flyExclusive, Inc. Class A

Good day, ladies and gentlemen, and welcome to the FLY Exclusive Third Quarter 2024 Earnings Call. Our host for today's call is Sloan Bolin, Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to now turn the call over to your host. Mr. Bolin, you may begin.

Thank you, Morgan. Good afternoon, and thank you for joining FLY Exclusive Third Quarter 2024 Earnings Conference Call. Joining me on the call today is Jim Seagrave, Fly Exclusive's founder and chief executive officer, and Brad Garner, our chief financial officer. We announced Q3 results after the market closed today, along with the filing of our Form 10-Q for the quarter ended September 30th, 2024. We will be providing certain non-GAAP information during today's discussion. Important disclosures about this information and a reconciliation of the non-GAAP information to comparable GAAP information is included in our Form 10-Q filed with the SEC and available on our investor relations website. In addition, this discussion might include forward-looking statements. Actual results might differ materially from any number of reasons, including the risk factors described in our annual report on Form 10-K, in our quarterly reports on Form 10-Q, and in the press release covering forward-looking statements. Rather than rereading this information, we are going to incorporate it by reference into our prepared remarks. And with that, let me turn the call over to Jim.

Thank you, Sloan, and thanks to everyone for joining us today. I'll begin by providing an overview of the private aviation landscape. as it relates to fly exclusives and an update on our operations, followed by a preview of our expectations for Q4, traditionally our busiest season. Next, I will cover our ongoing fleet refresh, which has already shown immediate margin improvements and positions fly exclusives for even greater long-term success. Lastly, I will discuss our recently announced agreement with Vellato and how it complements our strategic vision. This has been a very busy and productive quarter, and I want to take a moment to recognize the entire Fly Exclusive team for their hard work and dedication. At the start of the year, we already had what I believe to be the best operating model in private aviation. However, we have faced many challenges during this transformational period. I am proud to report significant progress over the first three quarters. progress that is most importantly reflected in our rapidly improving financial performance. If we continue the same trajectory we have over the first three quarters of 2024 as expected, we will attain positive adjusted EBITDA profit in early 2025. We have made substantial strides, including eliminating over half of our non-performing aircraft, restructuring our management team, nearly eliminating reliance on outside consulting services to support public company reporting, enhancing our fleet, taking over Volato's flight operations and customers, expanding our club and fractional customer base, and optimizing internal operations. Our revenues for the third quarter totaled approximately $77 million, up 24% compared to the same period last year. This growth was driven in large part by a 20% expansion of our membership base, which now boasts well over 1,000 members. As we continue refreshing our fleet by selling non-performing aircraft, the total number of planes on our certificate has declined to 88 from 100 a year ago. However, we are effectively still operating around 100 aircraft since we are managing Velado's fleet currently on their certificate. These Velado aircraft will be transferred to the fly-exclusive certificate in the coming months, and we will continue adding Challengers, CJ-3s, and XLSs. The CJ-3 and XLS fleets have also been strong performers and remain part of our go-forward strategy. For aircraft on fly-exclusive certificate excluding the Velado aircraft, we saw total flight hours and hours per aircraft increase by 49% and 35% respectively year-to-date. This achievement is even more impressive given that we eliminated the Guaranteed Revenue Program, GRP, activity in 2023, which accounted for over $66 million of revenue in the first half of 2023 and zero the second half. I am incredibly proud of our team for replacing this business and continuing to grow our total flight hours in the face of that challenge. Fly Exclusive achieved a remarkable 122% growth in flight hours since 2019. This marks the highest increase among the top four operators in the private aviation sector, according to a recent report published by Jefferies. Year over year, Fly Exclusive was the second fastest growing company, trailing FlexJet by just 1% in growth over the past 12 months. All of this has been driven by strong and stable demand in our club and fractional lines of business that we expect to continue in the future. Our gross margins have shown significant improvement, increasing from approximately 8% in the first two quarters of 2024 to over 12% in the third quarter. We expect this trend to continue this quarter and in 2025. The primary driver of margin improvement has been the removal of non-performing aircraft with high operating costs and downtime replaced by more economical, reliable, and therefore profitable aircraft. Brad will detail this margin trend or how this margin trend has impacted our EBITDA and free cash flow. But for now, I will focus on our SG&A overall debt and the ongoing fleet refresh. We have made notable progress improving our SG&A efficiency. SG&A expenses as a percentage of revenue decreased from 31% of revenue in the first quarter to 26% in the third quarter, a reduction of over $5 million. Total debt, trade, and long-term was reduced by $29 million in the third quarter. As we complete our fleet refresh early in 2025, we expect continued improvements. We view 2024 as a transition year during which we aim to eliminate 37 older non-performing aircraft, replacing them mainly with Challenger 350s. We have already sold 19 of these aircraft and expect to have fewer than 12 remaining by year end. The drag on our EBITDA from these aircraft, which peaked at over $3.5 million per month early in 2024, has been reduced to under $1 million per month today and should be eliminated in 2025 as we complete the refresh. Through the third quarter, we have taken delivery of three new Challengers with a fourth set to arrive in Q4. We expect our pace of Challenger additions will accelerate in 2025 with each aircraft bringing a substantial boost to profitability. Looking ahead to 2025, we are excited to leverage our momentum and drive further improvements in profitability and scale. We expect to generate positive cash flow in Q4 2024 and achieve positive adjusted EBITDA early in 2025. Each challenger added to our fleet is projected to generate over $8 million in annual revenue at attractive margins. compared to the average $1 million annual EBITDA drag from each of the 37 non-performing aircraft in 2024. Turning to our fractional share sales, the end of the calendar year is typically the highest activity period for transactions, driven by tax planning and year-end budgeting. We have a strong sales pipeline and expect a robust quarter. In Q4 of 2023, our first year, and quarter in the fractional business, we sold 43 shares. Today we have nearly 200 fractional share members in our program and expect to grow that significantly over the rest of Q4. In early September, we announced our agreement to provide aircraft management services to the lotto of their customers. To clarify, this was not an acquisition of the lotto, but a strategic opportunity to acquire their customer base without purchasing the companies. To date, we have added 178 Velado Insider members to our Jet Club program. All fractional aircraft and members are now managed by Fly Exclusive, and these aircraft are being added to the Fly Exclusive certificate. Customers have signed new agreements becoming direct Fly Exclusive clients. The value of our platform and integration, coupled with our high service standards, has benefited both Velado customers and our shareholders greatly. adding approximately $600,000 to our bottom line in the first month of operation. Under this agreement, Fly Exclusive now manages Velato's fleet consisting of 10 fractional aircraft and two leased aircraft. Velato's customers now enjoy the advantages of our significantly larger fleet, our vertically integrated service model, and enhanced reliability. Furthermore, we have seamlessly handled the added volume with 175 fewer employees than VELADO previously required thanks to our efficient infrastructure. This represents an impressive 80% reduction in the staffing needed to meet their flight demand. The VELADO agreement highlights our ability to provide customized high-value solutions for private aviation customers, specifically in the fractional and club member markets. In closing, I think we have clearly demonstrated the strength of the fly exclusive operating model. Despite significant challenges over the past 18 months, including taking the company public, enhancing our leadership team, and refreshing our fleet by replacing non-performing aircraft, we have continued to grow and improve the business month after month. The progress we have made in 2024 has positioned us for sustained success in 2025, benefiting our shareholders, customers, and employees. I am deeply grateful for our team's hard work and dedication. With that, I will hand things over to our Chief Financial Officer, Brad Garner. We are fortunate to have Brad join Fly Exclusive, bringing with him extensive experience in public company accounting, as well as both public and private equities. Most recently, he served as CFO at Hale Partnership Capital Management. Brad, welcome. We are thrilled to have you on board.