Volato Group Q1 2024 Earnings Call Transcript

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May 15, 2024

There are 4 speakers on the call.

Operator

morning, and welcome to the Vellado Group First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Jonathan Johanen, Director of Communications.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to the Vellado conference call. Our press release was issued this morning and can be found in the Investors section of our corporate website, flyvelado.com. Joining me on the call today is Matt Liotta, our Chief Executive Officer and Mark Hynan, our Chief Financial Officer. During today's call, we will provide a business update and a financial overview of the Q1 2024.

Speaker 1

A Q and A session will follow our prepared remarks. Before we begin, I'd 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 ks and subsequent filings. The company does not undertake any duty to update such forward looking statements.

Speaker 1

Additionally, during today's call, management will discuss non GAAP measures, which we believe 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.

Speaker 1

I'd now like to turn the call over to our Chief Executive Officer, Matt Liotta.

Speaker 2

Thank you, Jonathan, and good morning, everyone. I'll start with some updates on our balance sheet and liquidity and then go over our Q1 performance. Mark Heineken, 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 $14,500,000 in financing, which we expect to close in the next couple of weeks.

Speaker 2

We are pleased with this development and believe that it represents a vote of confidence in Velado'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 have 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 1st EBITDA positive quarter in the Q4 of this year, which is earlier than our prior expectation of Q1 2025.

Speaker 2

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 the aircraft company and Gulfstream and based upon our recent conversations, we continue to expect to take delivery of 8 to 10 Honda Jets in 2024. We now expect to take delivery of 2 Gulfstream G280s in 2024, one of which is scheduled for Q3. Now turning to our Q1 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.

Speaker 2

We are especially pleased with improvements in our demand mix, which reached an even fifty-fifty split between owner flights and program and ad hoc flights for the first time in Q1. As a reminder, we are in 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.

Speaker 2

As a result, the interest of Velado 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 rates. 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 MP percentage, even among the largest and most scaled operators, is typically in the low to mid-thirty percent range.

Speaker 2

You'll notice that Velado is already achieving approximately 35% empty rate as of Q1, putting us in line with industry leaders. We attribute this success to our operations 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 customers to fly routes that contribute to our network density. We have an additional opportunity to drive revenue from a portion of our to view our upcoming empty leg flights across Velado's fleet. For less than $1,000 a year, you can subscribe to Vantt and access unlimited empty leg flights for no additional cost. The great thing about this program for Velado is that it allows us to monetize existing flight inventory at essentially no added cost and it provides new opportunities for customer acquisition.

Speaker 2

We've had instances of customers trying Vont and then purchasing gift cards and vice versa and in some who are looking at our fractional program. Von already reached its 1st cash positive month in March and as we grow the program, we'll be adding recurring software like margins to our earnings mix. Looking ahead, the long term secular trends in our market remain highly supportive. The COVID experience helped introduce a new cohort customers to fly in 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.

Speaker 2

As we execute on this market opportunity, we are confident that we have the right capital light 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 Louis Garcia, our new Head of Sales, who joins us after a long career in Private Aviation Sales and Operations. We welcome Louis 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 Velado's strategy, we are excited to enter this next chapter of our growth story.

Speaker 2

With that, let me turn the call over to Mark.

Speaker 3

Thank you, Matt, and good morning, everyone. As Matt discussed, this week we signed a term sheet for $14,500,000 in financing, including 13,000,000 secured by our Gulfstream G280 orders as well as a $1,500,000 equity commitment. This transaction frees up existing cash that we have put on deposit for our G280s and improves our liquidity ahead of the anticipated deliveries of Honda Jets beginning in the second quarter and Gulfstream's beginning in the Q3. 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.

Speaker 3

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 Q1 was $13,200,000 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 $11,500,000 highlighting the growth in our fleet from 15 Honda Jets at the end of the Q1 of 2023 to 26 Honda 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 Q1 of last year.

Speaker 3

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 and A for the Q1 was 11,500,000 dollars This week, we initiated cost saving measures to reduce SG and 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 $3,000,000 per quarter, putting us on a run rate of $9,000,000 per quarter in SG and A. As part of our cost savings efforts, we are also in the process of renegotiating the lease rates on a portion of our leased fleet, which could drive further savings.

Speaker 3

Our net loss for the quarter was $17,200,000 compared to a net loss of $7,500,000 in the same quarter last year and adjusted EBITDA loss for the Q1 was $13,100,000 compared to $6,700,000 last year. Adjusted EBITDA increased primarily due to the cost associated of being a public company and an increase in marketing spend to support the 2024 fractional sales. Looking into the future, we have firm orders for 22 Honda Jets and 4 Gulfstream G280s that will be delivered in 2024 and beyond. And as Matt mentioned, we expect delivery of 8 to 10 HANAJets and 2 G280s in 2024. Based on our forecasted HANA Jet deliveries, we expect to generate between $72,000,000 $90,000,000 in revenue and $16,000,000 to $20,000,000 in margin from fracional sales this year.

Speaker 3

Our forecasted G280 deliveries are expected to generate approximately $50,000,000 in revenue and $10,000,000 in margin from fractional sales. The additional aircraft will also contribute to a 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 EBITDA positive quarter in the Q4 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.

Speaker 3

With that, we will now open the line for questions.

Operator

Thank you. We will now be conducting a question and answer Thank you. I am showing no questions at this time. With that, I would like to turn the floor back over to Jonathan Yohanan for any closing remarks.

Speaker 1

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.

Operator

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.

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Earnings Conference Call
Volato Group Q1 2024
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