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Table of Contents

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 September 30, 2023

Or

☐			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 September 30, 2023:

Common Stock, $0.01 par value – 54,133,851 shares outstanding

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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						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						50
Item 3. Defaults Upon Senior Securities						51
Item 4. Mine Safety Disclosures						51
Item 5. Other Information						51
Item 6. Exhibits						52
Signatures						53

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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)

			September 30, 2023						December 31, 2022
			(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents			$	26,967					$	92,086
Restricted Cash			10,953						10,842
Investments			153,290						178,936
Accounts Receivable, net of an allowance for credit losses of $110 and $231, respectively			42,876						35,124
Short-term Lessor Maintenance Deposits			1,191						1,241
Inventory, net of a reserve for obsolescence of $1,076 and $1,107, respectively			7,678						7,659
Prepaid Expenses			13,358						11,423
Other Current Assets			3,992						8,179
Total Current Assets			260,305						345,490
Property & Equipment, net:
Aircraft and Flight Equipment			679,145						636,584
Aircraft and Flight Equipment Held for Operating Lease			154,165						—
Ground Equipment and Leasehold Improvements			39,316						35,948
Computer Hardware and Software			12,856						10,831
Finance Lease Assets			285,942						261,991
Rotable Parts			16,820						17,059
Total Property & Equipment			1,188,244						962,413
Accumulated Depreciation & Amortization			(231,501)						(176,746)
Total Property & Equipment, net			956,743						785,667
Other Assets:
Goodwill			222,223						222,223
Other Intangible Assets, net of accumulated amortization of $22,757 and $18,890, respectively			84,984						85,110
Operating Lease Right-of-use Assets			15,475						22,182
Aircraft Deposits			9,589						9,134
Long-term Lessor Maintenance Deposits			41,172						32,433
Deferred Tax Asset			—						12,956
Other Assets			10,577						9,217
Total Other Assets			384,020						393,255
Total Assets			$	1,601,068					$	1,524,412

See accompanying Notes to Condensed Consolidated Financial Statements

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Table of Contents

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

			September 30, 2023						December 31, 2022
			(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable			$	55,680					$	62,370
Accrued Salaries, Wages, and Benefits			30,451						26,521
Accrued Transportation Taxes			12,795						17,666
Air Traffic Liabilities			130,453						157,995
Finance Lease Obligations			32,096						17,990
Loyalty Program Liabilities			9,415						13,963
Operating Lease Obligations			2,286						6,296
Current Maturities of Long-term Debt, net			83,339						57,548
Income Tax Receivable Agreement Liability			1,511						2,260
Other Current Liabilities			12,849						14,519
Total Current Liabilities			370,875						377,128
Long-term Liabilities:
Finance Lease Obligations			231,185						233,306
Loyalty Program Liabilities			4,432						1,474
Operating Lease Obligations			17,108						19,836
Long-term Debt, net			351,766						294,687
Deferred Tax Liability			5,214						—
Income Tax Receivable Agreement Liability			99,509						101,540
Other Long-term Liabilities			1,618						3,729
Total Long-term Liabilities			710,832						654,572
Total Liabilities			1,081,707						1,031,700
Commitments and Contingencies (see Note 12)
Stockholders' Equity:
Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,815,139 and 58,217,647 issued and 54,133,851 and 57,325,238 outstanding at September 30, 2023 and December 31, 2022, respectively			588						582
Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022			—						—
Treasury stock, at cost, 4,681,288 and 892,409 shares held at September 30, 2023 and December 31, 2022, respectively			(80,681)						(17,605)
Additional Paid-In Capital			511,375						488,494
Retained Earnings			88,585						22,048
Accumulated Other Comprehensive Loss			(506)						(807)
Total Stockholders' Equity			519,361						492,712
Total Liabilities and Stockholders' Equity			$	1,601,068					$	1,524,412

See accompanying Notes to Condensed Consolidated Financial Statements

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Table of Contents

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Operating Revenues:
Passenger			$	214,355					$	195,360					$	709,490					$	592,753
Cargo			26,059						23,687						74,437						65,930
Other			8,462						2,653						20,150						8,607
Total Operating Revenues			248,876						221,700						804,077						667,290
Operating Expenses:
Aircraft Fuel			61,179						64,843						185,829						206,334
Salaries, Wages, and Benefits			72,541						58,661						223,890						178,576
Aircraft Rent			22						1,949						2,281						7,347
Maintenance			15,330						11,018						44,311						35,794
Sales and Marketing			7,569						6,827						26,005						23,336
Depreciation and Amortization			22,762						17,181						64,577						49,364
Ground Handling			9,382						8,669						28,299						24,838
Landing Fees and Airport Rent			13,958						12,926						36,847						32,708
Other Operating, net			27,127						24,235						81,663						68,401
Total Operating Expenses			229,870						206,309						693,702						626,698
Operating Income			19,006						15,391						110,375						40,592
Non-operating Income (Expense):
Interest Income			2,480						1,610						7,766						2,166
Interest Expense			(11,403)						(7,493)						(31,272)						(23,097)
Other, net			(15)						3,422						(370)						(5,156)
Total Non-operating Expense, net			(8,938)						(2,461)						(23,876)						(26,087)
Income Before Income Tax			10,068						12,930						86,499						14,505
Income Tax Expense			2,477						2,253						19,963						4,113
Net Income			$	7,591					$	10,677					$	66,536					$	10,392
Net Income per share to common stockholders:
Basic			$	0.14					$	0.18					$	1.19					$	0.18
Diluted			$	0.13					$	0.18					$	1.12					$	0.17
Shares used for computation:
Basic			55,435,386						58,146,606						56,051,173						58,039,201
Diluted			58,595,646						60,793,516						59,281,819						61,372,735

See accompanying Notes to Condensed Consolidated Financial Statements

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Table of Contents

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net Income			$	7,591					$	10,677					$	66,536					$	10,392
Other Comprehensive Income (Loss):
Net unrealized gains (losses) on Available-for-Sale securities, net of deferred tax expense (benefit) of $46, $(244), $90 and $(309), respectively			158						(562)						301						(782)
Other Comprehensive Income (Loss)			158						(562)						301						(782)
Comprehensive Income			$	7,749					$	10,115					$	66,837					$	9,610

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)

			Nine Months Ended September 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 Stock-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
Stock Issued for Stock-Based Awards			—						262,412						2						—						—						1,414						—						—						1,416
Common Stock Repurchases			—						—						—						2,140,790						(33,008)						—						—						—						(33,008)
Net Income			—						—						—						—						—						—						7,591						—						7,591
Amazon Warrants			189,652						—						—						—						—						1,400						—						—						1,400
Stock-based Compensation			—						—						—						—						—						1,039						—						—						1,039
Other Comprehensive Income			—						—						—						—						—						—						—						158						158
September 30, 2023			3,034,441						58,815,139						$	588					4,681,288						$	(80,681)					$	511,375					$	88,585					$	(506)					$	519,361

			Nine Months Ended September 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 Stock-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
Stock Issued for Stock-Based Awards			—						22,773						1						—						—						114						—						—						115
Net Income			—						—						—						—						—						—						10,677						—						10,677
Amazon Warrants			189,652						—						—						—						—						1,400						—						—						1,400
Stock-based Compensation			—						—						—						—						—						487						—						—						487
Other Comprehensive Loss			—						—						—						—						—						—						—						(562)						(562)
September 30, 2022			2,212,616						58,168,497						$	582					1,823						$	(52)					$	493,493					$	14,764					$	(782)					$	508,005

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)

			Nine Months Ended September 30,
			2023						2022
Net Income			$	66,536					$	10,392
Adjustments to reconcile Net Income to Cash from Operating Activities:
Depreciation and Amortization			64,577						49,364
Deferred Income Taxes			18,080						3,183
Other, net			14,433						10,235
Changes in Operating Assets and Liabilities:
Accounts Receivable			(7,083)						(88)
Inventory			(1,478)						(1,402)
Prepaid Expenses			(1,929)						(3,188)
Lessor Maintenance Deposits			(8,689)						(10,256)
Aircraft Deposits			(482)						(2,569)
Other Assets			70						(5,478)
Accounts Payable			(5,855)						8,674
Accrued Transportation Taxes			(4,872)						(1,736)
Air Traffic Liabilities			(27,542)						14,269
Loyalty Program Liabilities			(1,590)						(3,401)
Operating Lease Obligations			(3,858)						(61)
Other Liabilities			2,333						3,733
Net Cash Provided by Operating Activities			102,651						71,671
Cash Flows from Investing Activities:
Purchases of Property & Equipment			(210,641)						(177,658)
Purchases of Investments			(82,574)						(130,529)
Proceeds from the Maturities of Investments			110,850						—
Other, net			4,087						10,577
Net Cash Used in Investing Activities			(178,278)						(297,610)
Cash Flows from Financing Activities:
Common Stock Repurchases			(55,051)						—
Proceeds from Borrowings			119,200						188,277
Repayment of Finance Lease Obligations			(16,390)						(37,842)
Repayment of Borrowings			(35,475)						(95,305)
Other, net			(1,665)						(901)
Net Cash Provided by Financing Activities			10,619						54,229
Net Decrease in Cash, Cash Equivalents and Restricted Cash			(65,008)						(171,710)
Cash, Cash Equivalents and Restricted Cash--Beginning of the Period			102,928						317,785
Cash, Cash Equivalents and Restricted Cash--End of the Period			$	37,920					$	146,075
Non-cash transactions:
Aircraft and Flight Equipment Acquired through Finance Leases			$	—					$	40,480
Changes to Finance Lease Assets due to Lease Modifications			$	26,427					$	46,311
Aircraft and Flight Equipment Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation			$	2,386					$	28,012
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets:
			September 30, 2023						September 30, 2022
Cash and Cash Equivalents			$	26,967					$	131,912
Restricted Cash			10,953						14,163
Total Cash, Cash Equivalents and Restricted Cash			$	37,920					$	146,075

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. The Company reclassified certain prior period amounts to conform to the current period presentation. 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 nine months ended September 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, other 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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Scheduled Service			$	96,483					$	102,200					$	360,607					$	334,679
Charter Service			47,437						42,899						143,250						118,526
Ancillary			70,435						50,261						205,633						139,548
Passenger			214,355						195,360						709,490						592,753
Cargo			26,059						23,687						74,437						65,930
Other			8,462						2,653						20,150						8,607
Total Operating Revenues			$	248,876					$	221,700					$	804,077					$	667,290

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Domestic			$	242,504					$	214,904					$	767,509					$	634,963
Latin America			6,372						6,756						36,078						32,182
Other			—						40						490						145
Total Operating Revenues			$	248,876					$	221,700					$	804,077					$	667,290

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:

			September 30, 2023						December 31, 2022
Contract Assets
Costs to fulfill contract with Amazon			$	1,669					$	2,195
Total Contract Assets			$	1,669					$	2,195
Contract Liabilities
Air Traffic Liabilities			$	130,453					$	157,995
Loyalty Program Liabilities			13,847						15,437
Amazon Deferred Up-front Payment			2,486						3,271
Total Contract Liabilities			$	146,786					$	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 nine months ended September 30, 2023, $152,292 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			6,209						5,125
Loyalty Points Redeemed (1)			(7,799)						(8,526)
Balance – September 30			$	13,847					$	16,317

______________________

(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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Numerator:
Net Income			$	7,591					$	10,677					$	66,536					$	10,392
Denominator:
Weighted Average Common Shares Outstanding - Basic			55,435,386						58,146,606						56,051,173						58,039,201
Dilutive effect of Stock Options, RSUs and Warrants (1)			3,160,260						2,646,910						3,230,646						3,333,534
Weighted Average Common Shares Outstanding - Diluted			58,595,646						60,793,516						59,281,819						61,372,735
Basic earnings per share			$	0.14					$	0.18					$	1.19					$	0.18
Diluted earnings per share			$	0.13					$	0.18					$	1.12					$	0.17

______________________

(1)			There were 2,810,840 and 3,221,617 performance-based stock options outstanding at September 30, 2023 and 2022, respectively. As of September 30, 2023, 100% of the performance-based stock options have vested. As of September 30, 2022, 63% of the performance-based stock options were expected to vest.

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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)

4. AIRCRAFT

As of September 30, 2023, Sun Country's fleet consisted of 59 Boeing 737-NG aircraft, comprised of 54 Boeing 737-800s and five Boeing 737-900ERs.

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

			December 31, 2022						Additions						Reclassifications						Removals						September 30, 2023
Passenger:
Owned			29						1						—						(1)						29
Finance leases (1)			11						—						2						—						13
Operating leases			2						—						(2)						—						—
Sun Country Airlines’ Fleet			42						1						—						(1)						42
Cargo:
Aircraft Operated for Amazon			12						—						—						—						12
Other Owned:
Aircraft Held for Operating Lease			—						5						—						—						5
Total Aircraft			54						6						—						(1)						59
			December 31, 2021						Additions						Reclassifications						Removals						September 30, 2022
Passenger:
Owned			21						5						4						(1)						29
Finance leases (2)			9						2						—						—						11
Operating leases			6						—						(4)						—						2
Sun Country Airlines’ Fleet			36						7						—						(1)						42
Cargo:
Aircraft Operated for Amazon			12						—						—						—						12
Total Aircraft			48						7						—						(1)						54

(1)			Two aircraft operating leases were reclassified into finance leases, as further described below.
(2)			Two aircraft operating leases were reclassified into finance leases and two separate aircraft finance lease purchase options were exercised, resulting in a net change of zero finance lease reclassifications.

During the nine months ended September 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 nine months ended September 30, 2023, the Company acquired an incremental aircraft and executed two lease amendments to purchase two aircraft at the end of their respective lease terms. The lease amendments modified the classification of these leases from operating leases to finance leases and have expiration dates in fiscal year 2024. During the three months ended September 30, 2023, management approved a

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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)

plan to retire an owned aircraft. Certain parts of the aircraft were maintained for future use by the Company or held for sale. The impact of the retirement and the assets held for sale were not material to the Company's Condensed Consolidated Financial Statements. Of the 34 Owned aircraft and Aircraft Held for Operating Lease as of September 30, 2023, 31 aircraft were financed and three aircraft were unencumbered.

During the nine months ended September 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 two aircraft previously classified as finance leases using proceeds from the issuance of Class A and Class B pass-through trust certificates (the "2022-1 EETC") and purchased two aircraft previously classified as operating leases. The Company also acquired seven incremental 737-800 aircraft, five of which were financed using proceeds from the 2022-1 EETC and two 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 September 30,												Nine Months Ended September 30,
Aircraft Status						Expense Type						2023						2022						2023						2022
Owned						Depreciation						$	14,395					$	10,179					$	40,709					$	29,027
Finance Leased						Amortization						5,183						4,419						14,741						12,533
Operating Leased						Aircraft Rent (1)						22						1,949						2,281						7,347
												$	19,600					$	16,547					$	57,731					$	48,907

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

5. ASSET ACQUISITIONS

During the nine months ended September 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						$	114,632
Maintenance Rights Asset						Aircraft and Flight Equipment Held for Operating Lease						39,533
Over-Market Asset						Other Intangible Assets, net						3,741
Total												$	157,906

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.

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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 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.

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 and Cash Equivalents. 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 $5,870 and $11,742 of rental revenue during the three and nine months ended September 30, 2023, respectively.

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 ranges from 1.2 to 2.2 years as of September 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

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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)

require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and minimum liquidity, as defined within the Credit Agreement, of $30,000 at the close of any business day. The Company was in compliance with these covenants as of September 30, 2023.

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 September 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 September 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 nine months ended September 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 through March 2030. 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 nine months ended September 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 September 30, 2023 was 9.2%. To the extent that the LTV ratio exceeds 75% at the end of the lease term, a principal prepayment will be required in order to reduce the ratio to 75%. If at any point within 12 months of the end of the lease term for each respective aircraft the Company deems it probable that a principal prepayment will be required in order to reduce the LTV ratio to 75%, and such amount can be reasonably estimated, the estimated principal prepayment amount will be reclassified from Long-term Debt, net to Current Maturities of Long-Term Debt, net on the Company's Condensed Consolidated Balance Sheets. In the event a principal prepayment is required, amounts received under the end of lease maintenance compensation clause may be applied towards the prepayment.

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 5.05% as of September 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

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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)

interest at an annual rate between 4.13% and 6.95%. The weighted average interest rate was 4.69% as of September 30, 2023.

Long-term Debt includes the following:

			September 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)			158,775						179,019
Term Loan Credit Facility (see terms and conditions above)			112,068						—
Total Debt			439,441						355,716
Less: Unamortized debt issuance costs			(4,336)						(3,481)
Less: Current Maturities of Long-term Debt, net			(83,339)						(57,548)
Total Long-term Debt, net			$	351,766					$	294,687

Future maturities of the outstanding Debt are as follows:

			Debt Principal Payments						Amortization of Debt Issuance Costs						Net Debt
Remainder of 2023			$	33,804					$	(341)					$	33,463
2024			75,403						(1,188)						74,215
2025			80,007						(956)						79,051
2026			61,146						(709)						60,437
2027			65,170						(525)						64,645
Thereafter			123,911						(617)						123,294
Total as of September 30, 2023			$	439,441					$	(4,336)					$	435,105

The fair value of Debt was $408,892 as of September 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 $1,039 and $487, during the three months ended September 30, 2023 and September 30, 2022, respectively; and $8,132 and $1,981 during the nine months ended September 30, 2023 and September 30, 2022, respectively. During the nine months ended September 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 nine months ended September 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 September 30, 2023, there was $7,267 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 2.1 years.

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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)

8. INVESTMENTS

A summary of debt securities by major security type:

			September 30, 2023
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Available-for-Sale Securities: (1)
Municipal Debt Securities			$	17,071					$	—					$	(50)					$	17,021
Corporate Debt Securities			55,514						—						(209)						55,305
U.S. Government Agency Securities			74,591						—						(398)						74,193
Total			$	147,176					$	—					$	(657)					$	146,519

			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 $6,771 and $6,301 as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, most 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 September 30, 2023, the Company believes that any unrealized losses are recoverable prior to the investment's conversion to cash. As of September 30, 2023, the Company had the intent and ability to hold these investments until maturity. 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:

September 30, 2023

Level 1

Level 2

Level 3

Total

Cash & Cash Equivalents

$