9
 %
Average stage length (miles)
1,033


1,006


2.7
 %
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
Operating Statistics
2018

2017

Change
Available seat miles (ASMs) (thousands)
27,504,053


21,851,789


25.9
 %
Revenue passenger miles (RPMs) (thousands)
23,016,417


18,285,588


25.9
 %
Load factor (%)
83.7


83.7


—

Passenger flight segments (thousands)
21,947


18,083


21.4
 %
Block hours
396,034


326,033


21.5
 %
Departures
144,772


123,492


17.2
 %
Total operating revenue per ASM (TRASM) (cents)
8.95


9.05


(1.1
)%
Average yield (cents)
10.69


10.81


(1.1
)%
Fare revenue per passenger flight segment ($)
57.36


56.74


1.1
 %
Non-ticket revenue per passenger flight segment ($)
54.74


52.61


4.0
 %
Total revenue per passenger flight segment ($)
112.10


109.35


2.5
 %
CASM (cents)
8.16


7.71


5.8
 %
Adjusted CASM (cents) (1)
7.82


7.63


2.5
 %
Adjusted CASM ex-fuel (cents) (2)
5.24


5.62


(6.8
)%
Fuel gallons consumed (thousands)
310,661


254,871


21.9
 %
Average economic fuel cost per gallon ($)
2.28


1.73


31.8
 %
Average daily aircraft utilization (hours)
12.3


11.7


5.1
 %
Average stage length (miles)
1,037


991


4.6
 %

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




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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.
Calculation of Total Non-Ticket Revenue per Passenger Segment
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per segment data)
2018
 
2017
 
2018
 
2017
Operating revenues
 
 
 
 
 
 
 
Fare
$
476,660

 
$
355,593

 
$
1,258,904

 
$
1,026,071

Non-fare
411,296

 
313,479

 
1,154,543

 
896,168

Total passenger revenues
887,956

 
669,072

 
2,413,447

 
1,922,239

Other revenues
16,374

 
18,155

 
46,792

 
55,130

Total operating revenues
$
904,330

 
$
687,227

 
$
2,460,239

 
$
1,977,369

 
 
 
 
 
 
 
 
Non-ticket revenues (1)
$
427,670

 
$
331,634

 
$
1,201,335

 
$
951,298

 
 
 
 
 
 
 
 
Passenger segments
7,856

 
6,307

 
21,947

 
18,083

 
 
 
 
 
 
 
 
Non-ticket revenue per passenger segment ($)
$
54.44

 
$
52.58

 
$
54.74

 
$
52.61



(1)
Non-ticket revenues equals the sum of non-fare passenger revenues and other revenues.

Special Items
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Operating special items include the following:
 
 
 
 
 
 
 
Loss on disposal of assets
1,069

 
516

 
6,561

 
3,114

Operating special charges (credits) (1)
(686
)
 
7,853

 
88,656

 
12,629

Total operating special items
$
383

 
$
8,369

 
$
95,217

 
$
15,743

Non-operating special items include the following:
 
 
 
 
 
 
 
Non-operating special charges (2)
1,744

 
—

 
90,357

 
$
—

Total non-operating special items
$
1,744

 
$
—

 
$
90,357

 
$
—

 
 
 
 
 
 
 
 
Total special items
$
2,127

 
$
8,369

 
$
185,574

 
$
15,743





(1)
Operating special charges for 2018 include amounts primarily due to a one-time ratification incentive recognized in connection with a new pilot agreement approved in the first quarter 2018.  Operating special charges for 2017 are related to engine and aircraft lease termination costs.
(2)
Non-operating special charges in 2018 are related to the purchase of 14 A319 aircraft, previously operated by the Company under operating leases. Upon execution of the purchase agreement, the lease agreements associated with these aircraft were classified as capital leases on the balance sheet at lower of cost or fair value.  The difference between the resulting capital lease obligation and the purchase price was accreted as interest expense in special charges, non-operating in the statement of operations, through the closing of each individual purchase.  All the transactions were completed prior to June 30, 2018.

7



Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)
 
Three Months Ended
 
Nine Months Ended

September 30,
 
September 30,
(in thousands, except CASM data in cents)
2018

2017
 
2018
 
2017
Total operating expenses, as reported
$
759,205

 
$
583,353

 
$
2,245,390

 
$
1,683,841

Less operating special items
383

 
8,369

 
95,217

 
15,743

Adjusted operating expenses, non-GAAP (1)
758,822

 
574,984

 
2,150,173

 
1,668,098

Less: Economic fuel expense
258,818

 
158,300

 
709,644

 
440,376

Adjusted operating expenses excluding fuel, non-GAAP (2)
$
500,004

 
$
416,684

 
$
1,440,529

 
$
1,227,722


 
 
 
 
 
 
 
Available seat miles
9,579,448

 
7,681,312

 
27,504,053

 
21,851,789


 
 
 
 
 
 
 
CASM (cents)
7.93

 
7.59

 
8.16

 
7.71

Adjusted CASM (cents) (1)
7.92

 
7.49

 
7.82

 
7.63

Adjusted CASM ex-fuel (cents) (2)
5.22

 
5.42

 
5.24

 
5.62


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

Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income to GAAP Net Income
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in thousands, except per share data)
2018
 
2017
 
2018

2017
Net income, as reported
$
97,480

 
$
60,044

 
$
63,812


$
168,546

Add: Provision (benefit) for income taxes
31,107

 
34,506

 
20,262


99,395

Income (loss) before income taxes, as reported
128,587

 
94,550

 
84,074


267,941

Pre-tax margin
14.2
%
 
13.8
%
 
3.4
%

13.6
%
Add special items (1)
$
2,127

 
$
8,369

 
$
185,574


$
15,743

Adjusted income before income taxes, non-GAAP (2)
130,714

 
102,919

 
269,648


283,684

Adjusted pre-tax margin, non-GAAP (2)
14.5
%
 
15.0
%
 
11.0
%

14.3
%
Add: Total other (income) expense (3)
14,794

 
9,324

 
40,418


25,587

Adjusted operating income, non-GAAP (4)
145,508

 
112,243

 
310,066


309,271

Adjusted operating margin, non-GAAP (4)
16.1
%
 
16.3
%
 
12.6
%

15.6
%
 
 
 
 
 





Provision for income taxes
30,169

 
37,560

 
63,426


$
105,256

Adjusted net income, non-GAAP (2)
$
100,545

 
$
65,359

 
$
206,222


$
178,428

 
 
 
 
 
 
 
 
Weighted average shares, diluted
68,503

 
69,458

 
68,346

 
69,537

 
 
 
 
 
 
 
 
Adjusted net income per share, diluted (2)
$1.47
 
$0.94
 
$3.02
 
$2.57
 
 
 
 
 
 
 
 
Total operating revenues
$
904,330

 
$
687,227

 
$
2,460,239

 
$
1,977,369


(1)
See "Special Items" for more details.
(2)
Excludes operating and non-operating special items.
(3)
Excludes non-operating special items.
(4)
Excludes operating special items.

8



The Company tracks a non-GAAP calculation of Return on Invested Capital ("ROIC"), as a way of measuring our efficiency in delivering returns and in allocating capital. We calculate ROIC as Adjusted Operating Income (non-GAAP), divided by Total Invested Capital (non-GAAP), on a pre-tax and after-tax basis, expressed as a percentage.
Because a substantial portion of our aircraft fleet is held under operating leases, which do not appear on the balance sheet, a GAAP-based calculation of our total capital deployed may be considered understated (which would have the effect of overstating ROIC, if calculated solely using GAAP line items). Accordingly, we adjust our total capital, the denominator of the ROIC measurement, by capitalizing operating leases at a multiple of seven times our aircraft rent expense, a measure used commonly in the airline industry and by analysts.
To calculate Adjusted Operating Income (non-GAAP), we add back aircraft rent to GAAP operating income, consistent with the adjustment to total capital discussed above. In order to remove the effects of non-recurring gains and losses that may affect GAAP operating income, we also exclude special items from Adjusted Operating Income (non-GAAP). We present Adjusted Operating Income (non-GAAP) on a pre-tax basis and present Adjusted Operating Income (non-GAAP) on an after-tax basis, using our year-to-date 2018 non-GAAP effective tax rate.

Calculation of Return on Invested Capital, non-GAAP
(unaudited)
 
Twelve Months Ended
(in thousands)
September 30, 2018
Operating income, as reported
$
306,146

Add operating special items (1)
92,185

Adjustment for aircraft rent
181,523

Adjusted operating income, non-GAAP
579,854

Tax rate, non-GAAP (23.52%) (2)
136,382

Adjusted operating income, after-tax, non-GAAP
$
443,472

Invested capital:
 
Adjusted total debt
$
1,921,766

Book equity
1,833,782

Less: Unrestricted cash, cash equivalents & short-term investments
875,911

Add: Capitalized aircraft operating leases (7x Aircraft Rent)
1,270,661

Total invested capital, non-GAAP
$
4,150,298

 
 
Return on invested capital (ROIC), pre-tax, non-GAAP
14.0
%
Return on invested capital (ROIC), after-tax, non-GAAP
10.7
%

(1)
See "Special Items" for more details.
(2)
Due to the significant impact the Tax Cuts and Jobs Act legislation enacted in December 2017 had on corporate tax rate, the Company uses the YTD 2018 Non-GAAP tax rate to calculate ROIC, after-tax.



###









9