Yahoo Finance SkyWest, Inc. (NASDAQ:SKYW) Q1 2024 Earnings Call Transcript
SkyWest, Inc. (NASDAQ:SKYW) Q1 2024 Earnings Call Transcript April 25, 2024
SkyWest, Inc. beats earnings expectations. Reported EPS is $1.45, expectations were $1.24. SkyWest, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest Inc. First Quarter 2024 Results Call. [Operator Instructions] I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.
Rob Simmons : Thanks, Brianna, and thanks everyone for joining us on the call today. As she indicated, this is Rob Simmons, SkyWest Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steel, Chief Commercial Officer; and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the Safe Harbor. Then, I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results. Then Wade, we'll discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell side analysts. Eric?
Eric Woodward : Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and our subject to risks and uncertainties. We assume no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our 2023 Form 10-K and other reports and filings with the Securities and Exchange Commission. And now, I'll turn the call over to Chip.
Chip Childs : Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $60 million or $1.45 per diluted share for the first quarter of 2024. Our block hour production increase of 5% for the quarter compared to the same quarter last year is a reflection on what our team can achieve with the recent improvements in captain availability. We also received three of the 20 United Finance ERJ175 during the quarter. As announced last month, these aircraft were in addition to the 19 new aircraft we will begin receiving at the end of this year. In the first quarter, 88% of our block hour production was from our dual class aircraft, reflecting the value of our fleet flexibility provides for our partners.
We're very pleased to continue enhancing our partnerships and increasing our regional market share. Overall, with our will position fleet, the measurable improvements in staffing and our strong partnerships and demand, we remain optimistic about the year ahead and our outlook has slightly improved. I'm very proud to share that SkyWest was named one of America's greatest workplaces for diversity and America's greatest workplaces for women by Newsweek in 2024. SkyWest was the only regional airline company to be recognized on either list. We are proud of our unique model that enables us to work with and continue attracting the best people in the regional industry. We believe this unique collaborative approach not only benefits our people and our product, but it's also been a fundamental part of our success for over 52 years and will continue to help SkyWest lead the industry forward.
During the first quarter, our team operated more flights than the same quarter last year and also improved our adjusted completion to 99.97% even through the challenging winter weather that showed up later than usual this season. I want to thank our nearly 14,000 people who worked together each day to continue delivering a consistent, reliable and exceptional product. During the quarter, our cap and attrition continued to improve. The first quarter's attrition being about half what it was for the same quarter a year ago. We understand that some of this improvement is due to the unexpected pause in major fleet deliveries and we remain disciplined in our staffing plans and growth strategies. We continue to see good first officer availability through our pathway program, and while we expect continued progress with our Captain balance in 2024, it will be some time to fully restore our crew balance and production.
Shifting gears, our minority stake in Contour a small 135 operator is working as planned to monetize our existing CRJ assets and to establish another pipeline for pilot supply. We continue to evaluate opportunities to smartly and accretively deploy our capital. SkyWest Charter or SWC has continued to successfully complete on demand charter flying. We continue to believe SWC is the best possible answer for small community air service and have requested their Department of Transportation Act on our commuter authority, application through federal court. Regardless of the status of our pending application for commuter authority at DOT, we're pleased with the strong demand for SWCs product and are very optimistic about its future. That's said, it is and will remain a small portion of our overall business with our primary focus remaining on our contract flying and major partner relationships.
As always, we remain disciplined to ensure our capital is deployed effectively and profitably. In summary, we are pleased that we're beginning to see the benefit of our long-term business and fleet strategies. We spent the last several years investing heavily in our fleet and in our people to ensure we are the best in the best possible situation to respond to market demands. Looking forward, we believe the following will continue to make us successful in the future: One solid fleet positioning; Two, ongoing strong demand from our partners; Three, improving pilot availability; and four, and most importantly, our ability to work with our people. These core elements of our business have us extremely well positioned in the industry for the future.
Rob will now take us through the financial data.
Rob Simmons : Today, we reported a first quarter GAAP, net income of $60 million or $1.45 earnings per share. Q1 pre-tax income was $80 million. Our weighted average share count for Q1 was 41.5 million, and our effective tax rate was 24.8%. First, let's talk about revenue. Total Q1 revenue of $804 million is up 7% sequentially from $752 million in Q4 2023, and up 16% from $692 million in Q1 2023. Q1 revenue breaks down with contract revenue up 10% from Q4 and up 15% from Q1 2023. Pro rate and charter revenue was $101 million in Q1, down 9% from Q4 due to pro rate seasonality and up 31% from Q1 2023 from higher demand and new charter operations. Leasing and other revenue was up by $2 million sequentially and down by $3 million year over year, reflecting volume fluctuations under our airport customer service contracts.
These GAAP results include the effect of recognizing $1 million of previously deferred revenue this quarter compared to $63 million deferred in both Q4 and in Q1 2023. As of the end of Q1, we have $366 million of cumulative deferred revenue that will be recognized in future periods. As previously indicated, we expect to recognize previously deferred revenue of roughly $50 million in 2024. Let me move to the balance sheet. We ended the quarter with cash of $821 million, down $14 million from $835 million last quarter. The $14 million decrease in cash during the quarter included the accretive actions of repaying over $110 million in debt and buying back 136,000 shares of SkyWest stock in Q1 for $9 million at an average price of $64.21 per share.
During the full year, 2023 plus Q1, 2024, we have repurchased 10.7 million shares, or approximately 21% of the outstanding shares of the company for $298 million at an average price of $27.77 per share. Our CapEx during the first quarter was $38 million. We ended Q1 with debt of $2.9 billion, down from $3 billion as of year-end 2023. These cash related numbers tell an important story about the quarter that we continue to generate positive free cash flow from operations despite production constraints. Our strong free cash flow also benefits from a lower investment in CapEx than in prior years. Our balance sheet and solid liquidity continue to be powerful tools to create shareholder value. Tools that we expect will help us repay over $400 million in debt in 2024 allow us to take advantage of future growth opportunities and continue to execute on our share repurchase program.
Consistent with our policy and practice, we are not giving any specific EPS guidance at this time, but let me give you a little color on 2024. From last quarter's color, we now expect 2024 to be even more profitable from higher expected production. This improvement versus our expectations a quarter ago is driven primarily by Q1's pilot attrition, continuing to ease, and the fact that we generated net new captains each month in Q1. As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 7% to 9% over 2023 up from the expectation of up 3% to 5% a quarter ago. Our expectation for a growth in block hours in 2024 is driven by improving pilot availability, increasing fleet utilization, and ongoing strong demand for our production from our partners.
We anticipate our 2024 income tax rate will range between 25% and 27%, and we expect our 2024 GAAP EPS to now be in the high $6 area better than last quarter's expectation for the year and above where we were pre COVID reflecting our stronger production outlook. Our solid balance sheet, reliable cash flow from operations and strong demand for our product provide a catalyst for improving our return on invested capital, including the following. As a result of repurchasing 10.7 million shares during 2023 and Q1 of 2024, we had 40.3 million shares outstanding as of March 31, 2024. As of March 31, we had $82 million remaining under our current share repurchase authorization. We anticipate continuing to be opportunistic in repurchasing shares going forward, although likely at a significantly slower cadence than in 2023.
Over 2023, our balanced capital deployment included repaying over $400 million of debt. We are on track in 2024 to repay a similar number. Our debt net of cash and leverage ratios continue to be lower than our pre-pandemic levels of 2019. By the end of 2024, we are optimistic that both of these important metrics could be at their lowest point in over a decade. The ERJ fleet in place today, plus the remaining 2024 deliveries could be close to fully utilized by the end of the year. The underutilized CRJ fleet also represents meaningful possible future growth in block hours and economics. Wade will give more color around this in a minute. We continue to anticipate our total 2024 CapEx will be approximately $275 million to $325 million, including the purchase of five new E175s in 2024.
Our 25% investment in Contour announced last quarter represents another important channel to deploy and monetize our excess CRJ200 aircraft and engines in underserved communities. We believe that our strong balance sheet and the actions that we've been taking to prepare the way for incremental utilization of our fleet to work through our captain shortage and to preserve the optionality of monetizing strong demand opportunities over time will position us well to drive total shareholder returns. Wade?
Wade Steel: Thank you, Rob. During the quarter, we announced a new flying agreement for 20 United owned E175s to replace 20 CRJ200s under our United contract. These aircraft are coming from another United Express carrier. We anticipate that all 20 E175s will be transitioned to SkyWest during 2024. As of March 31, we had transitioned three of these aircraft. These 20 are in addition to the 21 E175s currently on order 19 for United, one for Delta and one for Alaska. We expect delivery of five in 2024, 8 in 2025, and 8 more in 2026. At the end of 2026, our E175 fleet total will be 278, continuing to solidify SkyWest as the largest Embraer operator in the world. With the addition of the large dual class aircraft to our fleet, our regional market share has increased to 30% of the large dual class aircraft from 23% in 2019.
We are excited about our market share improvement. Let us shift to our CRJ700 fleet, which is a valuable asset and an ideal replacement for single class CRJ200s. The 19 CRJ700s expiring from our American contract this year will transition to become CRJ550s in our fleet. We anticipate the first CRJ550 to be flying for one of our major partners during the summer months. With each of the 19 new E175s we receive and finance for United a CRJ700 contract expires simultaneously. By the time these contracts conclude, the debt on the 19 CRJ700s will be fully paid. We're actively working to place these aircraft under flying agreements, recognizing their value to our partners as they focus on dual class aircraft. These CRJ700s represents some of the newest next gen models worldwide.
Let me review our production. The first quarter completed block hours were down less than 1% compared to the fourth quarter of 2023. This reduction is primarily due to completion of the scheduled block hours since the first quarter had more weather cancellations than the fourth quarter of 2023. Based on current schedules we have for our major partners for Q2, we anticipate that our second quarter block hours will increase by approximately 6% compared to the first quarter. With regard to staffing, we have seen improving trends in our captain attrition and anticipate that our 2024 block hours will increase by 7% to 9% compared to 2023. I would also remind you that we can add approximately 10% more block hours to our ERJ fleet before adding any aircraft.
We expect to be near full utilization on our E175 fleet, including the new United financed aircraft by year end. This same number is over 30% for our CRJ fleet and makes each additional block hour accretive to the model. Our partners remain very engaged in supporting our efforts to restore production. I also want to review our plans to monetize our CRJ200 assets. We still own over 140 CRJ200 aircraft. These aircraft have very little book value and no debt, and we have approximately 5 million engine cycles remaining to monetize. Our first priority to monetize these assets is to fly them at SkyWest Airlines under contract with our partners or in our prorate business. Our next priority is to operate these aircraft at SkyWest Charter or SWC. We currently have 16 aircraft operating at SWC flying on demand charters while we wait for the DOT to approve our commuter application.
Last quarter, we also announced that we acquired a 25% ownership stake in Contour. This arrangement also includes an asset provisioning agreement under which SkyWest will provide CRJ airframes and engines to Contour. During the quarter, we sold six airframes and leased 10 engines to Contour. We continue to see very good demand for selling and leasing these assets. For example, we sold over $19 million of CRJ assets during 2023 and Q1 of 2024. Let me give a brief update about the status of SWC. We are pleased with SWCs progress and the sports charter bookings for this winter were significantly higher than we originally anticipated. We did over $10 million in revenue during the quarter, and SWC contributed positively to Q1 earnings. This business is very seasonal and we are looking at creative ways to deploy these assets in the spring and summer.
As far as our prorate business, the demand remains extremely strong. Just like the rest of the industry, we are seeing very strong yields and great community support. We will continue to work with the communities we serve on the best way to continue our service. We feel good about our ongoing efforts to reduce risk and enhance fleet and financing flexibility, and remain committed to continuing our work with each of our major partners to provide creative solutions to the continued exceptional demand for our products. Brianna, we're ready for our Q&A now.
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