Volato Group, Inc. Class A

Good morning and welcome to the Volato Group first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jonathan Yohannan, Director of Communications. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to the Volato conference call. Our press release was issued this morning and can be found in the investor section of our corporate website, flyvolato.com. Joining me on the call today is Matt Leota, our chief executive officer, and Mark Heinen, our chief financial officer. During today's call, we will provide a business update and a financial overview of the first quarter of 2024. A Q&A session will follow our prepared remarks. Before we begin, I would like to remind everyone that any statements we make or information presented on this call that are not historical facts are forward-looking statements that are based on our current beliefs, plans, and expectations and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's most recently filed periodic report on Form 10-K and subsequent filings. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, management will discuss non-GAAP measures which it believes can be useful in evaluating the company's performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures made to the most comparable GAAP measure can be found in the company's earnings release. I'd now like to turn the call over to our Chief Executive Officer, Matt Leota.

Thank you, Jonathan, and good morning, everyone. I'll start with some updates on our balance sheet and liquidity, and then go over our first quarter performance. Mark Heinen, our CFO, will then provide more detail on our financials. As well-known OEM supply chain delays have resulted in longer timelines for aircraft deliveries than previously expected, we took proactive steps to identify additional sources of liquidity. This morning, we announced that we have signed a term sheet for $14.5 million in financing, which we expect to close in the next couple of weeks. We are pleased with this development and believe that it represents a vote of confidence in Vellato's plan. It also substantially de-risks our path to profitability and sets us up for success as we begin to generate additional cash flow from upcoming aircraft deliveries and recognize revenue on fractional sales. With our HondaJet delivery set to commence this quarter, we believe this transaction effectively bridges our capital needs and puts us on track to deliver profitable growth. In tandem with this financing, we've also taken steps to reduce corporate overhead expenses as Mark will detail. As a result of these cost saving efforts, we now expect that we can achieve our first EBITDA positive quarter in the fourth quarter of this year, which is earlier than our prior expectation of Q1 2025. As a reminder, We are pre-selling fractional shares well in advance of aircraft delivery dates, which enables us to be capital light and provides good visibility into our forward growth trajectory. Despite the recent delays, we have been working closely with Honda Aircraft Company and Gulfstream, and based upon our recent conversations, we continue to expect to take delivery of eight to 10 Honda jets in 2024. We now expect to take delivery of two Gulfstream G280s in 2024, one of which is scheduled for Q3. Now, turning to our first quarter results, we saw continued strength and strong year-over-year growth across our key performance indicators, including total flight hours, empty percentage, demand mix, and blended yield. Total flight hours increased 35% year-over-year and we grew our market share while maintaining a world-class net promoter score. We are especially pleased with improvements in our demand mix, which reached an even 50-50 split between owner flights and program and ad hoc flights for the first time in Q1. As a reminder, we earn higher rates on non-owner flights, and a key part of our strategy is to leverage our base of fractionally owned planes and drive higher utilization across our program and charter offerings. You see the result of this in our blended yield, which reached $5,313 per flight hour in Q1, a growth of 8% year over year. As we continue to tilt our demand mix toward program and ad hoc flight and leverage our fixed cost base, you will begin to see the enhancements to our margin profile and profitability. This is a great thing for our owners as well because we pay them a revenue share each time the plane is used. As a result, the interests of Volato and our fractional owners are aligned in driving maximum utilization of these assets. Turning to another one of our KPIs, empty percentage, I want to highlight how we're leveraging our innovative in-house technology to improve our utilization rate. Empty leg flights have always been a hard-to-solve problem in private aviation. Planes frequently need to be repositioned on short notice to serve passengers, which means incurring the cost of a non-revenue-generating flight. An industry-leading light jet empty percentage, even among the largest and most scaled operators, is typically in the low to mid-30% range. you'll notice that Volato is already achieving approximately 35% empty rates as of Q1, putting us in line with industry leaders. We attribute this success to our operation software, which we built in-house, leveraging our team's technology and software experience, as well as our dynamic pricing strategy, which helps to drive greater network efficiency by incentivizing customer supply routes that contribute to our network density. We have an additional opportunity to drive revenue from a portion of our empty lake flights by using our unique mobile app offering, Vaunt. Vaunt is a subscription-based mobile app that allows users to view our upcoming empty lake flights across Volato's fleet. For less than $1,000 a year, you can subscribe to Vaunt and access unlimited empty lake flights for no additional cost. The great thing about this program for Volato is that it allows us to monetize existing flight inventory at essentially no added cost, and it provides new opportunities for customer acquisition. We've had instances of customers trying Vaughn and then purchasing JetParts and vice versa, and in some who are looking at our fractional program. Vaughn already reached its first cash-positive month in March, and as we grow the program, we'll be adding recurring software-like margins to our earnings net. Looking ahead, the long-term secular trends in our market remain highly supportive. The COVID experience helped introduce a new cohort of customers to flying private who may have had the means but had never tried it before. Many of our customers are entrepreneurs who value time and efficiency, and with our product suite ranging from a variety of fractional sizes as well as program and charter flights, we can address a significantly sized market. As we execute this market opportunity, we are confident that we have the right capital life strategy, the right team of aviation veterans, and a strong positive response from customers to support our continued growth and path to profitability. We are also pleased to announce the addition of Luis Garcia, our new head of sales, who joins us after a long career in private aviation sales and operations. We welcome Luis and look forward to benefiting from his expertise and relationships as we continue to grow our fractional and program customer base. Lastly, I'd like to welcome our new board members, Chris Berger and Fred Cohen. Chris and Fred, along with our long-standing board member, Mike Nichols, have significant public company experience across a variety of industries, including technology and aviation, and with their expertise and alignment on Volato's strategy, we are excited to enter this next chapter of our growth story. With that, let me turn the call over to Mark.

Thank you, Matt, and good morning, everyone. As Matt discussed, this week we signed a term sheet for $14.5 million in financing, including $13 million secured by our Gulfstream G280 orders, as well as a $1.5 million equity commitment. This transaction frees up existing cash that we had put on deposit for our G280s and improves our liquidity ahead of the anticipated deliveries of HondaJets beginning in the second quarter and Gulfstreams beginning in the third quarter. Between this transaction and the cost reductions, which I will detail shortly, we believe we have laid the foundation for a successful transition to profitability by driving meaningful year-over-year growth across our key metrics. We have provided a breakout of the key performance indicators that we consider most relevant to understanding our business in a table in our earnings release and investor presentation. These metrics include fleet growth, total flight hours, network efficiency measured in terms of empty percentage, owner versus non-owner demand mix, and average yield per flight hour. Moving to our Q1 results, revenue for the first quarter was $13.2 million, a decrease of 16% year over year. While we did not recognize any aircraft sales revenue in the quarter due to delivery delays, aircraft usage revenue grew 72% to 11.5 million, highlighting the growth in our fleet from 15 haunted jets at the end of the first quarter of 2023 to 26 haunted jets at the end of the most recent quarter. In addition, we have seen an improvement in our blended yield to 5,313 in the current quarter. This compares to 4,927 in the first quarter of last year. We also saw further improvement in blended yield in April and expect to deliver year-over-year growth in many of our KPIs in Q2. On the expense side, SG&A for the first quarter was $11.5 million. This week, we initiated cost-saving measures to reduce SG&A, strengthen our financial position, accelerate our path to profitability, and align resources for the next phase of our growth. These savings include non-pilot employee reduction, impacting less than 5% of our employees, and a reduction in consulting and other outside services. We expect these measures will result in savings of approximately $3 million per quarter, putting us on a run rate of $9 million per quarter in SG&A. As part of our cost savings efforts, we are also in the process of renegotiating the lease rates on a portion of our lease fleet, which could drive further savings. A net loss for the quarter was $17.2 million compared to a net loss of $7.5 million in the same quarter last year. An adjusted EBITDA loss for the first quarter was $13.1 million compared to $6.7 million last year. Adjusted EBITDA increased primarily due to the cost associated with being a public company and an increase in marketing spend to support the 2024 fractional sales. Looking to the future, we have firm worries for 22 Honda jets and four Gulfstream G280s that will be delivered in 2024 and beyond. And as Matt mentioned, we expect delivery of eight to 10 Honda jets and two G280s in 2024. Based on our forecasted HondaJet deliveries, we expect to generate between $72 and $90 million in revenue and $16 to $20 million in margin from fractional sales this year. Our forecasted G280 deliveries are expected to generate approximately $50 million in revenue and $10 million in margin from fractional sales. The additional aircraft will also contribute to higher usage revenue as they enter the fleet. we expect gross margin from aircraft usage to continue to improve throughout 2024 and turn positive in 2025. Given our forward visibility on aircraft deliveries and the recently enacted cost savings measures, we now expect to achieve an even dot positive quarter in the fourth quarter of 2024. To conclude, we are pleased with our continued operational momentum and balance sheet strength and we look forward to reporting continued progress in the coming months. With that, we will now open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your questions. Thank you. I am showing no questions at this time. And with that, I would like to turn the floor back over to Jonathan Yohannan for any closing remarks.

Thank you. We'd like to thank everyone for joining us this morning. Please feel free to reach out to Investor Relations with any questions. And we look forward to speaking with you next quarter. Have a good day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.