SKYWEST INC [SKYW] Filings

10-Q 1 skyw-20220930x10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


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

For the transition period from to

Commission file number 0-14719

SKYWEST, INC.


Incorporated under the laws of Utah		87-0292166
		(I.R.S. Employer ID No.)

444 South River Road

St. George, Utah 84790

(435) 634-3000

(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, No Par Value	SKYW	The Nasdaq Global Select Market

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 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 ⌧

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.





Class		Outstanding at October 28, 2022
Common stock, no par value		50,598,413

Table of Contents

SKYWEST, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION:
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders Equity	6
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	39

PART II	OTHER INFORMATION:
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 6.	Exhibits	40
		Signature	41

Exhibit 31.1	Certification of Chief Executive Officer
Exhibit 31.2	Certification of Chief Financial Officer
Exhibit 32.1	Certification of Chief Executive Officer
Exhibit 32.2	Certification of Chief Financial Officer

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS


	September 30,		December 31,
	2022		2021
	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	38,850	$	258,421
Marketable securities		965,347		601,989
Receivables, net		72,836		65,348
Inventories, net		118,728		104,093
Other current assets		66,428		38,742
Total current assets		1,262,189		1,068,593

PROPERTY AND EQUIPMENT:
Aircraft and rotable spares		8,262,736		7,848,100
Deposits on aircraft		47,229		124,964
Buildings and ground equipment		262,466		256,595
Total property and equipment, gross		8,572,431		8,229,659
Less-accumulated depreciation and amortization		(2,933,660)		(2,731,060)
Total property and equipment, net		5,638,771		5,498,599

OTHER ASSETS:
Operating lease right-of-use assets		192,709		238,516
Long-term receivables and other assets		360,535		320,239
Total other assets		553,244		558,755
Total assets	$	7,454,204	$	7,125,947

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY


	September 30,		December 31,
	2022		2021
	(unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	429,425	$	391,798
Accounts payable		381,400		496,333
Accrued salaries, wages and benefits		195,082		150,583
Current maturities of operating lease liabilities		74,141		78,886
Taxes other than income taxes		36,213		28,869
Other current liabilities		43,634		48,152
Total current liabilities		1,159,895		1,194,621

LONG-TERM DEBT, net of current maturities		2,982,034		2,717,420

DEFERRED INCOME TAXES PAYABLE		683,828		663,236

NONCURRENT OPERATING LEASE LIABILITIES		117,823		158,274

OTHER LONG-TERM LIABILITIES		114,676		124,882

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued		—		—
Common stock, no par value, 120,000,000 shares authorized; 82,591,558 and 82,335,970 shares issued as of September 30, 2022, and December 31, 2021, respectively		736,406		722,310
Retained earnings		2,283,973		2,163,916
Treasury stock, at cost, 31,994,416 and 31,956,047 shares as of September 30, 2022, and December 31, 2021, respectively		(619,862)		(618,712)
Accumulated other comprehensive loss		(4,569)		—
Total stockholders’ equity		2,395,948		2,267,514
Total liabilities and stockholders’ equity	$	7,454,204	$	7,125,947

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Dollars and Shares in Thousands, Except per Share Amounts)



	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
OPERATING REVENUES:
Flying agreements	$	763,514	$	719,084	$	2,245,351	$	1,863,242
Lease, airport services and other		25,929		25,699		78,329		73,086
Total operating revenues		789,443		744,783		2,323,680		1,936,328
OPERATING EXPENSES:
Salaries, wages and benefits		307,727		265,603		896,347		718,868
Aircraft maintenance, materials and repairs		183,182		209,795		506,478		604,501
Depreciation and amortization		97,433		109,597		297,427		329,089
Aircraft fuel		28,179		32,561		85,089		77,622
Airport-related expenses		17,501		25,992		54,196		72,478
Aircraft rentals		16,089		16,098		48,109		47,311
Special items - impairment charges		—		84,592		—		84,592
Payroll support grant		—		(115,352)		—		(422,669)
Other operating expenses		63,756		68,847		219,808		181,621
Total operating expenses		713,867		697,733		2,107,454		1,693,413
OPERATING INCOME		75,576		47,050		216,226		242,915
OTHER INCOME (EXPENSE):
Interest income		6,348		238		9,332		732
Interest expense		(33,283)		(28,980)		(92,308)		(94,274)
Other income (expense), net		8,112		(4,098)		21,011		(3,802)
Total other expense, net		(18,823)		(32,840)		(61,965)		(97,344)
INCOME BEFORE INCOME TAXES		56,753		14,210		154,261		145,571
PROVISION FOR INCOME TAXES		8,381		4,526		34,204		37,993
NET INCOME	$	48,372	$	9,684	$	120,057	$	107,578

BASIC EARNINGS PER SHARE	$	0.96	$	0.19	$	2.38	$	2.14
DILUTED EARNINGS PER SHARE	$	0.96	$	0.19	$	2.37	$	2.12
Weighted average common shares:
Basic		50,593		50,380		50,531		50,337
Diluted		50,636		50,725		50,636		50,726

COMPREHENSIVE INCOME:
Net income	$	48,372	$	9,684	$	120,057	$	107,578
Net unrealized depreciation on marketable securities, net of taxes		(2,624)		—		(4,569)		—
TOTAL COMPREHENSIVE INCOME	$	45,748	$	9,684	$	115,488	$	107,578

See accompanying notes to condensed consolidated financial statements

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)


									Accumulated
									Other
	Common Stock			Retained		Treasury Stock			Comprehensive
	Shares	Amount		Earnings		Shares	Amount		Loss		Total
Balance at December 31, 2021	82,336	$	722,310	$	2,163,916	(31,956)	$	(618,712)	$	—	$	2,267,514
Net income	—		—		17,734	—		—		—		17,734
Exercise of common stock options and vested employee stock awards	139		27		—	—		—		—		27
Employee income tax paid on vested equity awards	—		—		—	(37)		(1,123)		—		(1,123)
Sale of common stock under employee stock purchase plan	40		1,487		—	—		—		—		1,487
Stock based compensation expense	—		4,076		—	—		—		—		4,076
Balance at March 31, 2022	82,515	$	727,900	$	2,181,650	(31,993)	$	(619,835)	$	—	$	2,289,715
Net income	—		—		53,951	—		—		—		53,951
Stock based compensation expense	—		3,310		—	—		—		—		3,310
Net unrealized depreciation on marketable securities, net of tax of $628	—		—		—	—		—		(1,945)		(1,945)
Balance at June 30, 2022	82,515	$	731,210	$	2,235,601	(31,993)	$	(619,835)	$	(1,945)	$	2,345,031
Net income	—		—		48,372	—		—		—		48,372
Exercise of common stock options and vested employee stock awards	11		115		—	—		—		—		115
Employee income tax paid on vested equity awards	—		—		—	(1)		(27)		—		(27)
Sale of common stock under employee stock purchase plan	66		1,329		—	—		—		—		1,329
Stock based compensation expense	—		3,752		—	—		—		—		3,752
Net unrealized depreciation on marketable securities, net of tax of $843	—		—		—	—		—		(2,624)		(2,624)
Balance at September 30, 2022	82,592	$	736,406	$	2,283,973	(31,994)	$	(619,862)	$	(4,569)	$	2,395,948

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)


	Common Stock			Retained		Treasury Stock
	Shares	Amount		Earnings		Shares	Amount		Total
Balance at December 31, 2020	82,095	$	704,675	$	2,052,006	(31,914)	$	(617,136)	$	2,139,545
Net income	—		—		35,900	—		—		35,900
Exercise of common stock options and vested employee stock awards	177		606		—	—		—		606
Employee income tax paid on vested equity awards	—		—		—	(42)		(1,573)		(1,573)
Sale of common stock under employee stock purchase plan	30		1,139		—	—		—		1,139
Stock based compensation expense	—		2,613		—	—		—		2,613
Warrants issued to U.S. Treasury	—		3,291		—	—		—		3,291
Balance at March 31, 2021	82,302	$	712,324	$	2,087,906	(31,956)	$	(618,709)	$	2,181,521
Net income	—		—		61,994	—		—		61,994
Stock based compensation expense	—		2,877		—	—		—		2,877
Warrants issued to U.S. Treasury	—		2,513		—	—		—		2,513
Balance at June 30, 2021	82,302	$	717,714	$	2,149,900	(31,956)	$	(618,709)	$	2,248,905
Net income	—		—		9,684	—		—		9,684
Sale of common stock under employee stock purchase plan	34		1,401		—	—		—		1,401
Stock based compensation expense	—		1,817		—	—		—		1,817
Balance at September 30, 2021	82,336	$	720,932	$	2,159,584	(31,956)	$	(618,709)	$	2,261,807

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)


	Nine months ended
	September 30,
	2022		2021
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	343,535	$	686,955

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities		(1,758,125)		(1,071,637)
Sales of marketable securities		1,390,198		1,041,149
Acquisition of property and equipment:
Aircraft and rotable spare parts		(522,683)		(223,605)
Buildings and ground equipment		(11,365)		(10,473)
Proceeds from the sale of property and equipment		8,494		7,104
Deposits on aircraft		(37,100)		(100,105)
Aircraft deposits applied towards acquired aircraft		115,085		10,987
Increase in other assets		(49,073)		(50,205)
NET CASH USED IN INVESTING ACTIVITIES		(864,569)		(396,785)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		601,389		213,326
Principal payments on long-term debt		(299,785)		(448,466)
Net proceeds from issuance of common stock		2,958		3,146
Employee income tax paid on vested equity awards		(1,150)		(1,573)
Payment of debt issuance cost		(1,949)		(495)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		301,463		(234,062)

Increase (decrease) in cash and cash equivalents		(219,571)		56,108
Cash and cash equivalents at beginning of period		258,421		215,723
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	38,850	$	271,831

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Acquisition of property and equipment	$	15,801	$	13,168
Warrants issued to U.S. Treasury	$	—	$	5,804
Cash paid during the period for:
Interest, net of capitalized amounts	$	92,230	$	96,397
Income taxes	$	356	$	6,374

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.

(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues

The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the nine months ended September 30, 2022 and 2021, capacity purchase agreements represented approximately 88.0% and 83.9% of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met, and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the nine months ended September 30, 2022 and 2021, prorate flying agreements represented approximately 12.0% and 16.1% of the Company’s flying agreements revenue, respectively.

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The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Capacity purchase agreements revenue: flight operations	$	376,596	$	308,273	$	1,112,526	$	792,501
Capacity purchase agreements revenue: aircraft lease and fixed revenue		292,174		282,498		864,178		770,548
Prorate agreements revenue		94,744		128,313		268,647		300,193
Flying agreements revenue	$	763,514	$	719,084	$	2,245,351	$	1,863,242

A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided.

Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per month per aircraft over the contract term. The Company recognizes revenue attributed to the fixed monthly payments proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020. Based on the number of completed block hours during the nine months ended September 30, 2022, the Company recognized $25.8 million of previously deferred revenue and $14.4 million of unbilled revenue, compared to deferring revenue of $7.7 million during the nine months ended September 30, 2021. The Company’s deferred revenue balance was $78.1 million as of September 30, 2022, including $1.7 million in other current liabilities and $76.4 million in other long-term liabilities. The Company’s deferred revenue balance was $103.9 million as of December 31, 2021, including $24.5 million in other current liabilities and $79.4 million in other long-term liabilities. The Company’s unbilled revenue balance was $22.8 million as of September 30, 2022, including $13.2 million in other current assets and $9.6 million in other long-term assets. The Company’s unbilled revenue balance was $8.4 million as of December 31, 2021, and was included in other long-term assets. The Company’s deferred revenue and unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

As of September 30, 2022, the Company had 530 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:

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United Express Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
United Express Agreements (Capacity purchase agreement)	• E175 • CRJ 700 • CRJ 200	90 19 70	• Individual aircraft have scheduled removal dates from 2024 to 2029
United Express Prorate Agreement (Prorate agreement)	• CRJ 200	41	• Terminable with 120-day notice
Total under United Express Agreements		220

Delta Connection Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
Delta Connection Agreement (Capacity purchase agreement)	• E175 • CRJ 900 • CRJ 700 • CRJ 200	80 44 5 9	• Individual aircraft have scheduled removal dates from 2022 to 2032
Delta Connection Prorate Agreement (Prorate agreement)	• CRJ 200	20	• Terminable with 30-day notice
Total under Delta Connection Agreements		158


American Capacity Purchase Agreement
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
American Agreement (Capacity purchase agreement)	• E175 • CRJ 700	20 90	• Individual aircraft have scheduled removal dates from 2022 to 2032
Total under American Agreement		110

Alaska Capacity Purchase Agreement

Agreement

Aircraft type

Number of
Aircraft

Term / Termination Dates

Alaska Agreement

(Capacity purchase agreement)

•

E175

•

Individual aircraft have scheduled removal dates from 2030 to 2034

In addition to the contractual arrangements described above, as of September 30, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place seven additional Embraer E175 regional jet aircraft (“E175”) into service, with delivery dates currently scheduled for the fourth quarter of 2022 through 2024. SkyWest Airlines has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service, with a delivery date currently scheduled for 2025. SkyWest Airlines also has an agreement with American to place 11 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement in 2023.

Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.

When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party.

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties. The following table represents the Company’s lease, airport services and other revenues for the three and nine months ended September 30, 2022 and 2021 (in thousands):

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	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Operating lease revenue	$	15,928	$	17,746	$	48,933	$	49,154
Airport customer service and other revenue		10,001		7,953		29,396		23,932
Lease, airport services and other	$	25,929	$	25,699	$	78,329	$	73,086

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2022 (in thousands):


October 2022 through December 2022	$	11,918
2023		47,303
2024		45,279
2025		40,317
2026		34,758
Thereafter		121,524
	$	301,099

Of the Company’s $5.6 billion of property and equipment, net, as of September 30, 2022, $234.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases. The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases.

The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.

The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners.

Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements.

Allowance for credit losses

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of September 30, 2022, the Company had gross receivables of $94.2 million in current assets and gross receivables of $227.6 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the nine months ended September 30, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities. The Company’s credit loss reserve was $38.0 million at September 30, 2022, compared to $42.0 million at December 31, 2021. The $4.0 million decrease in the credit loss reserve for the nine months ended September 30, 2022, was reflected as a decrease to the credit loss expense.

(3) Stock-Based Compensation

During the nine months ended September 30, 2022, the Company granted 66,680 restricted stock units and 225,345 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 2022 grants can range from 0% to 250% of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share

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will be replaced with one share of common stock. The weighted average fair value of these restricted stock units and performance shares on their date of grant was $32.76 per share. During the nine months ended September 30, 2022, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the nine months ended September 30, 2022, the Company granted 24,423 fully vested shares of common stock to the Company’s directors at a grant date fair value of $32.86.

The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the nine months ended September 30, 2022 and 2021, the Company recorded pre-tax stock-based compensation expense of $11.1 million and $7.3 million, respectively.

(4) Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share. Securities that could potentially dilute Basic EPS in the future, and which were excluded from the calculation of Diluted EPS because inclusion of such share would be anti-dilutive, are as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
PSP1 and Treasury Loan Warrants ⁽¹⁾		582		—		388		—
PSP2 Warrants ⁽²⁾		125		—		125		—
PSP3 Warrants ⁽³⁾		78		78		78		78
Employee Stock Awards		308		—		124		—
Total antidilutive securities		1,093		78		715		78

(1)

Pursuant to the payroll support program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”) and Loan and Guarantee Agreement with the U.S. Department of the Treasury (“U.S. Treasury”), SkyWest issued to Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $28.38 per share.

(2)	Pursuant to the payroll support program established under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) (“PSP2”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $40.41 per share.

(3)	Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) (“PSP3”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $57.47 per share.

Additionally, during the nine months ended September 30, 2022, 334,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2022. During the nine months ended September 30, 2021, 230,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2021.

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The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Numerator:
Net income	$	48,372	$	9,684	$	120,057	$	107,578
Denominator:
Basic earnings per share weighted average shares		50,593		50,380		50,531		50,337
Dilutive effect of employee stock awards and warrants		43		345		105		389
Diluted earnings per share weighted average shares		50,636		50,725		50,636		50,726

Basic earnings per share	$	0.96	$	0.19	$	2.38	$	2.14
Diluted earnings per share	$	0.96	$	0.19	$	2.37	$	2.12

(5) Segment Reporting

The Company’s two reporting segments consist of the operations of SkyWest Airlines and SkyWest Leasing activities.

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties and other activities. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

The following represents the Company’s segment data for the three-month periods ended September 30, 2022 and 2021 (in thousands):


	Three months ended September 30, 2022
	SkyWest	SkyWest
	Airlines	Leasing	Consolidated
Operating revenues ⁽¹⁾	$