ExpressJet Holdings, Inc. (NYSE:XJT) today reported a first quarter loss of $31.3 million, or $0.61 per share. Excluding an impairment charge relating to investments in auction rate securities held by the company, ExpressJet reported a first quarter loss of $22.6 million, or $0.44 per share.
"The first quarter results reflect the increasingly challenging airline industry environment. Despite these challenges, we continue to make progress in all lines of business due to the hard work of ExpressJet's employees. They remain focused on providing first-rate customer service and running an excellent operation," said President and CEO Jim Ream.
Operational Overview
In the first quarter, ExpressJet operated 215 aircraft under capacity purchase agreements with Continental Airlines and Delta Air Lines and generated 2.0 billion revenue passenger miles and 181,161 block hours across both systems. ExpressJet expects to continue operating 215 aircraft under these contracts throughout 2008.
For the first quarter, ExpressJet operated nine aircraft within its charter division. The charter division's revenue almost doubled versus revenue generated last year, and developing opportunities will require three additional aircraft in the charter fleet by June 2008.
In the branded segment, which includes operations branded as ExpressJet Airlines and a pro-rate agreement with Delta, the company ended the first quarter with 498 million revenue passenger miles and a load factor of 61%. As ExpressJet gains increased visibility within communities and extends its brand, booking patterns and results for the ExpressJet Airlines branded segment are steadily improving. The company is experiencing higher demand levels and improved market share in short-haul markets, creating opportunities for ExpressJet to better revenue manage its inventory.
Although improvement continues, in response to higher fuel prices and a slowing economy, ExpressJet Airlines branded flying will be reduced from 193 average daily departures in the first quarter to 166 by June 2008. The aircraft removed from branded service will be reallocated to ExpressJet's charter operation.
Financial Overview
ExpressJet continues to negotiate 2008 rates for its Continental capacity purchase agreement. Under the current agreement, ExpressJet is reimbursed at cost plus a 10% operating margin. Continental advised ExpressJet in February that if the companies were unable to reach agreement by March 14, that Continental might initiate arbitration proceedings as it did in 2007. ExpressJet also has the right to initiate arbitration if the company thinks it necessary. To date, neither party has done so.
ExpressJet ended first quarter 2008 with $191.7 million in cash, cash equivalents and short-term investments. ExpressJet's cash burn rate for operating activities, excluding capital expenditures, securities repurchased and increases in credit card holdback provisions, was $17.5 million in first quarter 2008. ExpressJet expects continued improvement in second quarter 2008 based on increasing market awareness and cost savings initiatives.
The cash balance above includes $38.4 million in restricted cash and $65 million in short-term investments before an accounting adjustment to impair the value of these investments. In its annual report on Form 10-K, ExpressJet disclosed that it currently holds approximately $65 million in auction rate securities. Continued unsuccessful auctions for its auction rate securities could result in ExpressJet holding the securities beyond the next scheduled auction reset dates, further limiting their short-term liquidity. If liquidating the securities becomes necessary and their market has not yet recovered, ExpressJet will explore opportunities to borrow against the securities or sell them.
As previously announced, during the first quarter, Holdings purchased $718,000 of its common stock and $3.5 million in convertible notes under its securities repurchase program. The total remaining in the program, after accounting for purchases made to date, is $9.7 million. ExpressJet is not currently purchasing securities under this program, but may do so in the future.
For the branded segment, including Delta pro-rate and ExpressJet branded flying, ExpressJet is currently contracted for 87% of its expected second quarter 2008 fuel needs at $2.40 per gallon.
Capital expenditures totaled $2.8 million for first quarter 2008 compared to $11.7 million during the same period in 2007. ExpressJet anticipates capital expenditures for the remainder of 2008 to be approximately $10 million.
In light of the recent announcement concerning the formation of a Special Committee of the Board of Directors in response to a proposed acquisition of the company by SkyWest, Inc., as disclosed in the company's report on Form 8-K dated April 25, 2008, which committee has commenced a full review of strategic and operational alternatives available to ExpressJet, and the inability of management to provide any meaningful comment at this early stage of the special committee's review, ExpressJet will not be conducting its quarterly telephone briefing this quarter and is cancelling the teleconference previously scheduled for May 6th. ExpressJet cautions its stockholders and others considering trading in its securities that there can be no assurance that any definitive offer will be made, any agreement will be executed, or any transaction will be approved or consummated. The company does not intend to disclose developments relating to this review unless and until the Special Committee and its Board of Directors have approved a specific agreement or transaction.
EXPRESSJET HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL SUMMARY
(In thousands, except per share data)
Three Months Ended
March 31, Increase/
2008 2007 (Decrease)
Operating Revenue
Passenger $437,029 $ 404,973 7.9%
Ground handling and other 11,139 7,585 46.9%
448,168 412,558 8.6%
Operating Expenses:
Wages, salaries and related
costs 114,606 104,983 9.2%
Aircraft rentals 86,758 84,583 2.6%
Aircraft fuel and related
taxes 97,986 53,586 82.9%
Maintenance, materials and
repairs 55,646 48,553 14.6%
Other rentals and landing fees 29,687 28,377 4.6%
Ground handling 26,011 24,224 7.4%
Outside services 16,719 14,892 12.3%
Marketing and distribution 11,891 2,920 nm
Depreciation and amortization 8,638 6,512 32.6%
Other operating expenses 35,209 29,588 19.0%
483,151 398,218 21.3%
Operating Income / (Loss) (34,983) 14,340 nm
Nonoperating Income / (Expense):
Impairment charge on
investment (13,661) - nm
Interest expense (2,355) (1,800) 30.8%
Interest income 2,363 3,894 (39.3%)
Capitalized interest 400 175 nm
Equity investments loss, net (685) (98) nm
Other, net 80 (58) nm
(13,858) 2,113 nm
Income / (Loss) before Income Taxes (48,841) 16,453 nm
Income Tax Benefit / (Expense) 17,534 (6,286) nm
Net Income / (Loss) $(31,307) $10,167 nm
Basic Earnings / (Loss) per Common
Share $(0.61) $0.19 nm
Diluted Earnings / (Loss) per
Common Share $(0.61) $0.18 nm
Shares Used in Computing Basic
Earnings / (Loss) per Common Share 51,278 53,956 (5.0%)
Shares Used in Computing Diluted
Earnings / (Loss) per Common Share 51,278 61,713 (16.9%)
EXPRESSJET HOLDINGS, INC. AND SUBSIDIARIES
PRELIMINARY STATISTICS
Three Months Ending March 31, 2008 Contract(1) Branded System
Revenue Passenger Miles (millions) 2,012 498 2,531
Available Seat Miles (ASM)(millions) 2,618 813 3,475
Passenger Load Factor 76.9% 61.3% 72.8%
Block Hours 181,161 47,666 231,856
Departures 93,663 24,402 120,124
Stage Length (miles) 577 669 593
(1) Excludes charter since statistics on charter aircraft do not provide
meaningful load factor data because pricing is based on operating cost
versus expected passenger count.
Non-GAAP Financial Measures
Three Months Ended
March 31,
2008 2007
Net Income Reconciliation:
Net income / (loss) $(31.3) $10.2
Adjustments for special charges / (gains)
net of tax:
Add: Impairment charge on investment (1) 8.7 --
Net income / (loss) excluding special
charges (2) $(22.6) $10.2
Earnings / (Loss) Per Share Reconciliation:
Diluted earnings / (loss) per share $(0.61) $0.18
Adjustments for special items, net of tax 0.17 --
Diluted earnings / (loss) per share,
excluding special charges (2) $(0.44) $0.18
(1) In February 2008, ExpressJet invested in $65 million of auction rate
securities which are classified as short-term securities and reflected
at fair value. During first quarter 2008, auctions for these
securities failed. At March 31, 2008, the company continued to hold
these investments, as they have continued to fail. Since the company
cannot predict when the market will recover and needs to allow for the
flexibility to sell these securities in the next 12 months, including
at a discount, if necessary, ExpressJet has evaluated and classified
them, in accordance with accounting guidance, as current assets and
recognized an impairment charge, net of taxes, of $8.7 million.
(2) By excluding special non-recurring items, these financial measures
provide management and investors the ability to measure and monitor
ExpressJet's performance on a consistent year-over-year basis.
