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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No.1

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-40217

Icon  Description automatically generated

Sun Country Airlines Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-4092570

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2005 Cargo Road

Minneapolis, Minnesota

55450

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (651) 681-3900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SNCY

The Nasdaq Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 was approximately $861 million.

Number of shares outstanding by each class of common stock, as of December 31, 2021:

Common Stock, $0.01 par value – 57,872,452 shares outstanding

Auditor Firm PCAOB ID No: 185

Auditor Name: KPMG LLP

Auditor Location: Minneapolis, Minnesota

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to the 2022 Annual Meeting of Stockholders are incorporated herein by references in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021.

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TABLE OF CONTENTS

Explanatory Note

3

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

Item 15.

Exhibits and Financial Statement Schedules

30

Signatures

31

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EXPLANATORY NOTE

Due to a scrivener’s error, the Annual Report on Form 10-K filed by Sun Country Airlines Holdings, Inc. with the Securities and Exchange Commission on February 18, 2022 (the “Original Form 10-K”) included incorrect total amounts for operating expenses for the year ended December 31, 2019 in the segment information table included in Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Amendment No. 1 to the Original Form 10-K (the “Form 10-K/A”) is being filed solely for the purpose of correcting such error.

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Form 10-K/A also contains new certifications by the principal executive officer and the principal financial officer as required by Section 302 of the Sarbanes-Oxley Act of 2002.

Except as described above, no other changes have been made to the Original Form 10-K, and this Form 10-K/A does not modify, amend or update in any way any of the financial or other information contained in the Original Form 10-K. This Form 10-K/A does not reflect events that may have occurred subsequent to the filing of the Original Form 10-K.

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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, the terms "Sun Country," "we," "us" and "our" refer to Sun Country Airlines Holdings, Inc., and its subsidiaries.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates.

Our most significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria:

(i)the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and
(ii)different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations.

We have identified the following critical accounting policies:

-Revenue Recognition
-Loyalty Program Accounting
-Asset Impairment Analysis
-Valuation of the TRA Liability

Revenue Recognition - Scheduled passenger service, charter service, and most ancillary revenues are recognized when the passenger flight occurs. Revenues exclude amounts collected on behalf of other parties, including transportation taxes.

The Company initially defers ticket sales as an air traffic liability and recognizes revenue when the passenger flight occurs. Unused non-refundable tickets expire at the date of scheduled travel and are recorded as revenue unless the customer notifies the Company in advance of such date that the customer will not travel. If notification is made, a travel credit is created for the face value less applicable change fees. Travel credits may generally be redeemed toward future travel for up to 12 months after the date of the original booking. A portion of travel credits will expire unused. The Company records an estimate for travel credits that will expire unused in passenger revenue. These estimates are based on historical experience of travel credit activity and consider other facts, such as recent program changes and modifications that could affect the ultimate usage patterns of tickets and travel credits.

Ancillary revenue for baggage fees, seat selection fees, and on-board sales is recognized when the associated flight occurs. Revenue for change fees is deferred and recognized when the passenger travel is provided. Fees received in advance of the flight date are initially recorded as an air traffic liability.

Charter revenue is recognized at the time of departure when transportation is provided.

Cargo revenue is typically recognized based on hours flown, number of flights, and the amount of aircraft resources provided during a reporting period. Pursuant to ASC 606, Revenue from Contracts with Customers,

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the ATSA contains three performance obligations: Flight Services, Heavy Maintenance and Fuel. As Sun Country is the principal in providing Flight Services, revenue and related costs are recognized gross on the Statement of Operations. Sun Country acts as the agent in providing the Heavy Maintenance and Fuel performance obligations, which are reimbursed by Amazon based on the actual costs incurred. Consumption of aircraft fuel and heavy maintenance are recognized in revenue, net of the associated costs incurred to fulfill the performance obligations. The transaction price is allocated to the performance obligations based on their relative standalone selling price. The transaction price for flight services, which includes an upfront payment for startup costs, is reduced by the estimated value of warrants to be issued to Amazon based on expected performance under the ATSA.

Loyalty Program Accounting The Company records a liability for loyalty points earned by passengers under its Sun Country Rewards program using two methods: (1) a liability for points that are earned by passengers on purchases of the Company’s services is established by deferring revenue based on the redemption value net of breakage; and (2) a liability for points attributed to loyalty points issued to the Company’s Visa card holders is established by deferring a portion of payments received from the Company’s co-branded agreement. The Company’s Sun Country Rewards program allows for the redemption of points to include payment towards air travel, land travel, taxes, and other ancillary purchases. The Company estimates breakage for loyalty points that are not likely to be redeemed. These estimates are based on historical experience of loyalty point redemption activity and other factors, such as program changes and modifications that could affect the ultimate usage pattern of loyalty points.

Asset Impairment Analysis - Long-lived assets, such as Property & Equipment and finite-lived Intangible Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for impairment, the Company first compares the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment losses were recognized during the years ended December 31, 2021, 2020 or 2019.

Valuation of the TRA Liability - The TRA liability is an estimate based on, among other things, (i) generation of future taxable income over the term of the TRA, (ii) the Company’s participation in future government programs, (iii) stock option activity during periods prior to the commencement of payments under the TRA and (iv) future changes in tax laws. These factors could result in an increase or decrease in the related liability which would be recognized in the Company’s earnings in the period of such change.

The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2021, 2020 and 2019. Also discussed is our financial position as of December 31, 2021 and 2020. This section should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this report titled “Risk Factors” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this report. The “Risk Factors” and the “Cautionary Note Regarding Forward-Looking Statements” should be read carefully to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Business Overview

Sun Country is a new breed of hybrid low-cost air carrier that dynamically deploys shared resources across our synergistic scheduled service, charter, and cargo businesses. By doing so, we believe we are able to generate high growth, high margins and strong cash flows with greater resilience than other passenger airlines. We focus

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on serving leisure and VFR passengers and charter customers as well as providing crew, maintenance and insurance services to Amazon, with flights throughout the United States and to destinations in Canada, Mexico, Central America and the Caribbean. Based in Minnesota, we operate an agile network that includes our scheduled service business, our synergistic charter, and cargo businesses. We share resources, such as flight crews, across our scheduled service, charter, and cargo business lines with the objective of generating higher returns and margins and mitigating the seasonality of our route network. We optimize capacity allocation by market, time of year, day of week, and line of business by shifting flying to markets during periods of peak demand and away from markets during periods of low demand with far greater frequency than nearly all other large U.S. passenger airlines. We believe our flexible business model generates higher returns and margins while also providing greater resiliency to economic and industry downturns than a traditional scheduled service carrier.

Our scheduled service business combines low costs with a high quality product to generate higher Total Revenue per Available Seat Mile (“TRASM”) than Ultra Low-Cost Carriers (“ULCCs”) while maintaining lower Adjusted Cost per Available Seat Mile (“CASM”) than Low Cost Carriers (“LCCs”), resulting in best-in-class unit profitability. Our business includes many cost characteristics of ULCCs (which includes Allegiant Travel Company, Frontier Airlines and Spirit Airlines), such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillary products and services for an additional fee), point-to-point service and a single-family fleet of Boeing 737-NG aircraft, which allow us to maintain a cost base comparable to these ULCCs. However, we offer a high quality product that we believe is superior to ULCCs and consistent with that of LCCs (which includes Southwest Airlines and JetBlue Airways). For example, our product includes more legroom than ULCCs, complimentary beverages, in-flight entertainment, and in-seat power, none of which are offered by ULCCs.

Our charter business, which is one of the largest narrow body charter operations in the United States, is a key component of our strategy both because it provides both inherent diversification and downside protection as well as because it is synergistic with our other businesses. Our charter business has several favorable characteristics, including: large repeat customers, more stable demand than scheduled service flying, and the ability to pass through certain costs, including fuel. Our diverse charter customer base includes casino operators, the U.S. Department of Defense, college, and professional sports teams. We are the leading charter airline for college sports including the National Collegiate Athletic Association (“NCAA”) Championships (notably “March Madness”) as well as individual team travel. In fiscal year 2021, we flew 153 college sports teams, which was lower than 2019 due to impacts of the COVID-19 pandemic. Our charter business includes ad hoc, repeat, short-term and long-term service contracts with pass through fuel arrangements and annual rate escalations. Most of our business is non-cyclical because the U.S. Department of Defense and sports teams still fly during normal economic downturns and our casino contracts are long-term in nature.

On December 13, 2019, we signed the ATSA with Amazon to provide air cargo services. Flying under the ATSA began in May 2020 and we are currently flying 12 Boeing 737-800 cargo aircraft for Amazon. Our CMI service is asset-light from a Sun Country perspective as Amazon supplies the aircraft and covers many of the operating expenses, including fuel, and provides all cargo loading and unloading services. We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our scheduled service and charter businesses. Our cargo business also enables us to leverage certain assets, capabilities, and fixed costs to enhance profitability and promote growth across our Company.

Operations in Review

We believe a key component of our success is establishing Sun Country as a high growth, low-cost carrier in the United States by attracting customers with low fares and garnering repeat business by delivering a high-quality passenger experience, offering state-of-the-art interiors, free streaming of in-flight entertainment to passenger devices, seat reclining and seat-back power in all of our aircraft.

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The COVID-19 pandemic resulted in a dramatic decline in passenger demand across the U.S. airline industry. We have experienced a significant decline in demand related to the COVID-19 pandemic, which has caused a material decline in our 2020 and 2021 revenues as compared to pre-pandemic levels, and has negatively impacted our financial condition and operating results.

During 2021, we have continued to see recovery in demand from the COVID-19 pandemic relative to demand in 2020. However, the ongoing impact of the COVID-19 pandemic on overall demand for air travel remains uncertain and cannot be predicted at this time. In addition, the impact of COVID-19 vaccine mandates and uncertainties in pilot staffing, as well as higher fuel prices, could impact our business and results of operations in the near term.

On February 10, 2021, Sun Country, Inc., our wholly-owned subsidiary (the “Borrower”), entered into a new Credit Agreement which provides for a $25,000 Revolving Credit Facility and a $90,000 Delayed Draw Term Loan Facility. We received CARES Act grants totaling $71,587 and $62,312 during 2021 and 2020, respectively, and a CARES Act loan of $45,000 in October 2020.

While the COVID-19 pandemic induced industry downturn has delayed our growth in 2020 and 2021, we believe that our investments have positioned us to profitably grow our business in the long term following a rebound in the U.S. airline industry.

Operating Revenues

Scheduled Service. Scheduled service revenue consists of base fares and expired passenger travel credits.

Charter Service. Charter service revenue consists of revenue earned from our charter business, primarily generated through our service to the U.S. Department of Defense, collegiate and professional sports teams, and casinos.

Ancillary. Ancillary revenue consists of revenue generated from air travel-related services such as baggage fees, seat selection and upgrade fees, itinerary service fees and on-board sales.

Cargo. Cargo revenue consists of air cargo transportation services under the ATSA with Amazon, primarily related to e-commerce delivery services.

Other. Other revenue consists primarily of revenue from services in connection with our Sun Country Vacations products, including organizing ground services, such as hotel, car and transfers. Other revenue also includes services not directly related to providing passenger services such as the advertising, marketing and brand elements resulting from our co-branded credit card program. This component of our revenues also includes revenue from mail on regularly scheduled passenger aircraft.

Operating Expenses

Aircraft Fuel. Aircraft fuel expense includes jet fuel, federal and state taxes, other fees and the mark-to-market gains and losses associated with our fuel derivative contracts since we do not apply hedge accounting. Aircraft fuel expense can be volatile, even between quarters, due to price changes and mark-to-market gains and losses in the value of the underlying derivative instruments as crude oil prices and refining margins increase or decrease.

Salaries, Wages, and Benefits. Salaries, wages, and benefits expense includes salaries, hourly wages, bonuses, equity-based compensation, and profit sharing paid to employees for their services, as well as related expenses associated with medical benefits, employee benefit plans, employer payroll taxes and other employee related costs.

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Aircraft Rent. Aircraft rent expense consists of monthly lease charges for aircraft and spare engines under the terms of the related operating leases and is recognized on a straight-line basis. Aircraft rent expense also includes supplemental rent, which consists of maintenance reserves paid to aircraft lessors in advance of the performance of significant maintenance activities that are not probable of being reimbursed to us by the lessor during the lease term, as well as lease return costs, which consist of all costs that would be incurred at the return of the aircraft, including costs incurred to return the airframe and engines to the condition required by the lease. Aircraft rent expense is partially offset by the amortization of over-market liabilities related to unfavorable terms of our operating leases and maintenance reserves which existed as of the date of our acquisition by the Apollo Funds in 2018. See Note 6 to our Consolidated Financial Statements for further information on the over-market liabilities.

Maintenance. Maintenance expense includes the cost of all parts, materials and fees for repairs performed by us and our third-party vendors to maintain our fleet. It excludes direct labor cost related to our own mechanics, which are included in salaries, wages, and benefits expense. It also excludes maintenance expenses, which are deferred based on the built-in overhaul method for owned and finance leased aircraft, which is subsequently amortized as a component of depreciation and amortization expense. Our maintenance expense is reduced by the amortization of a liability (or contra-asset) established at the time of our acquisition by the Apollo Funds in 2018 related to maintenance events incurred by the new owners of Sun Country, but paid for by the previous owners. For more information on these maintenance expense credits, see Note 6 to our Consolidated Financial Statements.

Sales and Marketing. Sales and marketing expense includes credit card processing fees, travel agent commissions and related global distribution systems fees, advertising, sponsorship and distribution costs, such as the costs of our call centers, and costs associated with our loyalty program. It excludes related salary and wages of personnel, which are included in salaries, wages, and benefits expense.

Depreciation and Amortization. Depreciation and amortization expense includes depreciation of fixed assets we own and leasehold improvements, amortization of finance leased assets, as well as the amortization of finite-lived intangible assets. It also includes the depreciation of significant maintenance expenses deferred under the built-in overhaul method for owned and certain finance leased aircraft.

Ground Handling. Ground handling includes ground services at airports including baggage handling, ticket counter and other ground services.

Landing Fees and Airport Rent. Landing fees and airport rent includes aircraft landing fees and charges for the use of airport facilities.

Special Items, net. Special items, net reflects expenses, or credits to expense, that are not representative of our ongoing costs for the period presented and may vary from period to period in nature, frequency and amount.

Other Operating. Other operating expenses include crew and other employee travel, interrupted trip expenses, information technology, property taxes and insurance, including hull-liability insurance, supplies, legal and other professional fees, facilities and all other administrative and operational overhead expenses.

Non-operating Income (Expense)

Interest Income. Interest income includes interest on our cash, cash equivalents and investment balances. Interest income is generally immaterial to our results of operations, reflecting the current low interest rate environment.

Interest Expense. Interest expense includes interest and fees related to our outstanding debt and our finance leases, as well as the amortization of debt financing costs.

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Other, net. Other expenses include activities not classified in any other area of the Consolidated Statements of Operations, such as certain consulting expenses and changes in the TRA liability.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards.

Operating Statistics

Key Operating Statistics and Metrics

    

Year Ended December 31, 2021 (1)

    

Year Ended December 31, 2020 (1)

Scheduled

Scheduled

    

Service

    

Charter

    

Cargo

    

Total

    

Service

    

Charter

    

Cargo

    

Total

Departures (2)

 

19,706

 

7,093

 

11,295

 

38,317

 

14,117

 

5,581

 

4,642

 

24,518

Block hours (2)

 

64,584

 

14,967

 

33,934

 

114,106

 

45,988

 

12,113

 

13,847

 

72,424

Aircraft miles (2)

 

26,228,100

 

5,483,145

 

13,372,671

 

45,269,162

 

18,685,265

 

4,539,429

 

5,666,642

 

29,030,711

Available seat miles (ASMs) (thousands) (2)

 

4,844,203

 

951,086

 

 

5,826,827

 

3,466,240

 

819,855

 

 

4,311,142

Total revenue per ASM (TRASM) (cents) (3)

 

8.35

 

13.39

 

  

 

9.12

 

7.69

 

11.97

 

  

 

8.46

Average passenger aircraft during the period (3)

 

  

 

  

 

  

 

32.2

 

  

 

  

 

  

 

31.3

Passenger aircraft at end of period (3)

 

  

 

  

 

  

 

36

 

  

 

  

 

  

 

31

Cargo aircraft at end of period

 

  

 

  

 

  

 

12

 

  

 

  

 

  

 

12

Average daily aircraft utilization (hours) (3)

 

  

 

  

 

  

 

6.8

 

  

 

  

 

  

 

5.1

Average stage length (miles)

 

  

 

  

 

  

 

1,183

 

  

 

  

 

  

 

1,179

Revenue passengers carried (4)

 

2,733,364

 

  

 

  

 

  

 

1,679,242

 

  

 

  

 

  

Revenue passenger miles (RPMs) (thousands) (4)

 

3,618,208

 

  

 

  

 

  

 

2,250,974

 

  

 

  

 

  

Load factor (4)

 

74.7

%  

  

 

  

 

  

 

64.9

%  

  

 

  

 

  

Average base fare per passenger (4)

$

102.21

 

  

 

  

 

  

$

114.96

 

  

 

  

 

  

Ancillary revenue per passenger (4)

$

42.89

 

  

 

  

 

  

$

40.53

 

  

 

  

 

  

Charter revenue per block hour

 

  

$

8,508

 

  

 

  

 

  

$

8,101

 

  

 

  

Fuel gallons consumed (thousands) (2)

 

49,685

 

10,729

 

 

60,739

 

34,769

 

8,820

 

 

43,844

Fuel cost per gallon, excluding derivatives

 

  

 

  

 

  

$

2.19

 

  

 

  

 

  

$

1.58

Employees at end of period

 

  

 

  

 

  

 

2,181

 

  

 

  

 

  

 

1,699

Cost per available seat mile (CASM) (cents) (5)

 

  

 

  

 

  

 

8.86

 

  

 

  

 

  

 

8.91

Adjusted CASM (cents) (6)

 

  

 

  

 

  

 

6.44

 

  

 

  

 

  

 

7.57

(1) Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.

(2) Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts.

(3) Scheduled service and charter service utilize the same fleet of aircraft. Aircraft counts and utilization metrics are shown on a system basis only.

(4) Passenger-related statistics and metrics are shown only for scheduled service. Charter service revenue is driven by flight statistics.

(5) CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.

(6) Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, special items, and certain other costs.

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Key Operating Statistics and Metrics

Year Ended December 31, 2020 (1)

Year Ended December 31, 2019 (1)

    

Scheduled 

    

    

    

    

Scheduled 

    

    

    

    

Service

    

Charter

    

Cargo

    

Total

    

Service

    

Charter

    

Cargo

    

Total

Departures (2)

 

14,117

 

5,581

 

4,642

 

24,518

 

24,311

 

9,035

 

 

33,586

Block hours (2)

 

45,988

 

12,113

 

13,847

 

72,424

 

80,719

 

19,852

 

 

101,137

Aircraft miles (2)

 

18,685,265

 

4,539,429

 

5,666,642

 

29,030,711

 

32,217,934

 

7,356,628

 

 

39,738,483

Available seat miles (ASMs) (thousands) (2)

 

3,466,240

 

819,855

 

 

4,311,142

 

5,747,391

 

1,288,725

 

 

7,064,563

Total revenue per ASM (TRASM) (cents) (3)

 

7.69

 

11.97

 

  

 

8.46

 

9.17

 

13.55

 

  

 

9.93

Average passenger aircraft during the period (3)

 

  

 

  

 

  

 

31.3

 

  

 

  

 

  

 

28.9

Passenger aircraft at end of period (3)

 

  

 

  

 

  

 

31

 

  

 

  

 

  

 

31

Cargo aircraft at end of period

 

  

 

  

 

  

 

12

 

  

 

  

 

  

 

7

Average daily aircraft utilization (hours) (3)

 

  

 

  

 

  

 

5.1

 

  

 

  

 

  

 

9.6

Average stage length (miles)

 

  

 

  

 

  

 

1,179

 

  

 

  

 

  

 

1,187

Revenue passengers carried (4)

 

1,679,242

 

  

 

  

 

  

 

3,565,939

 

  

 

  

 

  

Revenue passenger miles (RPMs) (thousands) (4)

 

2,250,974

 

  

 

  

 

  

 

4,473,347

 

  

 

  

 

  

Load factor (4)

 

64.9

%  

  

 

  

 

  

 

82.5

%  

  

 

  

 

  

Average base fare per passenger (4)

$

114.96

 

  

 

  

 

  

$

111.08

 

  

 

  

 

  

Ancillary revenue per passenger (4)

$

40.53

 

  

 

  

 

  

$

33.14

 

  

 

  

 

  

Charter revenue per block hour

 

  

$

8,101

 

  

 

  

 

  

$

8,793

 

  

 

  

Fuel gallons consumed (thousands) (2)

 

34,769

 

8,820

 

 

43,844

 

63,240

 

14,802

 

 

78,042

Fuel cost per gallon, excluding derivatives

 

  

 

  

 

  

$

1.58

 

  

 

  

 

  

$

2.26

Employees at end of period

 

  

 

  

 

  

 

1,699

 

  

 

  

 

  

 

1,532

Cost per available seat mile (CASM) (cents) (5)

 

  

 

  

 

  

 

8.91

 

  

 

  

 

  

 

8.82

Adjusted CASM (cents) (6)

 

  

 

  

 

  

 

7.57

 

  

 

  

 

  

 

6.31

(1) Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.

(2) Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts.

(3) Scheduled service and charter service utilize the same fleet of aircraft. Aircraft counts and utilization metrics are shown on a system basis only.

(4) Passenger-related statistics and metrics are shown only for scheduled service. Charter service revenue is driven by flight statistics.

(5) CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.

(6) Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, special items, and certain other costs.

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Results of Operations

For the Years Ended December 31, 2021 and 2020

Year Ended December 31, 

$

%

 

2021

2020

Change

Change

 

Operating Revenues:

    

    

    

 

    

Scheduled Service

$

279,377

$

193,047

$

86,330

45

%

Charter Service

 

127,331

 

98,130

 

29,201

30

%

Ancillary

 

117,237

 

68,055

 

49,182

72

%

Passenger

 

523,945

 

359,232

 

164,713

46

%

Cargo

 

91,428

 

36,809

 

54,619

148

%

Other

 

7,642

 

5,445

 

2,197

40

%

Total Operating Revenues

 

623,015

 

401,486

 

221,529

55

%

Operating Expenses:

 

  

 

  

 

  

  

Aircraft Fuel

 

129,110

 

83,392

 

45,718

55

%

Salaries, Wages, and Benefits

 

178,207

 

141,641

 

36,566

26

%

Aircraft Rent

 

17,653

 

30,989

 

(13,336)

(43)

%

Maintenance

 

40,095

 

27,416

 

12,679

46

%

Sales and Marketing

 

22,060

 

16,570

 

5,490

33

%

Depreciation and Amortization

 

55,019

 

48,086

 

6,933

14

%

Ground Handling

 

26,981

 

20,596

 

6,385

31

%

Landing Fees and Airport Rent

 

40,726

 

31,256

 

9,470

30

%

Special Items, net

 

(65,456)

 

(64,563)

 

(893)

1

%

Other Operating, net

 

71,580

 

48,718

 

22,862

47

%

Total Operating Expenses

 

515,975

 

384,101

 

131,874

34

%

Operating Income

 

107,040

 

17,385

 

89,655

516

%

Non-operating Income (Expense):

 

 

 

Interest Income

85

377

(292)

(77)

%

Interest Expense

 

(26,326)

 

(22,073)

 

(4,253)

19

%

Other, net

 

14,624

 

(371)

 

14,995

NM

Total Non-operating Income (Expense), net

 

(11,617)

 

(22,067)

 

10,450

(47)

%

Income (Loss) before Income Tax

 

95,423

 

(4,682)

 

100,105

NM

Income Tax Expense (Benefit)

 

17,953

 

(778)

 

18,731

NM

Net Income (Loss)

$

77,470

$

(3,904)

$

81,374

NM

(1)“NM” stands for not meaningful

Total Operating Revenues increased $221,529, or 55%, to $623,015 for the year ended December 31, 2021 from $401,486 for the year ended December 31, 2020. The increase is due to a significantly lower demand for passenger service in 2020 as a result of the COVID-19 pandemic, and growth in cargo services compared to one year ago.

Scheduled Service. Scheduled service revenue increased by $86,330, or 45%, to $279,377 for the year ended December 31, 2021 from $193,047 for the year ended December 31, 2020. The increase in scheduled service revenue was largely driven by an increase in demand for passenger service during 2021 as compared to 2020, which was reduced significantly due to government travel restrictions, quarantine requirements, and reduced passenger demand related to the COVID-19 pandemic.

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The table below presents select operating data for scheduled service, expressed as year-over-year changes:

Year Ended December 31, 

%

    

2021

    

2020

    

Change

    

Change

Departures

19,706

14,117

5,589

40

%

Passengers

2,733,364

1,679,242

1,054,122

63

%

Average base fare per passenger

$

102.21

$

114.96

$

(12.75)

(11)

%

RPMs (thousands)

3,618,208

2,250,974

1,367,234

61

%

ASMs (thousands)

4,844,203

3,466,240

1,377,963

40

%

TRASM (cents)

8.35

7.69

0.66

9

%

Passenger load factor

74.7

%

64.9

%

9.8

pts

na

The 63% increase in the number of scheduled service passengers in the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to COVID-19 pandemic related demand reductions in the prior year period. For the year ended December 31, 2021, our average base fare was $102.21, compared to $114.96 for the year ended December 31, 2020. The decrease was the result of strong fares in the first quarter of 2020 until the start of the COVID-19 pandemic followed by a significant drop off that continued into 2021.

Charter Service. Charter service revenue increased $29,201, or 30%, to $127,331 for the year ended December 31, 2021, from $98,130 for the year ended December 31, 2020. The COVID-19 pandemic drove a decrease in our 2020 charter service revenue. There was a 24% increase in block hours for 2021 as compared to 2020. Charter revenue per block hour was $8,508 for the year ended December 31, 2021, as compared to $8,101 for the year ended December 31, 2020, for an increase of 5%. This revenue per block hour increase is due to the ongoing recovery from the impacts of COVID-19. Rates in 2020 were under a lot of competitive pressure because other carriers had excess aircraft, crew, and resources to operate charter capacity, driving rates down.  For the year ended December 31, 2021, Charter TRASM was 13.39, compared to 11.97 for the year ended December 31, 2020.

Ancillary. Ancillary revenue increased by $49,182, or 72%, to $117,237 for the year ended December 31, 2021, from $68,055 for the year ended December 31, 2020. The 63% increase in scheduled passengers during the period resulted in greater sales of air travel-related services such as baggage fees, seat selection and upgrade fees, and on-board sales. Ancillary revenue was $42.89 per passenger in the year ended December 31, 2021, up from $40.53 per passenger in the year ended December 31, 2020. The increase in ancillary revenue per passenger in 2021 compared to 2020 was the result of increased demand for ancillary products, revenue optimization efforts, and a reduction in travel periods where change fees were waived

Cargo. Revenue from cargo services was $91,428 for the year ended December 31, 2021, as compared to $36,809 for the year ended December 31, 2020. All of our cargo service revenue relates to the air cargo transportation services under the ATSA with Amazon that commenced in May 2020. For the year ended December 31, 2021, departures increased to 11,295, as compared to 4,642 for the year ended December 31, 2020, due to the timing of when the aircraft were brought into service in 2020.

Other. Other revenue was $7,642 for the year ended December 31, 2021, as compared to $5,445 for the year ended December 31, 2020. This was mainly the result of an increase in revenue from Sun Country Vacations due to improved bookings and an increase in co-branded marketing revenue related to our Sun Country VISA card.

Operating Expenses

Aircraft Fuel. Aircraft fuel expense was $129,110 for the year ended December 31, 2021, as compared to $83,392 for the year ended December 31, 2020. The increase was mainly driven by a 39% increase in fuel gallons consumed resulting from a recovery in demand as demonstrated by a 37% increase in passenger service block hours, as well as a 38% increase in the average price per gallon of fuel. Additionally, the change

12

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was also driven by mark-to-market adjustments in Fuel Derivative contracts. Note that Amazon fuel expenses are reimbursed by Amazon, therefore they are not included in aircraft fuel.

The primary components of Fuel Expense are shown in the following table:

Year Ended December 31, 

%

 

    

2021

    

2020

    

Change

    

Change

 

Total Aircraft Fuel Expenses

$

129,110

$

83,392

$

45,718

 

55

%

Exclude: Fuel Derivative Gains (Losses)

 

3,527

 

(14,259)

 

17,786

 

NM

Other Excluded Items

 

335

 

313

 

23

 

7

%

Aircraft Fuel Expenses, excluding derivatives

$

132,972

$

69,446

$

63,526

 

91

%

Fuel Gallons Consumed (thousands)

 

60,739

 

43,844

 

16,895

 

39

%

Fuel Cost per Gallon, excluding derivatives

$

2.19

$

1.58

$

0.61

 

38

%

(1)"NM" stands for not meaningful

Salaries, Wages, and Benefits. Salaries, wages, and benefits expense increased $36,566, or 26%, to $178,207 for the year ended December 31, 2021, as compared to $141,641 for the year ended December 31, 2020. The average headcount for the year ended December 31, 2021 was 1,884, as compared to 1,637 for the year ended December 31, 2020, for an increase of 247 or 15%. A significant portion of the headcount increase was due to a ramp up related to the insourcing of MSP ground handling, which was transitioned in-house from April 2020 to early 2021. Our Cargo segment was responsible for $42,486 of the consolidated salaries, wages, and benefits expense for the year ended December 31, 2021, as compared to $20,452 for the year ended December 31, 2020. The $22,034 increase over the prior year is driven by additional headcount to support the operations and the timing of when the Amazon aircraft were brought into service in 2020. The Cargo segment began in May 2020, driving additional headcount required to support the ramp up of operations and aircraft under the ATSA.

Aircraft Rent. Aircraft rent expense decreased $13,336, or 43%, to $17,653 for the year ended December 31, 2021, as compared to $30,989 for the year ended December 31, 2020. Aircraft rent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (for which the expense is recorded within aircraft rent) to owned aircraft (for which expense is recorded through depreciation and interest expense). Specifically, in the first six months of 2021, we purchased six aircraft previously under operating leases. For the year ended December 31, 2021 and 2020, there was an average of seven and twelve aircraft under operating leases, respectively.

Maintenance. Maintenance materials and repair expense increased $12,679, or 46%, to $40,095 for the year ended December 31, 2021, as compared to $27,416 for the year ended December 31, 2020. There were nine landing gear events in the year ended December 31, 2021 versus four during the year ended December 31, 2020, resulting in a cost increase of $1,497. There was also a $3,616 increase in costs, including wheels, brakes, consumables, and expendables, driven by increased departures. The cost of auxiliary power unit events increased $1,250, due to lower reimbursements in the year ended December 31, 2021. There was also a $1,000 increase due to unscheduled maintenance events. Our Cargo segment was responsible for $10,558 of the consolidated maintenance expense for the year ended December 31, 2021, as compared to $4,959 for the prior year due to the timing of when the Amazon aircraft were brought into service in 2020. The Cargo segment expense primarily relates to line maintenance since heavy maintenance is reimbursed under the ATSA.

Sales and Marketing. Sales and marketing expense increased $5,490, or 33%, to $22,060 for the year ended December 31, 2021, as compared to $16,570 for the year ended December 31, 2020. The passenger revenue increased 46% between these two periods, and was primarily responsible for a $2,778 increase in credit card processing fees and a $2,546 increase in global distribution system fees. The remaining increase primarily relates to higher advertising costs and travel agent commissions.

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Table of Contents

Depreciation and Amortization. Depreciation and amortization expense increased $6,933, or 14%, to $55,019 for the year ended December 31, 2021, as compared to $48,086 for the year ended December 31, 2020. The increase was primarily due to the impact of a change in the composition of our aircraft fleet to an increased number of owned aircraft and aircraft under finance leases (for which the expense is recorded as amortization and interest expense). During the year ended December 31, 2021, the Company also purchased three engines and a flight simulator. For the year ended December 31, 2021 and 2020, there was an average of nineteen and eleven owned aircraft, respectively. Additionally, for the years ended December 31, 2021 and 2020 there were an average of seven finance leases; however, there were numerous removals and additions that impacted amortization expense.

Ground Handling. Ground handling expense increased $6,385, or 31%, to $26,981 for the year ended December 31, 2021, as compared to $20,596 for the year ended December 31, 2020. The increase was primarily due to the 40% increase in scheduled departures during the same time periods.

Landing Fees and Airport Rent. Landing fees and airport rent increased $9,470, or 30%, to $40,726 for the year ended December 31, 2021, as compared to $31,256 for the year ended December 31, 2020. The increase of $9,470 was driven by the 40% increase in scheduled departures for the year ended December 31, 2021. Additionally, a decrease in rates in 2021 for $1,040 and an airline relief credit of $1,416 offset against the departure volume increase.

Special Items, net. Special items, net was a benefit of $65,456 for the year ended December 31, 2021 and $64,563 for the year ended December 31, 2020. For the year ended December 31, 2021, Special items, net included in refundable tax credits related to employee retention under the CARES Act. For the years ended December 31, 2021 and 2020, Special items, net included $71,587 and $62,312 of funds granted under the CARES Act, respectively. These funds were to be used exclusively for the continuation of payments for salaries, wages, and benefits. The year ended December 31, 2021 included a charge of $6,963 related to net costs incurred to purchase six aircraft that were previously under operating leases. Our Cargo segment was allocated $18,400 of the amounts received under the CARES Act for the year ended December 31, 2021 and $10,721 for the year ended December 31, 2020, based on the respective segment salaries, wages, and benefits.

Other Operating, net. Other operating, net expense increased $22,862, or 47%, to $71,580 for the year ended December 31, 2021, as compared to $48,718 for the year ended December 31, 2020, mainly due to increased departures. The Passenger segment increase of $14,447 was primarily driven by the higher level of operations which resulted in higher crew and other employee travel costs, catering expenses, and other operational overhead costs. Our Cargo segment was responsible for $15,152 and $6,838 of our consolidated other operating, net expense for the year ended December 31, 2021 and 2020, respectively, driven by overhead expenses as well as crew and employee travel costs. There was also an additional cost of approximately $1,105 due to becoming a public company, primarily related to insurance, legal and consulting fees.

Non-operating Income (Expense)

Interest Expense. Interest expense increased $4,253, or 19%, to $26,326 for the year ended December 31, 2021, as compared to $22,073 for the year ended December 31, 2020. The increase was primarily due to debt issued for the acquisition of new aircraft, including new debt incurred in connection with the 2019-1 EETC, and the Delayed Draw Term Loan Facility.

Other, net. Other, net for the year ended December 31, 2021 was a net income of $14,624 primarily due to a credit of $16,400 for the adjustment of our TRA liability. The decrease in the TRA liability was mainly due to the receipt of a CARES Act PSP3 grant of $34,547, which extended the time period in which distributions made to shareholders are restricted (from March 31, 2022 to September 30, 2022), an increase in actual 2021 pre-tax income, and a decrease in forecasted 2022 pre-tax income. Partially offsetting this income was $1,763 in expenses related to secondary stock offerings that occurred in May and October 2021. Other, net for the year ended December 31, 2020, was a net expense of $371, primarily due to a vendor settlement.

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Table of Contents

Income Tax Expense (Benefit). The Company's effective tax rate for the year ended December 31, 2021 was 18.8% compared to 16.6% for the year ended December 31, 2020. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items. The decrease in the current year rate compared to the statutory rate is primarily due to favorable permanent differences related to stock compensation deductions and non-deductible income related to the TRA. The decrease in the prior year rate compared to the statutory rate is primarily due a small amount of pre-tax loss in relation to the miscellaneous insignificant permanent adjustments.

Results of Operations

For the Years Ended December 31, 2020 and 2019

Year Ended December 31, 

$

%

 

    

2020

    

2019

    

Change

    

Change

 

Operating Revenues:

 

  

 

  

 

  

  

Scheduled Service

$

193,047

$

396,113

$

(203,066)

(51)

%

Charter Service

 

98,130

 

174,562

 

(76,432)

(44)

%

Ancillary

 

68,055

 

118,158

 

(50,103)

(42)

%

Passenger

 

359,232

 

688,833

 

(329,601)

(48)

%

Cargo

 

36,809

 

 

36,809

100

%

Other

 

5,445

 

12,551

 

(7,106)

(57)

%

Total Operating Revenues

 

401,486

 

701,384

 

(299,898)

(43)

%

Operating Expenses:

 

  

 

  

 

  

  

Aircraft Fuel

 

83,392

 

165,666

 

(82,274)

(50)

%

Salaries, Wages, and Benefits

 

141,641

 

140,739

 

902

1

%

Aircraft Rent

 

30,989

 

49,908

 

(18,919)

(38)

%

Maintenance

 

27,416

 

35,286

 

(7,870)

(22)

%

Sales and Marketing

 

16,570

 

35,388

 

(18,818)

(53)

%

Depreciation and Amortization

 

48,086

 

34,877

 

13,209

38

%

Ground Handling

 

20,596

 

41,719

 

(21,123)

(51)

%

Landing Fees and Airport Rent

 

31,256

 

44,400

 

(13,144)

(30)

%

Special Items, net

 

(64,563)

 

7,092

 

(71,655)

NM

Other Operating, net

 

48,718

 

68,187

 

(19,469)

(29)

%

Total Operating Expenses

 

384,101

 

623,262

 

(239,161)

(38)

%

Operating Income

 

17,385

 

78,122

 

(60,737)

(78)

%

Non-operating Income (Expense):

 

Interest Income

377

 

937

 

(560)

(60)

%

Interest Expense

 

(22,073)

 

(17,170)

 

(4,903)

29

%

Other, net

 

(371)

 

(1,729)

 

1,358

(79)

%

Total Non-operating Income (Expense), net

 

(22,067)

 

(17,962)

 

(4,105)

23

%

Income (Loss) before Income Tax

 

(4,682)

 

60,160

 

(64,842)

(108)

%

Income Tax Expense (Benefit)

 

(778)

 

14,088

 

(14,866)

(106)

%

Net Income (Loss)

$

(3,904)

$

46,072

$

(49,976)

(109)

%

(1)“NM” stands for not meaningful

Total Operating Revenues decreased $299,898, or 43%, to $401,485 for the year ended December 31, 2020 from $701,383 for the year ended December 31, 2019. The decrease is due to a significantly lower demand for passenger service in 2020 as a result of the COVID-19 pandemic, offset by growth in cargo services during fiscal year 2020.

Scheduled Service. Scheduled service revenue decreased by $203,067, or 51%, to $193,047 for the year ended December 31, 2020, from $396,113 for the year ended December 31, 2019. The decrease in scheduled service revenue was driven by a decline in passenger demand in 2020 related to government travel restrictions

15

Table of Contents

and quarantine requirements related to the COVID-19 pandemic. Specifically, the number of scheduled service passengers was 1.7 million in the year ended December 31, 2020, down from 3.6 million in the year ended December 31, 2019. This drove a 42% decrease in departures and an 18 percentage point decrease in load factor. The decrease in load factor resulted in a decrease in TRASM of 16% to $7.69 from $9.17. Further, our scheduled service capacity, as measured by ASMs, decreased by 40%.

The table below presents select operating data for scheduled service:

Year Ended December 31, 

%

 

2020

2019

Change

Change

 

Departures

    

14,117

    

24,311

    

(10,194)

    

(42)

%  

Passengers

 

1,679,242

 

3,565,939

 

(1,886,697)

 

(53)

%  

Average base fare per passenger

$

114.96

$

111.08

 

3.88

 

3

%  

RPMs (thousands)

 

2,250,974

 

4,473,347

 

(2,222,373)

 

(50)

%  

ASMs (thousands)

 

3,466,240

 

5,747,391

 

(2,281,151)

 

(40)

%  

TRASM (cents)

 

7.69

 

9.17

 

(1.48)

 

(16)

%  

Passenger load factor

 

64.9

%  

 

82.5

%  

(17.6)

pts

na

The 53% decrease in the number of scheduled service passengers in the year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to COVID-19 pandemic related lower demand in 2020. For the year ended December 31, 2020, our average base fare was $114.96, compared to $111.08 for the year ended December 31, 2019. The net change is the result of a strong start to 2020 with higher average fares followed by a significant drop in passengers due to COVID-19.  This significant drop in passengers resulted in only a minimal impact on the year ended December 31, 2020 average base fare.

Charter Service. Charter service revenue decreased by $76,431, or 44%, to $98,130 for the year ended December 31, 2020 from $174,562 for the year ended December 31, 2019. The COVID-19 pandemic drove a decrease in our charter service revenue due to a decrease in the number of charter flights for our casino and sports customers and the U.S. Department of Defense, resulting in a 38% decrease in charter departures. Our charter service revenue began to rebound in the second half of 2020 as charter customers such as the U.S. Department of Defense and large university sports teams continued to fly throughout the year ended December 31, 2020, while our casino customers subject to long term contracts began flying again in June 2020. In addition, we entered into a contract with Major League Soccer to provide charter flights for professional soccer teams which commenced in August 2020.

Ancillary. Ancillary revenue decreased by $50,103, or 42%, to $68,055 for the year ended December 31, 2020 from $118,158 for the year ended December 31, 2019. The decline in passenger demand due to the COVID-19 pandemic resulted in lower demand for air travel-related services such as baggage fees, seat selection and upgrade fees, and on-board sales. This decrease was partially offset by an increase in ancillary revenue on a per passenger basis which is largely related to increased itinerary service fees. Specifically, ancillary revenue was $40.53 per passenger in the year ended December 31, 2020, up from $33.14 per passenger in the year ended December 31, 2019. The increase in ancillary revenue per passenger in 2020 relative to 2019 was a result of increased demand for ancillary products and revenue optimization efforts.

Cargo. Revenue from cargo services was $36,809 for the year ended December 31, 2020, with no comparative revenue for the year ended December 31, 2019. All of our 2020 cargo service revenue related to the commencement of air cargo transportation services under the ATSA with Amazon in May 2020. In June 2020, we entered into an amendment to the ATSA with Amazon that added two additional aircraft to the agreement, which were delivered in the fourth quarter of 2020, bringing the total number of aircraft we fly for Amazon to 12.

Other. Other revenue decreased by $7,106, or 57%, to $5,445 for the year ended December 31, 2020 from $12,551 for the year ended December 31, 2019. The decrease in our other revenue was driven by lower bookings for our Sun Country Vacations products due to a decline in demand for leisure travel related to the COVID-19 pandemic.

16

Table of Contents

Operating Expenses

Aircraft Fuel. Aircraft fuel expense decreased by $82,274, or 50%, to $83,392 for the year ended December 31, 2020, as compared to $165,666 for the year ended December 31, 2019. The decrease was primarily driven by a 44% decrease in fuel gallons consumed due to our decreased level of operations as a result of reduced demand relating to the COVID-19 pandemic. Further contributing to the decrease in aircraft fuel expense was a 30% decline in average price per gallon of fuel which was driven by lower worldwide demand as a result of the COVID-19 pandemic. These decreases were partially offset by mark-to-market losses of $14,259 in the year ended December 31, 2020 compared to mark-to-market gains of $10,126 in the year ended December 31, 2019 from our fuel derivative contracts associated with our economic fuel hedges.

The primary components of Fuel Expense are shown in the following table:

Year Ended December 31, 

%

 

2020

2019

Change

Change

 

Total Aircraft Fuel Expenses

    

$

83,392

    

$

165,666

    

$

(82,274)

    

(50)

%

Exclude: Fuel Derivative Gains (Losses)

 

(14,259)

 

10,126

 

(24,385)

 

NM

Other Excluded Items

 

313

 

444

 

(131)

 

(30)

%  

Aircraft Fuel Expenses, excluding derivatives

$

69,446

$

176,236

$

(106,790)

 

(61)

%

Fuel Gallons Consumed (thousands)

 

43,844

 

78,042

 

(34,198)

(44)

%  

Fuel Cost per Gallon, excluding derivatives

$

1.58

$

2.26

$

(0.68)

 

(30)

%

(1)"NM" stands for not meaningful

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $902, or 1%, to $141,641 for the year ended December 31, 2020, as compared to $140,739 for the year ended December 31, 2019. The increase was primarily due to increased headcount, primarily related to insourcing certain ground handling operations, and to increased pilot pay and per diems to support operations under the ATSA. The increase was partially offset by a decrease in expenses related to employee benefits, reduction in flight attendant headcount, and call center staffing due to lower volume of calls. Additionally, the grants under the Payroll Support Program received in the second and third quarters of 2020 restricted us from taking measures to reduce headcount through September 30, 2020 in response to the decline in operations. Our cargo segment was responsible for $20,452 of the consolidated salaries, wages, and benefits expense for the year ended December 31, 2020 and was driven by headcount to support the operations and aircraft under the ATSA.

Aircraft Rent. Aircraft rent expense decreased by $18,919, or 38%, to $30,989 for the year ended December 31, 2020, as compared to $49,908 for the year ended December 31, 2019. Aircraft rent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (for which the expense is recorded within aircraft rent) to owned aircraft and aircraft under finance leases (for which the expense is recorded within depreciation and amortization). Specifically, in the year ended December 31, 2020 we purchased two aircraft previously under operating lease and leased two fewer seasonal aircraft. Additionally, a 42% decrease in passenger block hours resulted in a decrease in supplemental rent. The decrease in aircraft rent expense was partially offset by a reduction in the amortization of over-market liabilities on six aircraft recorded as a result of acquisition accounting for the acquisition by the Apollo Funds, of which three were returned at the end of their lease terms during 2019, and three were financed using the 2019-01 EETC following their lease maturity during the year ended December 31, 2020.

Maintenance. Maintenance materials and repair expense decreased by $7,870, or 22%, to $27,416 for the year ended December 31, 2020, as compared to $35,286 for the year ended December 31, 2019. The decrease was driven primarily by the COVID-19 pandemic which caused reduced aircraft utilization, as measured by a 28% decrease in total block hours and a 27% decrease in flight cycles. These factors ultimately resulted in fewer maintenance events and lower major and routine maintenance costs. The decrease in maintenance expense was partially offset by an increase in scheduled heavy maintenance for our passenger aircraft fleet and line maintenance on the additional aircraft under the ATSA related to our cargo operations. Our cargo

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segment was responsible for $4,959 of the consolidated maintenance expense for the year ended December 31, 2020, driven by expenses for line maintenance on aircraft operated under the ATSA.

Sales and Marketing. Sales and marketing expense decreased by $18,818, or 53%, to $16,570 for the year ended December 31, 2020, as compared to $35,388 for the year ended December 31, 2019. The decrease was primarily due to a $7,052 reduction in credit card processing fees related to lower sales on our scheduled service. Additionally, there was a $2,016 decrease in advertising costs, a $6,142 decrease in global distribution systems fees associated with the decrease in scheduled service and a $1,268 decrease in travel agent commissions, all due to the COVID-19 pandemic.

Depreciation and Amortization. Depreciation and amortization expense increased by $13,209, or 38%, to $48,086 for the year ended December 31, 2020, as compared to $34,877 for the year ended December 31, 2019. The increase was primarily due to the impact of a change in the composition of our aircraft fleet to an increased number of owned aircraft in connection with our 2019-1 EETC and aircraft under finance leases (for which expense is recorded within depreciation and amortization). Specifically, the increase is due to the incremental depreciation related to one aircraft previously under an operating lease which was amended and converted into a finance lease in December 2019, one incremental aircraft obtained through a new finance lease, one aircraft we purchased in December 2019, two aircraft we purchased in the year ended December 31, 2020 which were previously under operating leases and two aircraft we purchased in the year ended December 31, 2020 which were new additions to the fleet.

Ground Handling. Ground handling expense decreased by $21,123, or 51%, to $20,596 for the year ended December 31, 2020, as compared to $41,719 for the year ended December 31, 2019. The decrease was primarily due to the 27% decline in departures. Additionally, we began insourcing our MSP operations in April 2020, contributing to a reduction of $4,434 in ground handling expenses, but resulting in higher salaries, wages and benefits.

Landing Fees and Airport Rent. Landing fees and airport rent decreased by $13,144, or 30%, to $31,256 for the year ended December 31, 2020, as compared to $44,400 for the year ended December 31, 2019. The decrease was driven by the 27% reduction in departures during the year ended December 31, 2020. Our cargo segment was responsible for $281 of the consolidated landing fees and airport rent for the year ended December 31, 2020, driven by allocated airport rent.

Special Items, net. Special items, net was an income of $64,563 for the year ended December 31, 2020 and an expense of $7,092 for the year ended December 31, 2019. For the year ended December 31, 2020, Special items, net included a $62,312 credit related to funds received under the CARES Act Payroll Support Program, to be used exclusively for the continuation of payments for salaries, wages, and benefits, and $2,328 in refundable tax credits related to employee retention under the CARES Act. For the year ended December 31, 2019, Special items, net included a charge of $7,578 related to contractual obligations for retired technology. In connection with implementing our new reservations systems, we incurred obligations under the contracts for our existing systems that were being phased out ahead of their scheduled contract terms, creating an expense that is not reflective of the normal operations of the company. We also incurred expense of $714 in connection with the write-off of assets in connection with the relocation of our headquarters in 2019. Special items, net for the year ended December 31, 2019 was partially offset by $1,200 of proceeds from the sale of unused airport slot rights. We are not in the business of buying and selling operating rights and we do not hold any other remaining airport slot rights; therefore this gain does not reflect our core business operations. Our cargo segment was responsible for $10,721 of the consolidated income from consolidated special items, net for the year ended December 31, 2020, driven by allocated amounts from the CARES Act, based on the respective segment salaries, wages and benefits.

Other Operating, net. Other operating, net expense decreased by $19,469, or 29%, to $48,718 for the year ended December 31, 2020, as compared to $68,187 for the year ended December 31, 2019. This decrease was primarily driven by our lower level of operations related to the COVID-19 pandemic which resulted in reduced crew and other employee travel costs, interrupted trip expenses, catering expenses, and other

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operational overhead costs. Our cargo segment was responsible for $6,838 of our consolidated other operating, net expense for the year ended December 31, 2020.

Non-operating Income (Expense)

Interest Income. Interest income decreased $560 in the year ended December 31, 2020 related to lower average cash balances.

Interest Expense. Interest expense increased by $4,903, or 29%, to $22,073 for the year ended December 31, 2020, as compared to $17,170 for the year ended December 31, 2019. The increase was primarily due to debt issued for the acquisition of new aircraft and spare engines, including new debt incurred in connection with the 2019-1 EETC.

Other, net. Other, net expense decreased $1,358, or 79%, to $371 for the year ended December 31, 2020, as compared to $1,729 for the year ended December 31, 2019. The decrease is mainly due to early-out payments and other expenses incurred in connection with outsourcing certain ground operations during the year ended December 31, 2019, which did not occur in the year ended December 31, 2020.

Income Tax Expense. Our effective tax rate was 16.6% for the year ended December 31, 2020, as compared to 23.5% for the year ended December 31, 2019. Our tax rate can vary depending on the amount of income we earn in each state and the state tax rate applicable to such income.

Segment Information

For the Years Ended December 31, 2021 and 2020

Year Ended

Year Ended

 

December 31, 2021

December 31, 2020 (1)

 

    

Passenger

    

Cargo

    

Total

    

Passenger

    

Cargo

    

Total

 

Operating Revenues

$

531,587

$

91,428

$

623,015

$

364,677

$

36,809

$

401,486

Operating Expenses:

 

  

 

  

 

  

 

  

 

  

 

  

Aircraft Fuel

 

128,863

 

247

 

129,110

 

83,392

 

 

83,392

Salaries, Wages, and Benefits

 

135,721

 

42,486

 

178,207

 

121,189

 

20,452

 

141,641

Aircraft Rent

 

17,653

 

 

17,653

 

30,989

 

 

30,989

Maintenance

 

29,537

 

10,558

 

40,095

 

22,457

 

4,959

 

27,416

Sales and Marketing

 

22,060

 

 

22,060

 

16,570

 

 

16,570

Depreciation and Amortization

 

54,914

 

105

 

55,019

 

48,086

 

 

48,086

Ground Handling

 

26,981

 

 

26,981

 

20,596

 

 

20,596

Landing Fees and Airport Rent

 

40,230

 

496

 

40,726

 

30,975

 

281

 

31,256

Special Items, net

 

(47,056)

 

(18,400)

 

(65,456)

 

(53,842)

 

(10,721)

 

(64,563)

Other Operating, net

 

56,428

 

15,152

 

71,580

 

41,880

 

6,838

 

48,718

Total Operating Expenses

 

465,331

 

50,644

 

515,975

 

362,292

 

21,809

 

384,101

Operating Income

$

66,256

$

40,784

$

107,040

$

2,385

$

15,000

$

17,385

Adjustment for Special Items

 

(47,056)

 

(18,400)

 

(65,456)

 

(53,842)

 

(10,721)

 

(64,563)

Operating Income (Loss), Excluding Special Items

$

19,200

$

22,384

$

41,584

$

(51,457)

$

4,279

$

(47,178)

Operating Margin %, Excluding Special Items

 

4

%  

 

24

%  

 

7

%  

 

(14)

%  

 

12

%  

 

(12)

%

(1)Air cargo operations with Amazon commenced in May 2020.

Passenger. Passenger operating income increased by $63,871 to $66,256 for the year ended December 31, 2021 from $2,385 for the year ended December 31, 2020. For more information on the changes in the components of operating income for the Passenger segment, refer to the consolidated results of operations discussion above.

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Cargo. Cargo operating income was $40,784 for the year ended December 31, 2021, as compared to $15,000 for the year ended December 31, 2020. As Amazon air cargo operations commenced in May 2020, the Cargo segment was ramping up operations during 2020. For more information on the components of operating income for the Cargo segment, refer to the Consolidated Results of Operations discussion above, where we more fully describe the cargo expenses embedded within each financial statement line item.

For the Years Ended December 31, 2020 and 2019

Year Ended

Year Ended

 

December 31, 2020 (1)

December 31, 2019 (1)

 

    

Passenger

    

Cargo

    

Total

    

Passenger

    

Cargo

    

Total

 

Operating Revenues

$

364,677

$

36,809

$

401,486

$

701,384

$

$

701,384

Operating Expenses:

Aircraft Fuel

 

83,392

 

 

83,392

 

165,666

 

 

165,666

Salaries, Wages, and Benefits

 

121,189

 

20,452

 

141,641

 

140,739

 

 

140,739

Aircraft Rent

 

30,989

 

 

30,989

 

49,908

 

 

49,908

Maintenance

 

22,457

 

4,959

 

27,416

 

35,286

 

 

35,286

Sales and Marketing

 

16,570

 

 

16,570

 

35,388

 

 

35,388

Depreciation and Amortization

 

48,086

 

 

48,086

 

34,877

 

 

34,877

Ground Handling

 

20,596

 

 

20,596

 

41,719

 

 

41,719

Landing Fees and Airport Rent

 

30,975

 

281

 

31,256

 

44,400

 

 

44,400

Special Items, net

 

(53,842)

 

(10,721)

 

(64,563)

 

7,092

 

 

7,092

Other Operating, net

 

41,880

 

6,838

 

48,718

 

68,187

 

 

68,187

Total Operating Expenses

 

362,292

 

21,809

 

384,101

 

623,262

 

 

623,262

Operating Income

$

2,385

$

15,000

$

17,385

$

78,122

$

$

78,122

Adjustment for Special Items

 

(53,842)

 

(10,721)

 

(64,563)

 

7,092

 

 

7,092

Operating Income (Loss), Excluding Special Items

$

(51,457)

$

4,279

$

(47,178)

$

85,214

$

$

85,214

Operating Margin %, Excluding Special Items

 

(14)

%  

 

12

%  

 

(12)

%  

 

12

%  

 

%  

 

12

%

(1)Air cargo operations with Amazon commenced in May 2020.

Passenger. Passenger operating income decreased $75,737, or 97%, to $2,385 for the year ended December 31, 2020 from $78,122 for the year ended December 31, 2019. For more information on the changes in the components of operating income for the Passenger segment, refer to the consolidated results of operations discussion above.

Cargo. Cargo operating income was $15,000 for the year ended December 31, 2020, as compared to $0 for the year ended December 31, 2019. As air cargo operations commenced in May 2020, the Cargo segment was not applicable to fiscal year 2019. For more information on the components of operating income for the Cargo segment, refer to the consolidated results of operations discussion above, where we more fully describe the cargo expenses embedded within each financial statement line item.

Non-GAAP Financial Measures

We sometimes use information that is derived from the consolidated financial statements, but that is not presented in accordance with GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies. We believe certain charges included in our operating expenses on a GAAP basis make it difficult to compare our current period results to prior periods as well as future periods and guidance. The tables below show a reconciliation of non-GAAP financial measures used in this report to the most directly comparable GAAP financial measures.

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Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income

Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income are non-GAAP measures included as supplemental disclosure because we believe they are useful indicators of our operating performance. Derivations of operating income and net income are well recognized performance measurements in the airline industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry.

Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income have limitations as analytical tools. Some of the limitations applicable to these measures include: Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and other companies in our industry may calculate Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income differently than we do, limiting each measure’s usefulness as a comparative measure. Because of these limitations, Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

As derivations of operating income and net income, Adjusted Operating Income, Adjusted Operating Income Margin, and Adjusted Net Income are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate these measures in the same manner. As a result, derivations of operating income and net income, including Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income, as presented may not be directly comparable to similarly titled measures presented by other companies. For the foregoing reasons, Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted Net Income have significant limitations which affect their use as indicators of our profitability and valuation. Accordingly, readers are cautioned not to place undue reliance on this information.

The following table presents the reconciliation of Operating Income (Loss) to Adjusted Operating Income (Loss), and Adjusted Operating Income Margin (Loss) for the periods presented below.

Year Ended December 31, 

 

    

2021

    

2020

    

2019

 

Adjusted Operating Income Margin (Loss) reconciliation:

 

Operating Revenue

    

$

623,015

    

$

401,486

    

$

701,384

Operating Income

 

107,040

 

17,385

 

78,122

Special Items, net (a)

 

(65,456)

 

(64,563)

 

7,092

Stock compensation expense

 

5,562

 

2,110

 

1,888

Voluntary leave expense (b)

 

 

4,881

 

TRA expenses (c)

 

320

 

 

Other Adjustments (d)

 

3,015

 

 

226

Adjusted Operating Income (Loss)

$

50,481

$

(40,187)

$

87,328

Operating Income Margin

 

17.2

%  

 

4.3

%  

 

11.1

%

Adjusted Operating Income Margin (Loss)

 

8.1

%  

 

(10.0)

%  

 

12.5

%

(a)The adjustments include Special Items, net, as presented in Note 15 of the Company’s Consolidated Financial Statements.
(b)This represents expenses related to a voluntary employee leave program in response to the COVID-19 pandemic, a portion of which is offset by the CARES Act Payroll Support Program as the benefit of this program is also adjusted as a component of Special Items, net.
(c)This represents the one-time costs to establish the TRA with our pre-IPO stockholders, plus the quarterly cost to revalue the liability balance. See Note 13 of the Company’s Consolidated Financial Statements.

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(d)Other adjustments for the year ended December 31, 2021 included an adjustment to expenses related to pilot vacation time resulting from the new CBA, and for the year ended December 31, 2019, expenses incurred in terminating work on a planned new crew base.

The following table presents the reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) for the periods presented below.

    

Year Ended December 31,

2021

2020

2019

Adjusted Net Income (Loss) reconciliation:

$

77,470

$

(3,904)

$

46,072

Net Income (Loss)

Special Items, net (a)

 

(65,456)

 

(64,563)

 

7,092

Stock compensation expense

 

5,562

 

2,110

 

1,888

Voluntary leave expense (b)

 

 

4,881

 

Loss on asset transactions, net

 

3

 

413

 

745

Early pay-off of US Treasury loan

 

842

 

 

Loss on refinancing credit facility

 

382

 

 

Secondary Offering Costs

 

1,763

 

 

TRA expenses (c)

 

320

 

 

TRA adjustment (d)

 

(16,400)

 

 

Other Adjustments (e)

 

3,015

 

 

226

Income tax effect of adjusting items, net (f)

 

12,321

 

13,147

 

(2,289)

Adjusted Net Income (Loss)

$

19,822

$

(47,916)

$

53,734

(a)The adjustments include Special Items, net, as presented in Note 15 of the Company’s Consolidated Financial Statements.
(b)This represents expenses related to a voluntary employee leave program in response to the COVID-19 pandemic, a portion of which is offset by the CARES Act Payroll Support Program as the benefit of this program is also adjusted as a component of Special Items, net.
(c)This represents the one-time costs to establish the TRA with our pre-IPO stockholders, plus the quarterly cost to revalue the liability balance. See Note 13 of the Company’s Consolidated Financial Statements.
(d)This represents the adjustment to the TRA for the period, which is recorded in Non-operating Income (Expense).
(e)Other adjustments for the year ended December 31, 2021 included an adjustment to expenses related to pilot vacation time resulting from the new CBA, and for the year ended December 31, 2019, expenses incurred in terminating work on a planned new crew base.
(f)The tax effect of adjusting items, net is calculated at the Company’s statutory rate for the applicable period. The TRA adjustment is not tax deductible and therefore not included in this adjustment.

Adjusted EBITDAR

Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (“Adjusted EBITDAR”) is a non-GAAP measure included as supplemental disclosure because we believe it is a valuation measure commonly used by investors, securities analysts, and other interested parties in the industry to compare airline companies and derive valuation estimates without consideration of airline capital structure or aircraft ownership methodology. We believe that while items excluded from Adjusted EBITDAR may be recurring in nature and should not be disregarded in evaluation of our earnings performance, Adjusted EBITDAR is useful because its calculation isolates the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by finance

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lease or by operating lease, each of which is presented differently for accounting purposes), and income taxes, which may vary significantly between periods and for different companies for reasons unrelated to overall operating performance. Adjusted EBITDAR should not be viewed as a measure of overall performance or considered in isolation or as an alternative to net income because it excludes aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. We have historically incurred substantial rent expense due to our legacy fleet of operating leased aircraft, which are currently being transitioned to owned aircraft.

Adjusted EBITDAR has limitations as an analytical tool. Some of the limitations applicable to this measure include: Adjusted EBITDAR does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; Adjusted EBITDAR does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; Adjusted EBITDAR does not reflect changes in, or cash requirements for, our working capital needs; it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDAR does not reflect any cash requirements for such replacements; and other companies in our industry may calculate Adjusted EBITDAR differently than we do, limiting each measure’s usefulness as a comparative measure. Because of these limitations, Adjusted EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

The following table presents the reconciliation of Net Income (Loss) to Adjusted EBITDAR for the periods presented below.

Year Ended December 31, 

    

2021

    

2020

    

2019

Adjusted EBITDAR Reconciliation:

Net Income (Loss)

$

77,470

$

(3,904)

$

46,072

Special Items, net (a)

 

(65,456)

 

(64,563)

 

7,092

Stock Compensation expense

 

5,562

 

2,110

 

1,888

Voluntary leave expense (b)

 

 

4,881

 

Loss on asset transactions, net

 

3

 

413

 

745

Secondary Offering Costs

 

1,763

 

 

TRA expenses (c)

 

320