Third quarter 2017 net income of $54 million, or $1.01 per diluted share
Profitability improvement continued under on-going fleet transition
Announcement during Q3 2017 for 45 new aircraft anticipated to provide growth into 2019
SkyWest, Inc. (NASDAQ: SKYW) ("SkyWest") today reported financial and operating results for Q3 2017, including net income of $54 million, or $1.01 per diluted share, compared to net income of $41 million, or $0.79 per diluted share for Q3 2016. The Q3 2016 results included early lease return costs of $9 million, representing a reduction of $0.11 in diluted earnings (previously reported). The Q3 2017 diluted earnings per share increased 28 percent from Q3 2016, or 12 percent after adjusting for the early lease charges included in the Q3 2016 results. The improvement in net income over Q3 2016 was primarily due to SkyWest's continued fleet transition, including the addition of 37 new E175s, and the removal of 50 ERJ145s/135s and 22 CRJ200s since Q3 2016.
Commenting on the results, Chip Childs, Chief Executive Officer of SkyWest, said "Our results reflect strong production, solid operating performance and ongoing fleet transition improvements. Additionally, our teams did a great job of managing severe weather events during the quarter. None of this is possible without our outstanding professionals and the work they do each day to provide an excellent product to our customers."
Q3 2017 Financial Highlights
Revenue was $832 million in Q3 2017, up from $800 million in Q3 2016. The increase in revenue included the net impact of adding 37 new E175 aircraft since Q3 2016, partially offset by the removal of 75 unprofitable or less profitable aircraft over the same period, including 50 ERJ145s/135s, 22 CRJ200s and three net CRJ700s/900s.
Operating expenses were $720 million in Q3 2017, up from $714 million in Q3 2016. The slight increase in operating expense was primarily due to higher fuel costs and an increase in engine maintenance costs as an increasing percentage of our fleet are under long term power-by-the-hour maintenance agreements.
Q3 2017 Operational Update
In Q3 2017, SkyWest Airlines, Inc. ("SkyWest Airlines") announced the order of 30 new E175 SC aircraft to be placed under contract with Delta Air Lines ("Delta") and 15 new E175 aircraft to be placed under contract with Alaska Airlines ("Alaska"). SkyWest Airlines took delivery of one E175 aircraft during Q3 2017. SkyWest Airlines anticipates adding three new E175 aircraft in Q4 2017 and 42 new E175/E175 SC aircraft in 2018. The anticipated delivery dates for the 42 E175/E175 SC aircraft are heavily weighted from mid-2018 to the end of 2018. We expect to have a total of 149 E-175 aircraft in our fleet by the end of 2018.
During Q3 2017, ExpressJet Airlines, Inc. ("ExpressJet") announced a five-year extension to its ERJ145 flying contract with United Airlines ("United") effective January 1, 2018. Financial terms of the agreement were not disclosed.
ExpressJet also initiated the wind down of its remaining dual-class flying agreement with Delta during Q3 2017. As of September 30, 2017, ExpressJet operated 57 CRJ700s/900s under its Delta flying agreement. Of the 57 aircraft, ExpressJet anticipates returning 27 leased aircraft to Delta over the next several quarters and removing 30 CRJ700 aircraft from service with Delta from mid-2018 to the end of 2018. ExpressJet is pursuing placement of the 30 CRJ700 aircraft with other partners, of which eight aircraft are scheduled to be placed under an agreement with American Airlines ("American") following the removal from service with Delta.
Q3 2017 Capital and Liquidity
SkyWest had $675 million in cash and marketable securities at September 30, 2017, up $110 million from December 31, 2016 and up $40 million from June 30, 2017. During the third quarter of 2017, SkyWest used $52 million in cash towards aircraft deposits and the purchase of one E175 aircraft. SkyWest did not repurchase any stock this quarter under its $100 million share repurchase program of which $90 million remains authorized.
Total debt decreased by $75 million during the third quarter of 2017, primarily from scheduled principal payments. In Q3 2017, excluding aircraft purchased, SkyWest used $30 million for other capital investments, including spare engines and aircraft parts.
Reconciliation of Non-GAAP financial measures
Although SkyWest's financial statements are prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"), SkyWest management believes that certain non-GAAP financial measures may provide investors with useful information regarding the underlying business trends and performance of SkyWest's ongoing operations and may be useful for period-over-period comparisons of such operations. The following table sets forth supplemental financial data and corresponding reconciliations to GAAP financial statements for the three months ended September 30, 2016 (previously reported). SkyWest did not have a comparable adjustment for the three months ended September 30, 2017. Readers should consider these non-GAAP measures in addition to, not a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all, items that may affect SkyWest's net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.