SEC Filing | Sun Country Airlines

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sncy-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2023


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

Commission File Number 001-40217

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 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 ☑ 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 ☑ 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares outstanding by each class of common stock, as of June 30, 2023:

Common Stock, $0.01 par value – 56,012,229 shares outstanding

Table of Contents

Sun Country Airlines Holdings, Inc.

Form 10-Q

Table of Contents


		Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive Income (Loss)		6
Condensed Consolidated Statements of Changes in Stockholders’ Equity		7
Condensed Consolidated Statements of Cash Flows		8

Notes to the Condensed Consolidated Financial Statements

1	Basis of Presentation	9
2	Revenue	9
3	Earnings per Share	12
4	Aircraft	13
5	Asset Acquisitions	14
6	Debt	15
7	Stock-Based Compensation	17
8	Investments	18
9	Fair Value Measurements	18
10	Income Taxes	19
11	Stockholders' Equity	19
12	Commitments and Contingencies	20
13	Operating Segments	21
14	Subsequent Events	22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		47
Item 4. Controls and Procedures		47

Part II. Other Information
Item 1. Legal Proceedings		50
Item 1A. Risk Factors		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 3. Defaults Upon Senior Securities		52
Item 4. Mine Safety Disclosures		53
Item 5. Other Information		53
Item 6. Exhibits		54

Signatures		55

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Table of Contents

PART I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share and share amounts)


	June 30, 2023		December 31, 2022
	(Unaudited)
ASSETS

Current Assets:
Cash and Cash Equivalents	$	86,930	$	92,086
Restricted Cash	7,281		10,842
Investments	158,177		178,936
Accounts Receivable, net of an allowance for credit losses of $241 and $231, respectively	26,937		35,124
Short-term Lessor Maintenance Deposits	999		1,241
Inventory, net of a reserve for obsolescence of $1,190 and $1,107, respectively	7,365		7,659
Prepaid Expenses	12,209		11,423
Other Current Assets	2,365		8,179
Total Current Assets	302,263		345,490

Property & Equipment, net:
Aircraft and Flight Equipment	664,757		636,584
Aircraft and Flight Equipment Held for Operating Lease	154,161		—
Ground Equipment and Leasehold Improvements	38,690		35,948
Computer Hardware and Software	10,388		10,831
Finance Lease Assets	276,086		261,991
Rotable Parts	15,206		17,059
Total Property & Equipment	1,159,288		962,413
Accumulated Depreciation & Amortization	(211,227)		(176,746)
Total Property & Equipment, net	948,061		785,667

Other Assets:
Goodwill	222,223		222,223
Other Intangible Assets, net of accumulated amortization of $21,325 and $18,890, respectively	86,416		85,110
Operating Lease Right-of-use Assets	18,715		22,182
Aircraft Deposits	9,614		9,134
Long-term Lessor Maintenance Deposits	38,310		32,433
Deferred Tax Asset	—		12,956
Other Assets	9,021		9,217
Total Other Assets	384,299		393,255
Total Assets	$	1,634,623	$	1,524,412

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share and share amounts)


	June 30, 2023		December 31, 2022
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable	$	56,143	$	62,370
Accrued Salaries, Wages, and Benefits	30,095		26,521
Accrued Transportation Taxes	15,488		17,666
Air Traffic Liabilities	130,264		157,995
Finance Lease Obligations	33,641		17,990
Loyalty Program Liabilities	8,962		13,963
Operating Lease Obligations	4,485		6,296
Current Maturities of Long-term Debt, net	83,204		57,548
Income Tax Receivable Agreement Liability	8,000		2,260
Other Current Liabilities	12,973		14,519
Total Current Liabilities	383,255		377,128

Long-term Liabilities:
Finance Lease Obligations	223,647		233,306
Loyalty Program Liabilities	4,694		1,474
Operating Lease Obligations	18,264		19,836
Long-term Debt, net	365,211		294,687
Deferred Tax Liability	3,356		—
Income Tax Receivable Agreement Liability	93,020		101,540
Other Long-term Liabilities	2,411		3,729
Total Long-term Liabilities	710,603		654,572
Total Liabilities	1,093,858		1,031,700

Commitments and Contingencies (see Note 12)

Stockholders' Equity:
Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,552,727 and 58,217,647 issued and 56,012,229 and 57,325,238 outstanding at June 30, 2023 and December 31, 2022, respectively	586		582
Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Treasury stock, at cost, 2,540,498 and 892,409 shares held at June 30, 2023 and December 31, 2022, respectively	(47,673)		(17,605)
Additional Paid-In Capital	507,522		488,494
Retained Earnings	80,994		22,048
Accumulated Other Comprehensive Loss	(664)		(807)
Total Stockholders' Equity	540,765		492,712
Total Liabilities and Stockholders' Equity	$	1,634,623	$	1,524,412

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share and share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating Revenues:
Passenger	$	227,866	$	195,362	$	495,135	$	397,394
Cargo	25,017		21,190		48,378		42,243
Other	8,203		2,515		11,688		5,954
Total Operating Revenues	261,086		219,067		555,201		445,591

Operating Expenses:
Aircraft Fuel	52,360		76,947		124,650		141,492
Salaries, Wages, and Benefits	75,919		60,298		151,349		119,915
Aircraft Rent	779		2,211		2,259		5,397
Maintenance	15,942		12,782		28,981		24,777
Sales and Marketing	8,507		7,881		18,436		16,509
Depreciation and Amortization	22,355		16,854		41,815		32,182
Ground Handling	11,311		8,212		22,349		16,170
Landing Fees and Airport Rent	12,962		9,496		25,013		19,782
Other Operating, net	25,364		21,017		48,979		44,166
Total Operating Expenses	225,499		215,698		463,831		420,390
Operating Income	35,587		3,369		91,370		25,201

Non-operating Income (Expense):
Interest Income	2,545		532		5,286		556
Interest Expense	(11,239)		(7,042)		(19,869)		(15,604)
Other, net	(143)		(1,702)		(355)		(8,577)
Total Non-operating Expense, net	(8,837)		(8,212)		(14,938)		(23,625)

Income (Loss) Before Income Tax	26,750		(4,843)		76,432		1,576
Income Tax Expense (Benefit)	6,132		(921)		17,486		1,861
Net Income (Loss)	$	20,618	$	(3,922)	$	58,946	$	(285)

Net Income (Loss) per share to common stockholders:
Basic	$	0.37	$	(0.07)	$	1.05	$	0.00
Diluted	$	0.35	$	(0.07)	$	0.99	$	0.00
Shares used for computation:
Basic	56,084,759		58,060,716		56,364,170		57,984,608
Diluted	59,712,048		58,060,716		59,630,008		57,984,608

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net Income (Loss)	$	20,618	$	(3,922)	$	58,946	$	(285)

Other Comprehensive Income (Loss):
Net unrealized gains (losses) on Available-for-Sale securities, net of deferred tax expense (benefit) of $(73), $(66), $43 and $(66), respectively	(246)		(220)		143		(220)
Other Comprehensive Income (Loss)	(246)		(220)		143		(220)
Comprehensive Income (Loss)	$	20,372	$	(4,142)	$	59,089	$	(505)

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share amounts)

(Unaudited)


	Six Months Ended June 30, 2023
	Warrants	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
		Shares	Amount		Shares	Amount
December 31, 2022	2,402,268	58,217,647	$	582	892,409	$	(17,605)	$	488,494	$	22,048	$	(807)	$	492,712
Stock Issued for Stock-Based Awards	—	147,105	2		—	—		554		—		—		556
Net Stock Settlement of Stock-Based Awards	—	—	—		406	(8)		—		—		—		(8)
Common Stock Repurchases	—	—	—		1,230,932	(22,549)		7,501		—		—		(15,048)
Net Income	—	—	—		—	—		—		38,328		—		38,328
Amazon Warrants	189,652	—	—		—	—		1,400		—		—		1,400
Stock-based Compensation	—	—	—		—	—		2,678		—		—		2,678
Other Comprehensive Income	—	—	—		—	—		—		—		389		389
March 31, 2023	2,591,920	58,364,752	$	584	2,123,747	$	(40,162)	$	500,627	$	60,376	$	(418)	$	521,007
Stock Issued for Share-Based Awards	—	187,975	2		—	—		613		—		—		615
Common Stock Repurchases	—	—	—		416,751	(7,511)		—		—		—		(7,511)
Net Income	—	—	—		—	—		—		20,618		—		20,618
Amazon Warrants	252,869	—	—		—	—		1,867		—		—		1,867
Stock-based Compensation	—	—	—		—	—		4,415		—		—		4,415
Other Comprehensive Loss	—	—	—		—	—		—		—		(246)		(246)
June 30, 2023	2,844,789	58,552,727	$	586	2,540,498	$	(47,673)	$	507,522	$	80,994	$	(664)	$	540,765


	Six Months Ended June 30, 2022
	Warrants	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Total
		Shares	Amount		Shares	Amount
December 31, 2021	1,643,660	57,872,452	$	579	—	$	—	$	485,638	$	4,372	$	—	$	490,589
Stock Issued for Stock-Based Awards	—	91,868	1		—	—		522		—		—		523
Net Income	—	—	—		—	—		—		3,637		—		3,637
Amazon Warrants	189,652	—	—		—	—		1,400		—		—		1,400
Stock-based Compensation	—	—	—		—	—		920		—		—		920
March 31, 2022	1,833,312	57,964,320	$	580	—	$	—	$	488,480	$	8,009	$	—	$	497,069
Stock Issued for Share-Based Awards	—	181,404	1		—	—		1,037		—		—		1,038
Net Stock Settlement of Stock-Based Awards	—	—	—		1,823	(52)		—		—		—		(52)
Net Loss	—	—	—		—	—		—		(3,922)		—		(3,922)
Amazon Warrants	189,652	—	—		—	—		1,400		—		—		1,400
Stock-based Compensation	—	—	—		—	—		575		—		—		575
Other Comprehensive Loss	—	—	—		—	—		—		—		(220)		(220)
June 30, 2022	2,022,964	58,145,724	$	581	1,823	$	(52)	$	491,492	$	4,087	$	(220)	$	495,888

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Net Income (Loss)	$	58,946	$	(285)
Adjustments to reconcile Net Income (Loss) to Cash from Operating Activities:
Depreciation and Amortization	41,815		32,182
Deferred Income Taxes	16,269		1,861
Other, net	11,677		18,356
Changes in Operating Assets and Liabilities:
Accounts Receivable	9,199		(8,023)
Inventory	(1,012)		(1,184)
Prepaid Expenses	(780)		(7,733)
Lessor Maintenance Deposits	(5,635)		(7,356)
Aircraft Deposits	(427)		(1,720)
Other Assets	1,269		18
Accounts Payable	(2,744)		15,692
Accrued Transportation Taxes	(2,178)		1,813
Air Traffic Liabilities	(27,731)		5,396
Loyalty Program Liabilities	(1,781)		(3,113)
Operating Lease Obligations	(2,999)		(5,698)
Other Liabilities	1,805		(3,146)
Net Cash Provided by Operating Activities	95,693		37,060
Cash Flows from Investing Activities:
Purchases of Property & Equipment	(192,352)		(137,647)
Purchases of Investments	(49,437)		(71,629)
Proceeds from the Maturities of Investments	71,795		—
Other, net	1,953		10,315
Net Cash Used in Investing Activities	(168,041)		(198,961)
Cash Flows from Financing Activities:
Common Stock Repurchases	(22,249)		—
Proceeds from Borrowings	119,200		172,507
Repayment of Finance Lease Obligations	(8,671)		(24,293)
Repayment of Borrowings	(21,808)		(86,046)
Other, net	(2,841)		(1,062)
Net Cash Provided by Financing Activities	63,631		61,106

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(8,717)		(100,795)

Cash, Cash Equivalents and Restricted Cash--Beginning of the Period	102,928		317,785

Cash, Cash Equivalents and Restricted Cash--End of the Period	$	94,211	$	216,990

Non-cash transactions:
Aircraft and Flight Equipment Acquired through Finance Leases	$	—	$	19,928
Changes to Finance Lease Assets due to Lease Modifications	$	14,095	$	46,311
Aircraft Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation	$	—	$	19,083

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets:
	June 30, 2023		June 30, 2022
Cash and Cash Equivalents	$	86,930	$	212,858
Restricted Cash	7,281		4,132
Total Cash, Cash Equivalents and Restricted Cash	$	94,211	$	216,990

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

1. BASIS OF PRESENTATION

Sun Country Airlines Holdings, Inc. (together with its consolidated subsidiaries, "Sun Country" or the "Company") is the parent company of Sun Country, Inc., which is a certificated air carrier providing scheduled passenger service, air cargo service, charter air transportation and related services.

The Company has prepared the unaudited Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (“GAAP”) and has included the accounts of Sun Country Airlines Holdings, Inc. and its subsidiaries. Certain information and footnote disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for Form 10-Q. Therefore, the accompanying Condensed Consolidated Financial Statements of Sun Country Airlines Holdings, Inc. should be read in conjunction with the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC ("2022 10-K"). Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. All material intercompany balances and transactions have been eliminated in consolidation.

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. Actual results could differ from those estimates.

The Company completed its public float calculation for SEC reporting purposes as of June 30, 2023, as required. The Company will be a large accelerated filer as of December 31, 2023.

Due to impacts from seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, uncertainties in pilot staffing, the impact of macroeconomic conditions including inflationary pressures, and other factors, operating results for the six months ended June 30, 2023 are not necessarily indicative of operating results for future quarters or for the year ending December 31, 2023.

2. REVENUE

Sun Country is a certificated air carrier generating Operating Revenues from Scheduled service, Charter service, Ancillary, Cargo and Other revenue. Scheduled service revenue mainly consists of base fares. Charter service revenue is primarily generated through service provided to the U.S. Department of Defense, collegiate and professional sports teams, and casinos. Ancillary revenues consist of revenue earned from air travel-related services, such as: baggage fees, seat selection fees, passenger interface fees and on-board sales. Cargo consists of revenue earned from flying cargo aircraft for Amazon.com Services, Inc. (together with its affiliates, “Amazon”) under the Air Transportation Services Agreement (the “ATSA”). Other revenue consists primarily of revenue from services in connection with Sun Country Vacations products and rental revenue related to certain transactions where the Company acts as a lessor.

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

The significant categories comprising Operating Revenues are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Scheduled Service	$	111,467	$	108,412	$	264,124	$	232,479
Charter Service	49,626		42,749		95,813		75,628
Ancillary	66,773		44,201		135,198		89,287
Passenger	227,866		195,362		495,135		397,394
Cargo	25,017		21,190		48,378		42,243
Other	8,203		2,515		11,688		5,954
Total Operating Revenues	$	261,086	$	219,067	$	555,201	$	445,591

The Company attributes and measures its Operating Revenues by geographic region as defined by the Department of Transportation ("DOT") for airline reporting based upon the origin of each passenger and cargo flight segment.

The Company’s operations are highly concentrated in the U.S., but include service to many international locations, primarily based on scheduled service to Latin America during the winter season and on military charter services.

Total Operating Revenues by geographic region are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Domestic	$	251,582	$	211,012	$	526,071	$	419,851
Latin America	9,451		8,014		28,555		25,634
Other	53		41		575		106
Total Operating Revenues	$	261,086	$	219,067	$	555,201	$	445,591

Contract Balances

The Company’s contract assets primarily relate to costs incurred to get Amazon cargo aircraft ready for service. The balances are included in Other Current Assets and Other Assets on the Condensed Consolidated Balance Sheets.

The Company’s contract liabilities are comprised of: 1) ticket sales for transportation that has not yet been provided (reported as Air Traffic Liabilities on the Condensed Consolidated Balance Sheets), 2) outstanding loyalty points that may be redeemed for future travel and other non-air travel awards (reported as Loyalty Program Liabilities on the Condensed Consolidated Balance Sheets) and, 3) the Amazon Deferred Up-front Payment received (reported within Other Current Liabilities and Other Long-term Liabilities on the Condensed Consolidated Balance Sheets).

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

Contract Assets and Liabilities are as follows:


	June 30, 2023		December 31, 2022
Contract Assets
Costs to fulfill contract with Amazon	$	1,855	$	2,195
Total Contract Assets	$	1,855	$	2,195

Contract Liabilities
Air Traffic Liabilities	$	130,264	$	157,995
Loyalty Program Liabilities	13,656		15,437
Amazon Deferred Up-front Payment	2,764		3,271
Total Contract Liabilities	$	146,684	$	176,703

The balance in the Air Traffic Liabilities fluctuates with seasonal travel patterns. Most tickets can be purchased no more than twelve months in advance, therefore any revenue associated with tickets sold for future travel will be recognized within that timeframe. For the six months ended June 30, 2023, $146,904 of revenue was recognized in Passenger revenue that was included in the Air Traffic Liabilities as of December 31, 2022.

Loyalty Program

The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. The Company records a liability for loyalty points earned by passengers under the 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 estimated loyalty points that will expire unused, or 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 balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impacts the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue). Due to these reasons, the timing of loyalty point redemptions can vary significantly.

Changes in the Loyalty Program Liabilities are as follows:


	2023		2022
Balance – January 1	$	15,437	$	19,718
Loyalty Points Earned	4,262		3,471
Loyalty Points Redeemed (1)	(6,043)		(6,585)
Balance – June 30	$	13,656	$	16,604

______________________


(1)			Loyalty points are combined in one homogenous pool, which includes both air and non-air travel awards, and are not separately identifiable. As such, the revenue recognized is comprised of points that were part of the Loyalty Program Liabilities balance at the beginning of the period, as well as points that were earned during the period.

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

3. EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net Income (Loss)	$	20,618	$	(3,922)	$	58,946	$	(285)

Denominator:
Weighted Average Common Shares Outstanding - Basic	56,084,759		58,060,716		56,364,170		57,984,608
Dilutive effect of Stock Options, RSUs and Warrants (1)	3,627,289		—		3,265,838		—
Weighted Average Common Shares Outstanding - Diluted	59,712,048		58,060,716		59,630,008		57,984,608

Basic earnings per share	$	0.37	$	(0.07)	$	1.05	$	0.00
Diluted earnings per share	$	0.35	$	(0.07)	$	0.99	$	0.00

______________________


(1)			There were 3,051,025 and 3,372,527 performance-based stock options outstanding at June 30, 2023 and 2022, respectively. As of June 30, 2023, 100% of the performance-based stock options have vested. As of June 30, 2022, 74% of the performance-based stock options were expected to vest.

Due to the Net Loss there were 3,529,406 and 3,676,847 stock options, restricted stock units, and vested warrants for the three and six months ended June 30, 2022, respectively, that were not included in the computation of diluted earnings per share due to their anti-dilutive effect. The Company's anti-dilutive shares for all other periods presented were not material to the Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

4. AIRCRAFT

As of June 30, 2023, Sun Country's fleet consisted of 60 Boeing 737-NG aircraft, comprised of 54 Boeing 737-800s, five Boeing 737-900ERs and one Boeing 737-700.

The following tables summarize the Company’s aircraft fleet activity for the six months ended June 30, 2023 and 2022, respectively:


	December 31, 2022	Additions	Reclassifications	Removals	June 30, 2023
Passenger:
Owned	29	1	—	—	30
Finance leases (1)	11	—	1	—	12
Operating leases	2	—	(1)	—	1
Sun Country Airlines’ Fleet	42	1	—	—	43
Cargo:
Aircraft Operated for Amazon	12	—	—	—	12
Other Owned:
Aircraft Held for Operating Lease	—	5	—	—	5
Total Aircraft	54	6	—	—	60

	December 31, 2021	Additions	Reclassifications	Removals	June 30, 2022
Passenger:
Owned	21	5	1	(1)	26
Finance leases (2)	9	1	1	—	11
Operating leases	6	—	(2)	—	4
Sun Country Airlines’ Fleet	36	6	—	(1)	41
Cargo:
Aircraft Operated for Amazon	12	—	—	—	12
Total Aircraft	48	6	—	(1)	53


(1)			One aircraft operating lease was reclassified into a finance lease, as further described below.
(2)			Two aircraft operating leases were reclassified into finance leases and a separate aircraft finance lease purchase option was exercised, resulting in a net change of one finance lease reclassification.

During the six months ended June 30, 2023, the Company acquired five 737-900ERs that are currently on lease to an unaffiliated airline ("Aircraft Held for Operating Lease"). The five Aircraft Held for Operating Lease were financed through a term loan arrangement. See Note 5 of these Condensed Consolidated Financial Statements for more information on this transaction. Additionally, during the six months ended June 30, 2023, the Company acquired an incremental aircraft and executed a lease amendment to purchase one aircraft at the end of its lease term. An additional aircraft purchase amendment was executed subsequent to June 30, 2023. The lease amendments modified the classification of these leases from operating leases to finance leases and have expiration dates in fiscal year 2024. Of the 35 Owned aircraft

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

and Aircraft Held for Operating Lease as of June 30, 2023, 31 were financed and four aircraft were unencumbered.

During the six months ended June 30, 2022, the Company executed lease amendments to purchase two aircraft at the end of the lease term, which modified the lease classification from operating leases to finance leases with expiration dates in fiscal year 2026 and retired one aircraft. Further, the Company purchased an aircraft previously classified as a finance lease using proceeds of the from the issuance of Class A and Class B pass-through trust certificates (the "2022-1 EETC"). The Company also acquired six incremental 737-800 aircraft, five of which were financed using proceeds from the 2022-1 EETC and another through a finance lease arrangement that is set to expire in fiscal year 2030.

Depreciation, amortization, and rent expense on aircraft are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
Aircraft Status	Expense Type	2023		2022		2023		2022
Owned	Depreciation	$	14,443	$	10,175	$	26,315	$	18,848
Finance Leased	Amortization	4,875		4,044		9,558		8,113
Operating Leased	Aircraft Rent (1)	779		2,211		2,259		5,397
		$	20,097	$	16,430	$	38,132	$	32,358


(1)			Aircraft Rent expense includes credits for the amortization of over-market liabilities established at the Acquisition Date.

5. ASSET ACQUISITIONS

During the six months ended June 30, 2023, the Company acquired five Aircraft Held for Operating Lease. The table below reflects the cumulative balances of the five aircraft as of the acquisition dates:


Asset	Balance Sheet Classification
Aircraft Held for Operating Lease	Aircraft and Flight Equipment Held for Operating Lease	$	114,628
Maintenance Rights Asset	Aircraft and Flight Equipment Held for Operating Lease	39,533
Over-Market Asset	Other Intangible Assets, net	3,741
Total		$	157,902

The purchase price was assigned to the assets based upon their relative fair values as of the acquisition date. The Company estimated the fair value of the Aircraft Held for Operating Lease principally based on market appraisals. The appraisals were based on an analysis of the economic conditions impacting both the airline industry and broader economy, the current fuel price environment, aircraft order data, passenger traffic levels, and qualitative and quantitative characteristics impacting the value of the acquired aircraft.

The fair value of the Maintenance Rights Asset was determined using a discounted cash flow method based on aircraft utilization levels at the time of the acquisition and the applicable rates as specified within the lease agreements.

The fair value of the Over-Market Asset was determined using a discounted cash flow model that involves the comparison of contractual lease cash flows to the estimated at-market lease payments for an aircraft of the same type and age.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

The purchase of the Aircraft Held for Operating Lease was financed using the proceeds from a term loan credit facility with a face amount of $119,200 and the Company's cash. For more information on the term loan credit facility, see Note 6 of these Condensed Consolidated Financial Statements.

Aircraft Held for Operating Lease

The Company obtained outright ownership of the Aircraft Held for Operating Lease upon purchase and assumed the position of lessor until the end of the lease terms. The Company is entitled to fixed payments over the remaining lease term for each aircraft, which expire at various dates between the fourth quarter of 2024 and the fourth quarter of 2025. On each lease expiry date, the Aircraft Held for Operating Lease will be redelivered to Sun Country and are expected to be inducted into the Company’s fleet. The rental revenue associated with the Aircraft Held for Operating Lease is recognized as it is earned and is included in Other revenue. The Company has recognized $5,871 of rental revenue during the six months ended June 30, 2023.

Maintenance Rights Asset

Upon purchase of the Aircraft Held for Operating Lease, the Company recognized a Maintenance Rights Asset which represents the Company’s contractual right to receive the aircraft in a specified maintenance condition at the end of the lease. The acquired leases contain an end of lease compensation clause whereby the lessee is required to remit a cash payment to true-up the aircraft’s maintenance condition to full-life or perform the maintenance tasks needed to physically restore the airframe and engines to such a condition. The asset represents the difference between the Aircraft Held for Operating Lease’s physical maintenance condition as of the purchase date and the contractual return condition at the end of the lease term. The Maintenance Rights Asset is not depreciated over the lease term, nor will it accrete as additional life is consumed on the aircraft.

Over-Market Asset

Upon purchase of the Aircraft Held for Operating Lease, the Company recognized an intangible asset representing lease terms which are favorable to the lessor (unfavorable to the lessee), as compared with market terms of similar leases. The asset will be amortized over the remaining lease terms for the respective aircraft, which range from 1.4-2.4 years as of June 30, 2023. The amortization will be recognized as contra-revenue, offsetting the rental revenue associated with the Aircraft Held for Operating Lease included in Other revenue.

6. DEBT

Credit Facilities

On February 10, 2021, the Company executed a five-year credit agreement (the “Credit Agreement”) with a group of lenders. The Credit Agreement includes a $25,000 Revolving Credit Facility (the "Revolving Credit Facility") and a $90,000 Delayed Draw Term Loan Facility (“DDTL”), which are collectively referred to as the “Credit Facilities.” The proceeds from the Revolving Credit Facility can be used for general corporate purposes, whereas the proceeds from the DDTL were to be used solely to finance the acquisition of aircraft or engines to be registered in the United States. The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and minimum liquidity of $30,000 at the close of any business day. The Company was in compliance with these covenants as of June 30, 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

During 2021, the Company drew $80,500 on the DDTL to purchase six aircraft, which were previously under operating leases. During 2022, the Company repaid the outstanding balance of the DDTL in full using proceeds received from the 2022-1 EETC, which terminated the DDTL. As a result, no amounts under the DDTL were available to the Company as of June 30, 2023. The Company recorded a $1,557 loss on extinguishment of debt in 2022 in connection with the repayment of the DDTL, which represents the write-off of the unamortized deferred financing costs. As of June 30, 2023, the Company had $24,650 of financing available through the Revolving Credit Facility, as $350 had been pledged to support a letter of credit.

Long-term Debt

Term Loan Credit Facility

During the six months ended June 30, 2023, the Company executed a term loan credit facility with a face amount of $119,200 for the purpose of financing the five Aircraft Held for Operating Lease. The loan is to be repaid monthly over 7 years. During the lease term, payments collected from the lessee will be applied directly to the repayment of principal and interest on the term loan credit facility. The Aircraft Held for Operating Lease, as well as the related lease payments received from the lessee, are pledged as collateral. During the six months ended June 30, 2023, the Company recorded $1,820 in debt issuance costs associated with the term loan credit facility.

The interest rate on the term loan credit facility is determined by using a base rate, which resets monthly, plus an applicable margin, and a fixed credit spread adjustment of 0.1%. The applicable margin during the lease term is fixed at 3.75%, and is subsequently reduced to 3.25% once the aircraft have been redelivered to the Company and a Loan-to-Value ("LTV") ratio calculation is completed at the end of the lease term. The interest rate in effect as of June 30, 2023 on the term loan was 8.9%. To the extent that the LTV exceeds 75% at the end of the lease term, a principal prepayment will be required in order to reduce the ratio to 75%. Amounts received under the end of lease maintenance compensation clause may be applied towards the LTV payment.

Pass-Through Trust Certificates

During March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. The Company is required to make bi-annual principal and interest payments each March and September, through March 2031. These notes bear interest at an annual rate between 4.84% and 5.75%. The weighted average interest rate was 5.06% as of June 30, 2023.

In December 2019, the Company arranged for the issuance of Class A, Class B and Class C trust certificates Series 2019-1 (the “2019-1 EETC”), in an aggregate face amount of $248,587 for the purpose of financing or refinancing 13 used aircraft, which was completed in 2020. The Company is required to make bi-annual principal and interest payments each June and December, through December 2027. These notes bear interest at an annual rate between 4.13% and 6.95%. The weighted average interest rate was 4.69% as of June 30, 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

Long-term Debt includes the following:


	June 30, 2023		December 31, 2022
2019-1 EETC (see terms and conditions above)	$	168,598	$	176,697
2022-1 EETC (see terms and conditions above)	168,897		179,019
Term Loan Credit Facility (see terms and conditions above)	115,614		—
Total Debt	453,109		355,716
Less: Unamortized debt issuance costs	(4,694)		(3,481)
Less: Current Maturities of Long-term Debt	(83,204)		(57,548)
Total Long-term Debt, net	$	365,211	$	294,687

Future maturities of the outstanding Debt are as follows:


	Debt Principal Payments		Amortization of Debt Issuance Costs		Net Debt
Remainder of 2023	$	47,567	$	(680)	$	46,887
2024	75,617		(1,168)		74,449
2025	80,009		(944)		79,065
2026	61,072		(705)		60,367
2027	65,097		(530)		64,567
Thereafter	123,747		(667)		123,080
Total as of June 30, 2023	$	453,109	$	(4,694)	$	448,415

The fair value of Debt was $425,031 as of June 30, 2023 and $324,059 as of December 31, 2022. The fair value of the Company’s debt was based on the discounted amount of future cash flows using the Company’s end-of-period estimated incremental borrowing rate for similar obligations. The estimates were primarily based on Level 3 inputs.

7. STOCK-BASED COMPENSATION

Stock compensation expense was $4,415 and $575, during the three months ended June 30, 2023 and June 30, 2022, respectively; and $7,093 and $1,495 during the six months ended June 30, 2023 and June 30, 2022, respectively. During the three months ended June 30, 2023, all conditions associated with the time-based and performance-based options granted under the SCA Acquisition Holdings, LLC Amended and Restated Equity Incentive Plan were met. As a result, 100% of the performance-based stock options and all remaining unvested time-based options vested. Therefore, during the three months ended June 30, 2023, the Company recognized an acceleration of stock-based compensation expense for the time-based and performance-based stock options totaling $2,960.

As of June 30, 2023, there was $8,661 of total unrecognized compensation expense related to Restricted Stock Units ("RSUs"). This unrecognized compensation is expected to be fully recognized over a weighted average period of approximately 2.3 years.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

8. INVESTMENTS

A summary of debt securities by major security type:


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale Securities: (1)
Municipal Debt Securities	$	18,694	$	—	$	(118)	$	18,576
Corporate Debt Securities	64,329		—		(256)		64,073
U.S. Government Agency Securities	69,299		—		(487)		68,812
Total	$	152,322	$	—	$	(861)	$	151,461


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale Securities: (1)
Municipal Debt Securities	$	47,897	$	16	$	(258)	$	47,655
Corporate Debt Securities	93,460		1		(683)		92,778
U.S. Government Agency Securities	32,326		2		(126)		32,202
Total	$	173,683	$	19	$	(1,067)	$	172,635


(1)			The Company also holds Certificates of Deposit that are included in Investments on the Condensed Consolidated Balance Sheets totaling $6,716 and $6,301 as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, substantially all of the Company's investments have been in a continuous unrealized loss position for less than 12 months. The unrealized losses were the result of increases in market interest rates and were not the result of a deterioration in the credit quality of the securities. As of June 30, 2023, the Company believes that any unrealized losses are recoverable prior to the investment's conversion to cash. Therefore, the Company believes these losses to be temporary and no impairments have been recognized.

9. FAIR VALUE MEASUREMENTS

The following table summarizes the assets measured at fair value on a recurring basis:


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Cash & Cash Equivalents	$	86,930	$	—	$	—	$	86,930
Available-for-Sale Securities:
Municipal Debt Securities	—		18,576		—		18,576
Corporate Debt Securities	—		64,073		—		64,073
U.S. Government Agency Securities	—		68,812		—		68,812
Total Available-for-Sale Securities	—		151,461		—		151,461
Total Assets Measured at Fair Value on a Recurring Basis	$	86,930	$	151,461	$	—	$	238,391

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(Dollars in thousands, except per share and share amounts)

(Unaudited)


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash & Cash Equivalents	$	73,727	$	18,359	$	—	$	92,086
Available-for-Sale Securities:
Municipal Debt Securities	—		47,655		—		47,655
Corporate Debt Securities	—		92,778		—		92,778
U.S. Government Agency Securities	—		32,202		—		32,202
Total Available-for-Sale Securities	—		172,635		—		172,635
Total Assets Measured at Fair Value on a Recurring Basis	$	73,727	$	190,994	$	—	$	264,721

10. INCOME TAXES

The Company's effective tax rate for both the three and six months ended June 30, 2023 was 22.9%. The effective tax rate for the three and six months ended June 30, 2022 was 19.0% and 118.1%, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items. The effective tax rates for the three and six months ended June 30, 2022 were primarily impacted by the $1,700 and $8,500 non-deductible adjustments to increase the tax receivable liability related to the Tax Receivable Agreement (the "Tax Receivable Agreement" or "TRA"), respectively.

Tax Receivable Agreement

The TRA balance as of June 30, 2023 and December 31, 2022 was $101,020 and $103,800, respectively. The TRA liability is an estimate and actual amounts payable under the Tax Receivable Agreement could differ from this estimate. During the six months ended June 30, 2023, the Company recorded an immaterial adjustment to the estimated TRA liability. During the six months ended June 30, 2022, the Company recorded an $8,500 adjustment to increase the estimated TRA liability. During the six months ended June 30, 2023, the Company made a payment of $2,425 to the pre-IPO stockholders (the “TRA holders”), which includes certain members of the Company's management and certain members of the Company's Board of Directors. The payment is included within Financing Activities on the Condensed Consolidated Statements of Cash Flows. Payments will be made in future periods as attributes that existed at the time of the IPO (the “Pre-IPO Tax Attributes”) are utilized.

11. STOCKHOLDERS' EQUITY

Equity Transactions

Secondary Offerings

On February 15, 2023, the Company announced the commencement of a secondary public offering of 5,250,000 shares of its Common Stock by an affiliate of certain investment funds managed by affiliates of Apollo Global Management, Inc. ("the Apollo Stockholder"). The underwriters were given an option to purchase an additional 787,500 shares of Common Stock. In connection with the offering, the underwriters agreed to sell to the Company, and the Company agreed to purchase from the underwriters, an aggregate of 750,000 shares of Common Stock at a price of $19.75 per share, the same price at which the underwriters purchased the Common Stock from the selling stockholder, for a total of $14,812. The

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share amounts)

(Unaudited)

Company incurred offering expenses of $640 in connection with this offering and did not receive any of the proceeds.

Common Stock Repurchases

On October 31, 2022, the Company’s Board of Directors authorized a $50,000 stock repurchase program. During the fourth quarter of 2022, the Company entered into a $25,000 Accelerated Share Repurchase Program. The Company received an initial delivery of 890,586 shares at an average price of $19.65 per share during the fourth quarter of 2022. The settlement of the program occurred during January 2023, upon which the Company received an additional 480,932 shares. In total, the Company repurchased 1,371,518 shares at an average price of $18.23 per share.

During the six months ended June 30, 2023, the Company repurchased 1,166,751 shares of its Common Stock at a total cost of $22,249, or an average price of $19.07 per share. The repurchase was part of a secondary public offering of the Company's shares by the Apollo Stockholder, as well as open market purchases completed in the second quarter.

As of June 30, 2023, the Company had $2,759 of Board authorization remaining to repurchase additional shares of its Common Stock. Subsequent to June 30, 2023, the Company's Board of Directors authorized the addition of $30,000 to the Company's existing stock repurchase program, which increased the total amount of authorization remaining to repurchase shares of the Company's Common Stock to $32,759. The stock repurchase program has no expiration date and may be modified, suspended, or terminated at any time.

Amazon Agreement

On December 13, 2019, the Company signed a six-year contract (with two, two-year extension options, for a maximum term of 10 years) with Amazon to provide cargo services under the ATSA. In connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to 9,482,606 shares of common stock at an exercise price of approximately $15.17 per share. During the six months ended June 30, 2023 and June 30, 2022, 442,521 and 379,304 warrants vested, respectively. As of June 30, 2023 and June 30, 2022, the cumulative vested warrants held by Amazon were 2,844,789 and 2,022,964, respectively. The exercise period of these warrants is through the eighth anniversary of the issue date.

12. COMMITMENTS AND CONTINGENCIES

The Company has contractual obligations and commitments primarily with regard to lease arrangements, repayment of debt (see Note 6), payments under the TRA (see Note 10), and probable future purchases of aircraft.

As of June 30, 2023, the Company had a commitment to lease three aircraft with deliveries spanning the fourth quarter of 2023 and the first quarter of 2024. The leases will each have annual lease payments of approximately $2,000 for six years.

During the twelve months ended June 30, 2022, the compensation payable to an executive officer temporarily exceeded the restrictions on the payment of certain executive compensation under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Once the issue was identified, the executive officer voluntarily rescinded the unvested portion of the equity grant that caused the executive’s compensation to exceed the CARES Act limit. At no point did the executive's cash compensation and equity awards that could be monetized exceed the CARES Act limit. The Company did not accrue any amounts related to this matter as of June 30, 2023. To the extent we are deemed to have failed to remain in full

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(Dollars in thousands, except per share and share amounts)

(Unaudited)

compliance with the CARES Act and the applicable rules and regulations thereunder, we may become subject to fines or other enforcement actions.

The Company is subject to various legal proceedings in the normal course of business and expenses legal costs as incurred. Management does not believe these proceedings will have a materially adverse effect on the Company.

13. OPERATING SEGMENTS

The following tables present financial information for the Company’s two operating segments: Passenger and Cargo.


	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Passenger		Cargo		Consolidated		Passenger	Cargo	Consolidated
Operating Revenues	$	236,069	$	25,017	$	261,086