Copa S A : Q2 2023 Earnings Release - Long Version

Copa Holdings Reports Financial Results for the Second Quarter of 2023

Panama City, Panama --- August 9, 2023. Copa Holdings, S.A. (NYSE: CPA), today announced financial results for the second quarter of 2023 (2Q23). 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 second quarter of 2022 (2Q22).

OPERATING AND FINANCIAL HIGHLIGHTS

• Copa Holdings reported a net profit of US$17.5 million for 2Q23 or US$0.44 per share. Excluding special items comprised of the unrealized mark-to-market net loss of US$137.0 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$154.5 million or US$3.92 per share.
• Copa Holdings reported an operating profit of US$194.7 million and a 24.1% operating margin for the quarter, as compared to an operating profit of US$42.3 million and an operating margin of 6.1% in 2Q22.
• Passenger traffic, measured in terms of revenue passenger miles (RPMs), increased by 15.4% year over year, while capacity (available seat miles or ASMs) increased by 13.6%. As a result, the load factor for the quarter increased by 1.3 percentage points to 86.1%, as compared to 2Q22.
• Total revenues for 2Q23 increased 16.7% to US$809.2 million, mainly driven by higher capacity, while yields increased 2.0% to 13.3 cents. Revenue per available seat mile (RASM) increased 2.7% to 12.0 cents, as compared to 2Q22.
• Operating cost per available seat mile (CASM) decreased 17.0% from 10.9 cents in 2Q22 to 9.1 cents in 2Q23, mainly driven by a decrease of 35.9% in the price of jet fuel per gallon. CASM excluding fuel (Ex- fuel CASM) decreased by 0.8% in the quarter to 5.9 cents, when compared to 2Q22.
• The Company ended the quarter with approximately US$1.3 billion in cash, short-term and long-term investments, which represent 39.6% of the last twelve months' revenues.
• The Company closed the quarter with total debt, including lease liabilities, of US$1.8 billion, while our Adjusted Net Debt to EBITDA ratio ended at 0.5 times.
• During the quarter, the Company announced that it will start service to Barquisimeto, Venezuela, bringing the total number of destinations in its network to 81. This new route is scheduled to start in October of 2023.
• During the quarter, the Company took delivery of two Boeing 737 MAX 9 aircraft, ending the quarter with a consolidated fleet of 101 aircraft - 67 Boeing 737-800s, 24 Boeing 737 MAX 9s, 9 Boeing 737-700s, and 1 Boeing 737-800 freighter.
• Copa Airlines had an on-time performance for the quarter of 91.6% and a flight completion factor of 99.8%, once again positioning itself among the very best in the industry.

Subsequent Events

• In July, the Company took delivery of one Boeing 737 MAX 9 and expects to receive five additional aircraft during the remainder of 2023. The Company expects to end the year with 107 aircraft.
• On July 14, 2023, Copa Holdings publicly announced the redemption of all its outstanding 4.50% Convertible Senior Notes due in 2025, which will be completed on September 18, 2023. Notes surrendered for conversion will be settled through a combination of cash (up to the principal amount of US$350 million) and shares of Copa common stock, the latter to cover the remainder of the conversion obligation.

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• In July, Copa Airlines was recognized by Skytrax - for the eighth consecutive year - as the "Best Airline in Central America and the Caribbean".
• Copa Holdings will make its third dividend payment of the year of US$0.82 per share on October 13, 2023, to all Class A and Class B shareholders on record as of September 29, 2023.

1. Excludes Special Items. This earnings release includes a reconciliation of non-IFRS financial measures to the comparable IFRS measures.

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MANAGEMENT'S COMMENTS ON THE 2Q23 RESULTS

Copa Holdings' second-quarter results continued to benefit from a healthy demand environment, which resulted in solid unit revenues for the quarter. Moreover, lower effective jet fuel prices and the Company's consistent execution strategy on its ex-fuel costs impacted positively its unit costs base.

Operating revenues for the quarter increased 16.7% to US$809.2 million while operating 13.6% more capacity compared to 2Q22. The Company's load factor came in at 86.1% or 1.3 percentage points above 2Q22 and yields came in at 13.3 cents or 2.0% higher than 2Q22. As a result, passenger revenues per ASM (PRASM) increased 3.6% to 11.4 cents and RASM increased 2.7% to 12.0 cents in the quarter.

Operating expenses for 2Q23 decreased 5.6% to US$614.5 million, mainly due to lower fuel costs. Aircraft fuel expenses decreased 27.7% or US$81.8 million compared to 2Q22, due to a 35.9% lower jet fuel price, partially offset by 11.8% more gallons consumed.

Driven by the decrease in fuel cost, cost per available seat mile (CASM) came in at 9.1 cents, a decrease of 17.0% compared to 2Q22. Costs excluding fuel (Ex-fuel CASM) came in at 5.9 cents, a 0.8% decrease when compared to the same period in 2022.

Copa Holdings closed the quarter with US$ 1.3 billion in cash, short-term and long-term investments, which represent 39.6% of the last twelve months' revenues.

Total debt at the end of 2Q23 amounted to US$1.8 billion compared to US$1.7 billion at the end of 2022, while our Adjusted Net Debt to EBITDA ratio ended at 0.5 times.

The Company continued its fleet expansion during the quarter and took delivery of two Boeing 737 MAX 9 aircraft to end the quarter with a total of 101 aircraft in its fleet. Additionally, the Company announced the commencement of its new service to Barquisimeto, Venezuela in October 2023, bringing the total number of destinations in its network to 81.

Copa Holdings' second quarter results are the product of a solid and well-executed 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 expected to come within the range of 22% to 24%.

Factored into this outlook is a load factor of approximately 86%, unit revenues (RASM) of 12.3 cents, unit costs excluding fuel (Ex-Fuel CASM) in the range of 6.0 cents, and an all-in fuel price of US$2.95 per gallon.

CONSOLIDATED SECOND-QUARTER RESULTS

Operating revenue

Consolidated revenue for 2Q23 totaled US$809.2 million, a 16.7% increase from operating revenue of US$693.4 million in 2Q22, mainly driven by passenger revenue.

Passenger revenue totaled US$773.8 million, a 17.8% increase compared to the same period in 2022, mainly driven by higher load factors and yields which resulted in a 3.6% increase in PRASM. The second-quarter results are mostly comprised of flown passenger ticket revenue, unredeemed ticket revenue, and passenger- related ancillary revenue.

Cargo and mail revenue totaled US$23.9 million, a 10.6% decrease compared to the same period in 2022, related to lower cargo volumes and yields.

Other operating revenue totaled US$11.5 million, an 18.6% increase compared to the same period in 2022, mainly revenues from non-air ConnectMiles partners.

Operating expenses

Consolidated costs for 2Q23 decreased 5.6% to US$614.5 million, mainly driven by lower fuel costs.

Fuel totaled US$214.1 million, a decrease of 27.7% compared to the same period in 2022, due to a 35.9% lower effective fuel price, partially offset by an 11.8% increase in fuel gallons consumed.

Wages, salaries, benefits, and other employee expenses totaled US$105.8 million, representing an 18.9% increase compared to the same period in 2022, mainly driven by growth in operational staff to support current capacity, as well as salary adjustments and provisions for variable compensation.

Passenger servicing totaled US$21.5 million, an increase of 33.5% compared to the same period in 2022, mainly due to a 17.7% increase in onboard passengers and an upgrade in the Company's product offering.

Airport facilities and handling charges totaled US$54.1 million, an increase of 14.5% compared to the same period in 2022, mostly related to a 13.7% increase in departures as well as higher airport fees.

Sales and distribution totaled US$56.6 million, an increase of 0.7% compared to the same period in 2022, due to an increase in ticket sales compared to 2Q22 but mostly offset by a reduction in the Company's distribution costs as a result of higher penetration of both direct sales and the lower-cost travel agency channels launched by Copa in September 2022.

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Maintenance, materials, and repairs totaled US$31.4 million, an increase of 11.0% compared to the same period in 2022, mainly due to major components repairs and materials consumption due to an 11.7% increase in flight hours, partially offset by an adjustment in provisions related to the future return of leased aircraft based on IFRS accounting standards.

Depreciation and amortization totaled US$74.8 million, an increase of 14.5% compared to the same period in 2022, mostly related to additional aircraft and maintenance events amortization.

Flight operations mostly related to overflight fees, totaled US$25.0 million, an increase of 3.9% compared to the same period in 2022, driven by a 12.3% increase in block hours, offset by a reversal of provisions corresponding to prior periods.

Other operating and administrative expenses totaled US$31.2 million, representing an increase of 7.8% compared to the same period in 2022, mainly related to engine rentals required to compensate for longer induction and turnaround times at third-party maintenance facilities and IT-related expenses.

Non-operating Income (Expense)

Consolidated non-operating income (expense) totaled (US$151.4) million.

Finance cost totaled (US$30.5) million, mostly comprised of US$11.6 million of convertible notes interest expenses, which included $7.7 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$9.4 million related to loan interest and commission expenses; US$5.7 million related to the discount rate utilized for the calculation of leased aircraft charges; US$2.7 million in interest charges related to operating leases and US$1.1 million in other interest charges.

Finance income totaled US$12.0 million in proceeds from investments.

Gain (loss) on foreign currency fluctuations resulted in a gain of US$3.7 million, mainly driven by the appreciation of the Colombian peso and the Brazilian real during the quarter.

Net change in fair value of derivatives totaled a net (US$137.5) 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$0.9 million, which includes an unrealized mark- to-market gain of US$0.5 million related to changes in the value of financial investments.

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