Copa S A : Q1 2023 Earnings Release - Long Version

Copa Holdings Reports Financial Results for the First Quarter of 2023

Panama City, Panama --- May 10, 2023. Copa Holdings, S.A. (NYSE: CPA), today announced financial results for the first quarter of 2023 (1Q23). The terms "Copa Holdings" and the "Company" refer to the consolidated entity. The following financial information, unless otherwise indicated, is presented in accordance with International Financial Reporting Standards (IFRS). See the accompanying reconciliation of non-IFRS financial information to IFRS financial information included in the financial tables section of this earnings release. Unless otherwise stated, all comparisons with prior periods refer to the first quarter of 2019 (1Q19) (which the Company believes are more relevant than year-over-year comparisons due to the significant impact of the COVID-19 pandemic in 2020, 2021, and 2022).

OPERATING AND FINANCIAL HIGHLIGHTS

• Copa Holdings reported a net profit of US$121.5 million for 1Q23 or US$3.07 per share, as compared to a net profit of US$89.4 million or earnings per share of US$2.11 in 1Q19. Excluding special items comprised of the unrealized mark-to-market net loss of US$36.3 million related to the Company's convertible notes, as well as changes in the value of financial investments, the Company would have reported a net profit of US$157.8 million or US$3.99 per share.
• Copa Holdings reported an operating profit of US$193.2 million and a 22.3% operating margin for the quarter, as compared to an operating profit of US$112.9 million and an operating margin of 16.8% in 1Q19.
• Passenger traffic, measured in terms of revenue passenger miles (RPMs), increased by 7.1% compared to 1Q19, while capacity (available seat miles or ASMs) increased by 2.8%. As a result, the load factor for the quarter increased by 3.5 percentage points to 86.8%, as compared to 1Q19.
• Total revenues for 1Q23 increased 29.0% to US$867.3 million, as compared to 1Q19 revenues. Yields increased 20.0% to 14.6 cents and revenue per available seat mile (RASM) increased 25.5% to 13.1 cents.
• Operating cost per available seat mile (CASM) increased 17.2% from 8.7 cents in 1Q19 to 10.2 cents in 1Q23, mainly driven by an increase of 61.4% in the price of jet fuel per gallon. CASM excluding fuel (Ex- fuel CASM) increased 2.1% in the quarter to 6.2 cents, as compared to 1Q19.
• The Company ended the quarter with approximately US$1.2 billion in cash, short-term and long-term investments, which represent 36.3% of the last twelve months' revenues.
• The Company closed the quarter with total debt, including lease liabilities, of US$1.7 billion, while our Net Debt to EBITDA ratio ended at 0.6 times, a decrease when compared to the previous quarter.
• During the quarter, the Company took delivery of two Boeing 737 MAX 9 aircraft, ending the quarter with a consolidated fleet of 99 aircraft - 67 Boeing 737-800s, 22 Boeing 737 MAX 9s, 9 Boeing 737-700s, and 1 Boeing 737-800 freighter, compared to a fleet of 102 aircraft prior to the COVID-19 pandemic.
• Copa Airlines had an on-time performance for the quarter of 92.2% and a flight completion factor of 99.9%, once again positioning itself among the very best in the industry.

Subsequent Events

• Copa Holdings will pay its second quarterly dividend of $0.82 per share on June 15, to all Class A and Class B shareholders on record as of May 31, 2023.

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Consolidated Financial		1Q23	1Q19	(2)	Variance	4Q22	Variance
& Operating Highlights			vs. 1Q19	vs. 4Q22
Revenue Passengers Carried (000s)		2,881	2,588	11.3%	2,813	2.4%
Revenue Passengers OnBoard (000s)		4,295	3,830	12.1%	4,262	0.8%
RPMs (millions)			5,723	5,345	7.1%	5,639	1.5%
ASMs (millions)			6,596	6,415	2.8%	6,509	1.3%
Load Factor			86.8%	83.3%	3.5 p.p.	86.6%	0.1 p.p.
Yield (US$ Cents)			14.6		12.1	20.0%	15.1	-3.6%
PRASM (US$ Cents)			12.6		10.1	25.0%	13.1	-3.4%
RASM (US$ Cents)			13.1		10.5	25.5%	13.7	-3.9%
CASM (US$ Cents)			10.2		8.7	17.2%	10.3	-0.9%
CASM Excl. Fuel (US$ Cents)		6.2		6.1	2.1%	6.1	1.5%
Fuel Gallons Consumed (millions)		78.2		81.2	-3.7%	77.7	0.6%
Avg. Price Per Fuel Gallon (US$)		3.36		2.09	61.4%	3.52	-4.5%
Average Length of Haul (miles)		1,987	2,065	-3.8%	2,005	-0.9%
Average Stage Length (miles)		1,281	1,299	-1.4%	1,266	1.2%
Departures			31,984	33,329	-4.0%	32,112	-0.4%
Block Hours			104,626	110,089	-5.0%	104,822	-0.2%
Average Aircraft Utilization (hours)		11.9		11.6	1.9%	11.8	0.8%
Operating Revenues (US$ millions)		867.3	672.2	29.0%	890.6	-2.6%
Operating Profit (Loss) (US$ millions)		193.2	112.9	71.2%	219.7	-12.0%
Operating Margin			22.3%	16.8%	5.5 p.p.	24.7%	-2.4 p.p.
Net Profit (Loss) (US$ millions)		121.5		89.4	35.9%	88.3	37.7%
Adjusted Net Profit (Loss) (US$ millions)	(1)	157.8		89.4	76.4%	177.7	-11.2%
Basic EPS (US$)			3.07		2.11	45.9%	2.23	37.6%
Adjusted Basic EPS (US$)	(1)		3.99		2.11	89.4%	4.49	-11.2%
Shares for calculation of Basic EPS (000s)	39,565	42,478	-6.9%	39,554	0.0%

1. Excludes Special Items. This earnings release includes a reconciliation of non-IFRS financial measures to the comparable IFRS measures.
2. The Company believes that comparisons with 2019 are more relevant than year-over-year comparisons due to the significant impacts of the COVID-19 pandemic in 2020, 2021, and 2022.

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MANAGEMENT'S COMMENTS ON 1Q23 RESULTS

Copa Holdings delivered solid financial results for the first quarter of 2023. The Company's results were driven by a healthy demand environment in the region, which led to strong unit revenues in the quarter, and by its consistent cost execution strategy.

Operating revenues for the quarter increased 29.0% to US$867.3 million while operating 2.8% more capacity compared to 1Q19. The Company's load factor came in at 86.8% or 3.5 percentage points above 1Q19 and yields came in at 14.6 cents or 20.0% higher than 1Q19. As a result, passenger revenues per ASM (PRASM) increased 25.0% to 12.6 cents and RASM increased 25.5% to 13.1 cents in the quarter.

Operating expenses for 1Q23 increased 20.5% to US$674.1 million, mainly due to a higher jet fuel cost. Aircraft fuel expenses increased 56.0% or US$95.3 million compared to 1Q19, due to a 61.4% higher jet fuel price, partially offset by 3.7% fewer gallons consumed.

Driven by the increase in fuel cost, cost per available seat mile (CASM) came in at 10.2 cents, an increase of 17.2% compared to 1Q19. Costs excluding fuel (Ex-fuel CASM) came in at 6.2 cents, a 2.1% increase when compared to the same period in 2019.

Copa Holdings closed the quarter with US$ 1.2 billion in cash, short-term and long-term investments, which represent 36.3% of the last twelve months' revenues.

Total debt at the end of 1Q23 amounted to US$1.7 billion compared to US$1.6 billion at the end of 2022, while our Net Debt to EBITDA ratio ended at 0.6 times, a decrease when compared to the previous quarter.

The Company has a proven business model, which is built on operating the best and most convenient network for intra-Latin America travel from its Hub of the Americas® based on Panama's advantageous geographic position, low unit costs, best on-time performance, and a strong balance sheet. Going forward, the Company expects to leverage its strong balance sheet, leading liquidity position, and lower cost base to continue strengthening its long-term competitive position by implementing initiatives that will further reinforce its network, product, and cost competitiveness.

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OUTLOOK FOR 2023

For 2023, the Company updates its outlook as follows: consolidated capacity is expected to grow within a range of 12% to 13% over 2022, and operating margin is now expected to come within the range of 22% to 24%.

	Financial Outlook		2023		2022
		Guidance
	Capacity - YOY ASM growth	12-13%	63.6%
	Operating Margin	22-24%	15.2%

Factored into this outlook is a load factor of approximately 85%, unit revenues (RASM) of 12.5 cents, unit costs excluding fuel (Ex-Fuel CASM) in the range of 6.1 cents, and an all-in fuel price of US$2.85 per gallon.

CONSOLIDATED FIRST-QUARTER RESULTS

Operating revenue

Consolidated revenue for 1Q23 totaled US$867.3 million, mainly driven by passenger revenue.

Passenger revenue totaled US$834.0 million, a 28.5% increase compared to the same period in 2019, mostly driven by 20.0% higher yields. The first-quarter results are mostly comprised of flown passenger ticket revenue, passenger-related ancillary revenue, and unredeemed ticket revenue.

Cargo and mail revenue which in 2023 includes the operation of one Boeing 737-800 freighter, totaled US$23.3 million, a 51.8% increase compared to the same period in 2019, related to higher cargo volumes and yields.

Other operating revenue totaled US$10.0 million, a 24.0% increase compared to the same period in 2019, mainly revenues from non-air ConnectMiles partners.

Operating expenses

Fuel totaled US$265.5 million, an increase of 56.0% compared to the same period in 2019, due to a 61.4% higher effective fuel price, partially offset by 3.7% fewer fuel gallons consumed.

Wages, salaries, benefits, and other employee expenses totaled US$102.7 million, representing a 9.7% decrease compared to the same period in 2019, mainly driven by a reduced administrative headcount as well as more subcontracted services in stations outside of Panama.

Passenger servicing totaled US$20.4 million, a decrease of 20.3% compared to the same period in 2019, driven by a simplified onboard product offering.

Airport facilities and handling charges totaled US$50.5 million, an increase of 11.3% compared to the same period in 2019, mostly related to higher airport costs mainly in the US, as well as outsourced airport services in stations outside of Panama.

Sales and distribution totaled US$61.4 million, an increase of 15.6% compared to the same period in 2019, due to an increase in ticket sales compared to 1Q19.

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Maintenance, materials, and repairs totaled US$40.3 million, an increase of 43.7% compared to 1Q19, mainly due to an increase in engine maintenance costs, changes in supplemental rent provisions related to aircraft utilization and new leased aircraft, as well as one-time maintenance costs.

Depreciation and amortization totaled US$72.7 million, mostly comprised of owned and leased flight equipment, maintenance events, and IT systems amortizations, an increase of 6.6% compared to 1Q19, mainly due to an increase in the amortization of aircraft maintenance events compared to the same period of 2019.

Flight operations mostly related to overflight fees, totaled US$27.4 million, an increase of 6.0% compared to the same period in 2019, mostly due to an increase in overflight rates in certain countries.

Other operating and administrative expenses totaled US$33.2 million, an increase of 13.4% compared to the same period in 2019, mainly related to engine rentals required to compensate for longer induction and turnaround times at third-party maintenance facilities.

Non-operating Income (Expense)

Consolidated non-operating income (expense) totaled (US$51.0) million.

Finance cost totaled (US$24.4) million, mostly comprised of US$11.3 million of convertible notes interest expenses, which included $7.4 million related to a non-cash interest expense due to the amortization of the debt principal and debt issuance costs associated with the convertible notes; US$8.6 million related to aircraft loan interest and commission expenses; and US$4.5 million related to our aircraft leases.

Finance income totaled US$8.8 million in proceeds from investments.

Gain (loss) on foreign currency fluctuations resulted in a gain of US$1.2 million, mainly driven by the appreciation of the Colombian peso and the Mexican peso during the quarter.

Net change in fair value of derivatives totaled a net (US$37.9) million unrealized mark-to-market loss related to the value of the Company's convertible notes.

Other non-operatingincome (expense) totaled a net of US$1.2 million, which includes an unrealized mark- to-market gain of US$1.7 million related to changes in the value of financial investments.

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