Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q4 2023 Earnings Call Transcript

Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q4 2023 Earnings Call Transcript February 1, 2024

Sun Country Airlines Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Sun Country Airlines’ Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Allen, Director of Investor Relations. Please go ahead.

Christopher Allen: Thank you. I’m joined today by Jude Bricker, our Chief Executive Officer, and Dave Davis, President and Chief Financial Officer, and a group of others help answer questions. Before we begin, I’d like to remind everyone that, during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements which are based on management’s current beliefs, expectations, and assumptions and are subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward-looking statements. You can find our fourth quarter and full year 2023 earnings press release on our website at ir.suncountry.com. With that said, I’d like to now turn the call over to Jude.

Jude Bricker: Thanks Chris. Good morning everyone. Thanks for joining us today. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled service capacity in the industry. The combination of our scheduled flexibility and low fixed cost model allows us to respond to both predictable leisure, demand fluctuations, and exogenous industry shocks. We believe, due to our structural advantages, we’ll be able to reliably deliver industry-leading profitability throughout all cycles. We have much to be proud of in the way we finished 2023. Many of the challenges of the post-COVID period are fading as we move into 2024.

Our operations in the third quarter showed significant year-on-year improvement across every major operating metric, B0A14 completion factor and [indiscernible]. For completion factor, we only canceled on scheduled service flight during the entire quarter. A14 increased 13 percentage points year-on-year without an increase in target block times. In 4Q, we produced a declining year-on-year CASMex for the first time since COVID. One of the main contributors to our improving cost and operational performance is that we’ve been able to staff the airline closer to optimal. In fact, we’ve seen better staffing metrics across every major labor group. Improved staffing has allowed us to allocate additional peak capacity in scheduled service and to take advantage of close-end charter demand.

Maintaining peak schedule allocations has allowed us to fly almost 15% more ASMs in 4Q with adjusted TRASM declining only 8%. We continue to operate in a strong demand environment across all three segments of our business with scheduled service continuing to receive the majority of our growth capacity, a trend we expect to continue into 2024. Congratulations to the entire Sun Country team that delivered record full year 2023 revenue, full year passenger ,volume and full year operating margin. I wanted to highlight a few things that I’m excited about in 2024. I feel like we have good control of our unit costs. While we will continue to face headwinds, particularly with the heavy check cycle of our fleet, we should be able to continue to lead the industry in cost trends going into 2024.

Demand is holding up really well. For 1Q, we faced challenging comps as we lapped the exceptional yield environment at winter 2022-2023. For 1Q, we are currently scheduled to fly over 15% more ASMs than prior year with only an expected mid-single-digit decline in unit revenues. These positive revenue trends are mostly a result of growth being heavily weighted to peak period due to lessening staffing constraints. A few examples. In December 2023, we flew 120% more ASMs in scheduled service during the last 14 days of the month as compared to the first 14 days, industry capacity shifted about 3%. In 1Q 2024, March will have about 60% more scheduled service ASMs than January. This was 47% in 1Q of 2023. This schedule variability along with our cost structure is the moat around our business and is made possible by our multi-segment model.

On the fleet side, we have three aircraft in various stages of delivery. These aircraft will be part of our controlled fleet of 63 airplanes by the end of 2Q. We expect to be able to grow ASMs by around 40% versus 2023 levels with lease returns, utilization increases and up-gauging in addition to these airplanes. That should give us two to three years of growth while simultaneously producing exceptional free cash flow yields. That combination rarely happens in our industry. We have many projects that should help us keep momentum on operational costs and revenue trends into 2024. To highlight a few: in 2024, we were able to — we are able to rebid our credit card agreement, which we expect to result in materially better economics. In 2023, we launched bag scanning technology that has had a material impact on MBR.

That solution will be rolled out to out stations in the coming months. We automated our passenger re-accom process, which allows us to take more scheduled service risk during peak periods. We’ll launch our app in a few months. Our crew rostering system will transition to PBS later this year, and all the investments we’ve made in crude training are starting to pay off with the lowest training footprints we’ve seen since COVID. Finally, our growth brands have very little risk. We have high confidence in our Minneapolis expansion based on prior success. Further, based on ongoing discussions with charter and cargo customers, I expect those segments to be able to keep growth pace with our scheduled service opportunity. And with that, I’ll turn it over to Dave.

Dave Davis: Thanks, Jude. We’re pleased to report strong Q4 results, including an adjusted operating margin of 7.4%, which was well ahead of our guidance. Both our quarterly and full year 2023 results, again demonstrate the resiliency and earnings power of our unique diversified business model. 2023 was the third consecutive year of profitability for Sun Country, and on an adjusted net income basis, with one exception, we’ve been profitable in every full quarter since going public in March of 2021. We believe we finished the year with the highest or among the highest adjusted pre-tax margins in the industry at 9.9%. This result was very similar to 2019 despite fuel being 38% higher this year. It’s important to understand that our operating model is almost the opposite of the high utilization carriers.

Our passenger business flies when demand and unit revenues are highest, and we fly much less in off-peak periods. The modest increase in unit costs this produces is more than offset by the resulting improvements in unit revenue. Additionally, our diversification across scheduled service, charter and cargo operations leads to resiliency through business cycles. Our strong 2023 results allowed us to return $68.6 million to shareholders in the form of share repurchases. Since 2022, our share repurchases have totaled $93.6 million. I’ll turn now to the specifics of our fourth quarter and full year results. First, revenue and capacity. In the fourth quarter, total revenue grew 8.1% versus Q4 of 2022 to $245.5 million. Scheduled service revenue plus ancillary grew 4.6% to $163.8 million.

Scheduled service TRASM decreased 9.1% to $0.1073 as scheduled ASMs grew by almost 15%. For the full year, total block hours increased by 9.8% versus 2022, and our total revenue was $1.05 billion, which was 17.3% higher than prior year. 2023 scheduled service plus ancillary revenue grew 15.7% to $730 million. Full year scheduled service TRASM increased 7.6% and an increase of 7.2% scheduled ASMs. Looking forward to Q1 of 2024. We’re anticipating scheduled service ASMs to grow approximately 15% versus Q1 of 2023, with scheduled service plus ancillary revenue growth outpacing the 4.6% year-over-year growth we saw in the fourth quarter. Charter revenue in the fourth quarter grew 8.8% to $46.9 million on block hour growth of 7.8%. A portion of our charter revenue consists of reimbursement from customers for changes in fuel prices, as we do not take fuel risk on our charter flying.

Q4 fuel prices dropped by 14% year-over-year. If you exclude the fuel reimbursement revenue from both Q4 of 2023 and Q4 of 2022, charter flying revenue grew 11.1% during the period, easily exceeding block hour growth and producing a 3.1% increase in charter revenue per block hour versus last year. For the full year, charter revenue was $190.1 million, 17.6% higher than full year of 2022. Charter revenue under long-term contracts was 80% of the total charter block hours as contracted charter flying grew 25.7% versus 2022. Fourth quarter cargo revenue grew 3.6% to $25.3 million on a 1.8% increase in block hours. For full year 2023, cargo revenue grew 10.4% to $99.7 million on a 5.8% increase in block hours. As you can see, we are continuing to grow at a profitable measured pace.

Q1 of 2024 total block hours are expected to grow between 8% and 11%, while total revenue should be between $310 million and $320 million. Turning now to costs. Fourth quarter total operating expenses increased 7.7% on a 10.4% increase in total block hours. Adjusted CASM declined by 2.2% versus Q4 of 2022. During the quarter, we saw solid cost control across the company. As our pilot availability issues have eased, we’ve been able to achieve our growth plans, and we’re benefiting from the operating leverage in the business. Importantly, more pilot availability means fewer hours paid at premium rates and lower unit costs. For the full year, total operating expense increased 9.9%, in line with total block hour growth of 9.8%. Full year adjusted CASM increased 6.4% to $0.075 with increases in the first half of the year driving this increase.

Regarding our balance sheet. Our total liquidity at the end of Q4 was $205 million, which reflects $13.5 million in share repurchases during the quarter. As of January 31, our total liquidity was $234 million. In 2023, we spent $218 million on CapEx, almost $200 million of which was for aircraft and engines. We expect these aircraft to provide the bulk of the passenger lift we need through 2025, as such, we anticipate our full year 2024 CapEx to be approximately $100 million and our 2024 year ending in-service passenger fleet count to be 44 aircraft. In addition to these aircraft, we expect to have three aircraft being inducted into our fleet and four aircraft on lease to other carriers, which we expect to redeliver to Sun Country throughout 2025.

We anticipate strong free cash flow generation in 2024. We continue to maintain a very strong balance sheet. Our net debt to adjusted EBITDA ratio at the end of 2023 was 2.2 times down from 2.7 times at the end of 2022. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash. Turning to guidance. We expect full quarter total revenue to be between $310 million to $320 million on block hour growth of 8% to 11%. We’re anticipating our cost per gallon for fuel to be $3 and for us to achieve an operating margin between 17% and 21%. The fundamentals of our unique diversified business remains strong, and our model is highly resilient to changes in macroeconomic conditions. Our focus remains on profitable growth.

With that, we’ll open it for questions.

Operator: Thank you. [Operator Instructions] One moment for our first question. The first question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.

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Q&A Session

Duane Pfennigwerth: Hey, good morning. Thank you. Just on the — this improved utilization, your ability to kind of flex back up again in the peaks, which segment would you say is most constrained? Or maybe asked differently, how would you characterize margins or margin opportunity across the three segments?

Jude Bricker: Scheduled service is by far the highest margin and most affected by staffing constraints. So think about it like an S curve or a sign wave. And if we have staffing constraints that kind of pushes the peaks down, because we can only produce a certain amount of block hours in any given period. So monthly is typically the constraint. And that yields these really expensive opportunity costs during peak periods that’s sort of becoming less of an issue as we staff the airline appropriately.

Duane Pfennigwerth: That’s helpful. And so this — the percentages that you put out there for March versus January, is that optimal? Or do you think as we kind of roll through the year, there’s maybe even more peak capture you could realize?

Jude Bricker: The latter, there’s definitely more opportunity in March. So a good comp would be to look back at utilization in 2019 when we weren’t constrained. And there’s still about 2 hours per aircraft per day of production that we aren’t able to achieve in 2023 — or 2024 versus 2019. Now the fleet is older than it was then there’s a little bit different dynamics as it relates to congestion in airports and things like that. So we won’t achieve what we achieved in, but there’s definitely plenty of opportunity for incremental flying. And the important aspect of that is that as we add more flying, it’s coming kind of mid-week March, but as you compare that opportunity to the average yield for the quarter, it’s still above average. So we’re increasing volume and unit revenues by growing peak period capacity.

Duane Pfennigwerth: That makes sense. And then just for my follow-up, I don’t know if there’s any way to frame it, but in terms of premium pay over time, that you incurred in 2023 that you feel like you won’t incur kind of going forward? Any way to size that order of magnitude?

Jude Bricker: I’m not sure I can give you order of magnitude. I would just say that this is sort of what our current outlook is as we go forward. There’s a minimum level of premium pay just because of the way that our contract works in any given month. So we’ll need to pay that in 2024, just like we did in 2023, just like we did in 2022. We only have two months right now dialed in at higher levels of premium pay in 2024 than the minimum amounts. So I think — I’ll just comment on the overall staffing situation. Things have gotten significantly better we’ve talked now for several quarters about the initiatives that we’ve undertaken here to try and improve the availability of captains in particular. I would say that those are bearing fruit and we’re seeing the kind of growth that we need in the kind of attrition levels that continue to occur favorably for us.

So I think premium pay is sort of where it needs to be, as well as our levels of upgrade and attrition. Now we could use more because as you just talked about, there’s more opportunity for growth here, but I think we’re seeing really steady progress.

Duane Pfennigwerth: Okay. Nice to see you come through. Appreciate the time.

Jude Bricker: Thanks, Duane.

Operator: Thank you for your question. Our next question comes from the line of Catherine O’Brien with Goldman Sachs. Your line is now open.

Catherine O’Brien: Hey, good morning, everyone. Thanks for the time.

Jude Bricker: Hey, Cathy.

Catherine O’Brien: Hey. I was just hoping to get some high-level puts and takes on 2024. You know, how should we think about scheduled capacity growth through the rest of the year, or just capacity growth overall following that 15% growth in 1Q, just in the context of you already have aircraft locked in, it sounds like pilot availability is getting much better. And then on the cost side, I did some quick math and it looks like to get to the midpoint of your operating margin guidance, I’m getting the cost ex fuel on a block hour basis up about 4%. Is that the right level to think about through the year or should we see efficiency build? Or if easier, I know you guys made the comment about you think you’re going to lead the industry on a CASMx basis. I wasn’t sure if that was a cost gap comment or year-over-year performance. I know there’s a couple in there, but thank you.

Jude Bricker: Let me start with the cost question for next year. I don’t have the block hour numbers off the top of my head, but let me give you just some CASM indicators, which I think are probably very similar to block hour. On the CASM front, I think what we’re expecting now is CASM to basically be flat to up low single digits. And here’s the rationale. I think I mentioned last quarter, we have a program underway of accelerating some maintenance spend into 2024 and which will have a modest bump to CASM, but paid significant dividends in 2025 and 2026 in terms of reduced unit costs by sort of bringing some more activities forward and packaging and then into the current checks. So that’s going to be a little bit of a cost bump. But I think right now, looking forward, we’re seeing, like I said, flat to low single-digit CASM growth.

Dave Davis: And my comment around relative CASM performance was mainly to kind of point out that we’re not subject to the major challenges particularly on the fleet side that the rest of the industry is dealing with. So we don’t have your Turbofan. We’re not subject to new aircraft delivery delays. We don’t expect to do any engine performance restorations aren’t subject to OEM escalation in 2024. We don’t have MAX 9s. There’s just not that much pressure on our costs relative to the industry. So I think we’ll continue to produce better trends, maybe not on an absolute basis. And then on your question on capacity growth, like generally, we would think about mid-teen block hour growth, most of that will be allocated to skid service.

Catherine O’Brien: Got it. Super helpful. And then a lot of your competitors have spoken to stronger domestic trends as capacity has come down. I know your model is more immune to overcapacity in the troughs, which has been the toughest periods when capacity is out of whack. But has this had any impact on pricing in the peak where you flex up your flying? Any early reads on spring break or summer that you want to call out to you find encouraging? Thanks for the time.

Jude Bricker: Yes. I mean as I mentioned in my comments, that spring break of last year was spectacular and probably not repeatable. And so we’ve seen a bit of a settling consistent with comments that you’ve heard other carriers make in the Mexican Caribbean markets. But this year, we’ll produce substantial TRASM premiums to pre-COVID levels as consistent with my comments in the last several quarters. The domestic market is doing really well. I think we’re seeing a rebound in Florida, which is important to us. As we lap the — in challenges that West Florida was facing last year, sort of broadly, I think things are really good, consistent with other folks’ comments. [indiscernible] here with me, anything.

Dave Davis: No. That’s absolutely the case. And the airline is digesting well, 20% capacity growth in March. So it just speaks to how the brand has been built in Minneapolis, we definitely continue to be and worked very hard to be the leading leisure airline in that marketplace that I think our results speak to that point, and we’re going to compete aggressively for that title going forward.

Catherine O’Brien: Great. Thanks for the time.

Operator: Thank you. One moment for our next question, please. Next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is now open.

Unidentified Analyst: Good morning everyone. This is Catherine on for Ravi. Thank you for taking my question. I was just curious about — you kind of mentioned this on your last question, but as the floor of CASM across the industry is expected to potentially push RASM up. I was curious if that helps you guys take price or share in that scenario.

Jude Bricker: Yes. I mean generally, yes, but the things that make us less subject to capacity effects also reduce the impact of sort of unexpected grounding of the GTF fleet, for example. We’re just not — for good and for bad, we’re just not as exposed to the industry machinations. But capacity out of the system is a net positive. I think — but we’d be like the secondary, tertiary effect of like reallocation of capacity to backfill will pull on the margin some capacity of our network maybe from ROAs, but it’s not material.

Unidentified Analyst: Got it. And just as a quick follow-up. So, I know close-in bookings across the industry were really strong in last year and even probably 2021 and then kind of dropped off in 2023. What is that looking like now? And I’m curious if you guys — what normal behavior might look like for close-in bookings at some country?

Jude Bricker: It remains really strong. I mean we — the shape of the booking curve, which is sort of like aggregate bookings made at any given time is very similar to pre-COVID levels, but at a higher fare. So, I think the future looks a lot like the past and passenger behavior, I think things are really positive. Got, anything else?

Dave Davis: No.

Jude Bricker: Good.

Unidentified Analyst: Thank you

Operator: Thank you. And our next question comes from the line of Mike Linenberg with Deutsche Bank. One moment please for your question.

Jude Bricker: Hey Mike.

Mike Linenberg: Can you guys hear me?

Jude Bricker: I got you now. Now we can.

Mike Linenberg: Sorry. Just a follow-up. I actually have two questions here, but one follow-up on Duane’s question where you’ve talked about really being able to take advantage of, call it, the marginal opportunity here. I think in the past, you’ve characterized that being able to now take advantage of the fact that you can have the fixed cost base, you’re able to sort of capitalize on that. I think you’ve characterized it as like a 40% operating margin — incremental operating margin as you better utilize your asset base. You did sort of backtrack and say, well, we’re still going to be off about two hours from where we could have been or where we were back in 2019. Is that that magnitude on, call it, the incremental opportunity here. Does that still come at — is my math right, somewhere in the 40% range or so? Is that how we should think about it?

Dave Davis: Yes. I mean — so what we’re talking about there is not an operating margin, but rather a contribution margin. So, profits in excess of variable cost, revenue in excess of variable costs. And yes, I mean our March VAC, variable contribution, is in excess of 40%. So is it in July. So is it in the back of December. So, as we grow those markets, grow those periods of time in the calendar, we would expect that level of contribution for those incremental flights, absolutely.

Jude Bricker: Yeah, Mike. I think one of the things on the utilization comment 2019, there were some unique things, particularly around military flying was really strong and other things that we were able to pick up. We’re not saying that there’s not two hours of opportunity. We’re just — there’s opportunity. We’re just not maybe going to get back to the nine plus hours that we did in 2019 because there were some unusual things. But there’s plenty of opportunity on the utilization front to drive high variable contribution flying. Yeah. downward pressure on utilization is going to come from the check cycle that Dave mentioned earlier. We have a higher spending ratio than we’ve had in the past. Just — we’re going to make sure we execute real well in operations, and that requires a little bit of conservatism on utilization.

Mike Linenberg: Great. And then just my second question. As we go back to fleet and procurement and the like, and I appreciate your point about that you’re not dealing with the issues that a lot of other carriers are, whether it’s the GTF or the grounding of the MAX 9. But now it does seem like that going forward, one of the large OEMs basically will really only have one airplane that people care about. As you know, there’s not a lot of interest in the MAX 9. It’s going to be all about the MAX 8, and it seems like that, that’s probably going to be the primary airplane of choice over the next couple of years, which will probably put a lot of upward pressure in the used market for 800s and even use 900 ERs or maybe even 700s. What are you seeing in the market?

And it was obviously encouraging to see that you picked up two more 800s from fly to buy, so that plus the five from Oman. So you have seven shelves of growth. Have you identified additional shelves out there that are maybe that you’re working on right now? And then what are you seeing on the pricing for these used airplanes. It would seem like that the bid for those types of airplanes have actually moved up given the constraints of the OEMs. Any color on that would be great? Thanks.

Jude Bricker: So Mike, I think you covered that operating that sort — and every quarter, they say how strong the market it is for residual value. This is one time that they’re right. We’re going to — I mean, so all the challenges that the OEMs are having is kind of trickling into the used aircraft market and availability and pricing are both moving in the favor of owners of aircraft. And we are comfortable then not having to do any deals for a few years and just cash flow and we remain in the market. We’re very active. If an airplane is out there trading hands, we’re at the table, but our — the bid ask for us has really widened over the last several months. And we only originated one aircraft over the last 12 months, and we may continue on in that trend for the foreseeable future, say, two years. The point I was making, though, is that we could grow this airline 40% without any incremental originating aircraft deals.

Mike Linenberg: That’s great. That’s great color. Thanks. Thanks everyone.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Brandon Oglenski with Barclays. Your line is now open.

Brandon Oglenski: Hey, good morning, guys, and thanks for taking the questions.

Jude Bricker: Hey, Brandon.

Brandon Oglenski: I guess, Dave, can you talk to us looking into April in the second quarter because you guys do have — just based on the model and your peak schedules out of Minneapolis in the first quarter, 2Q can be a little bit softer. So how do you see at least the first half of the year playing out from a profitability perspective?

Jude Bricker: So just a little bit of expectation setting. I mean, Easter is a lot earlier this year than it was last year. And so that will have a negative effect on April on a year-over-year comp basis, which is expected. We had a really spectacular April of last year, as I mentioned, the winter of last year was really special and that won’t repeat itself. But the trends that we’ve seen as we lap the COVID recovery have broadly maintained themselves. I mean we’re looking at 25%, 30% TRASM broadly over 2019, you got to adjust for these calendar shifts. But generally, fares have reset themselves at a stable but a much higher level. 2Q for us, is not nearly as good as 1Q, and that will obviously be the same this year, but we’re certainly really bullish about where we’re booking right now.

Dave Davis: Yeah. And I would also say that you’ve seen a continued ability of us to add capacity where we know we’re going to be profitable throughout the process, and we work really closely with the operating team. So I would say there’s a lot of work going on to understand where we can add some incremental capacity in the second quarter. So, those keeping score with BO and those sorts of things, it’s not all in there yet. And I would echo Jude’s sentiment, we understand what the world’s going to look like in the second quarter, and we have a plan for it.

Jude Bricker: That’s a really good point. I mean, it’s our scheduling philosophy is one where we hold back some capacity and allocate it as bookings matriculate. And I think that’s the right way to run our business. Many airlines schedule above, so that competitors notice and then they kind of cancel down as bookings happen, we have the opposite. So we’ll have this a little bit a couple of percentage points of capacity to allocate as we get in closer, which will help as well.

Brandon Oglenski: I appreciate that, too. And then, Dave, maybe on expectations in the office, I know you mentioned maybe lower premium pay this year, but what else do you have going on, on the cost side that you could speak to?

Dave Davis: Well, I mean, I think cost control across the company has been very solid. On the – so there’s a lot of operating leverage here as we grow, like we talked about a minute ago here, on the aircraft side, we basically got the shelves we need to fly in the 2024 level. So that’s — operating leverage kicks in and we get a CASM benefit from that. We’ve also got a number of IT projects that we’ve been working now that I think are going to contribute to a lower CASM as well. With the exception of this maintenance issue, which is a decision that we’ve made, costs are well in control. I can’t point to any one initiative. I just think across all of the areas of our company right now, costs are well in hand.

Brandon Oglenski: Thank you.

Dave Davis: Thanks Brandon.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Christopher Stathoulopoulos with Susquehanna. Your line is now open.

Christopher Stathoulopoulos: Good morning. Thanks for taking my question. What percent of your charter is currently under contract? And how much is up for renewal this year?

Jude Bricker: We have about 85% of our charter revenue right now is under long-term contract. As these pilots and other staffing issues sort of resolve themselves, we want to drive a little more ad hoc revenue. But right now, like I said, 85%-ish or so is long term. I think we have any significant contracts up.

Dave Davis: No, and we’re working closely with any of that. So we feel really good about the portfolio, and they like what we’re doing and we like to be connected with them.

Christopher Stathoulopoulos: Okay. Okay. And the second question, the sequential decline in block hours and cargo. Is that just reflective of a weak peak or perhaps regional shift in Amazon’s network between carriers. It’s just a little…

Dave Davis: That’s a result entirely of the C-Check cycle and some weather disruptions that we had. It has nothing to do with — I mean — I can’t comment on anything about what Amazon’s plans are.

Christopher Stathoulopoulos: Okay. Okay. Great. Thank you.

Operator: Thank you. One moment for our next question, please. Next question comes from the line of Catherine O’Brien with Goldman Sachs. Your line is now open.

Catherine O’Brien: Hi again. Thanks so much for follow-up. Maybe just one quick one on the share repurchase program. You guys were pretty active the last two years. I think you got like $11 million, $11.5 million left and CapEx is stepping down materially. I guess any comments on, are there any changes to how you’re thinking about capital allocation? Or should we just stay tuned on the shareholder return front? Thanks so much.

Jude Bricker: Yes. First of all, your comment on the free cash flow generation is spot on. I mean CapEx at the company will drop by more than half between ’23 and ’24. If we deliver the kind of results that we think we’re going to deliver, we’re going to generate a lot of free cash and then we’ll have to decide what we’re going to do with that cash. There is more share buyback in that we would definitely look at. We don’t have a lot of debt that’s economical to pay down. We don’t have a lot of debt period. We don’t have a lot of debt that’s economical to really pay down early with sort of one exception. So what I think is, as we go forward here, there will be decisions around do we do share buybacks? Do we pay down this one piece of debt that we can.

We’re going to fully fund and we have been fully funding cost reduction and revenue-generative initiatives, particularly on the IT side, we’ll continue to do that, but that should be reflected in the $100 million I talked about for ’24 CapEx. So, we’re in a good position to have a lot of flexibility on what we — how we deploy our cash in ’24 and ’25.

Catherine O’Brien: That’s great. Thanks so much.

Operator: Thank you. I’m currently showing no further questions at this time. I’d like to turn the call back to Mr. Bricker, Chief Executive Officer, for closing remarks.

Jude Bricker: Well, thanks, everybody, for joining us today. Have a great day, and we’ll talk to you in 90 days. Thanks.