Alaska Air Group, Inc. (NYSE:ALK) Q4 2019 Earnings Conference Call - Final Transcript

Jan 28, 2020 • 04:30 pm ET

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Alaska Air Group, Inc. (NYSE:ALK) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning. My name is Catherine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group Fourth Quarter and Full-Year Earnings Release Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session for analysts. [Operator Instructions]

Thank you. I would now like to turn the call over to Alaska Air Group's Director, Investor Relations, Emily Halverson.

Executive
Emily Halverson

Thanks, Katharine. Good afternoon and thank you for joining us for our fourth quarter and full year 2019 earnings call. In today's prepared remarks, you'll hear updates from Brad, Ben, Andrew, Brandon and Shane Tackett. Several other members of our management team are also on hand to answer your questions during the Q&A portion of the call.

This afternoon, Alaska Air Group reported fourth quarter net income of $181 million on both a GAAP and adjusted basis, with the latter excluding merger-related costs and mark-to-market fuel hedging adjustments. Air Group's adjusted earnings per share were $1.46, $0.05 ahead of the First Call consensus. These results compare to adjusted net income of $93 million and adjusted earnings per share of $0.75 in the fourth quarter of 2018. Our fourth quarter adjusted pre-tax margin expanded 470 basis points to 10.9%. This marks the fourth quarter of sequential improvement in our margin expansion.

For the full-year 2019, Air Group reported record revenues of $8.8 billion, adjusted net income of $798 million and adjusted earnings per share of $6.42. Pre-tax margin was 12% with adjusted operating cash flow of $1.8 billion and adjusted free cash flow of $1.1 billion. Our debt-to-capitalization ratio declined to 41% and our return on invested capital was 12.2%.

As a reminder, our comments today will include forward-looking statements on our expected future performance, which may differ materially from actual results. Information on risk factors that could affect our business can be found in our SEC filings. On today's call, we refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel. And as usual, we've provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release.

And now, I'll turn the call over to Brad for his opening remarks.

Executive
Brad Tilden

Thank you, Emily, and good afternoon everybody. As we've discussed on the last couple of calls, we feel that 2019 marked a turning point for us as we got through the bulk of our Virgin America integration and began to see the returns on that investment. And more importantly, as we focused our energy on running a fantastic airline and on executing initiatives, which we designed to strengthen our long-term competitive advantage.

As Emily shared, today we reported that our 2019 adjusted pre-tax income grew by 43% to nearly $1.1 billion and our adjusted pre-tax margin expanded 3.1 point to 12%. Our operating cash flow was exceptional as it grew 37% to $1.8 billion. Our free cash flow of $1.1 billion and our net income to free cash flow conversion