FLYX - AMEX

Greetings. Welcome to flyExclusive Second Quarter and First Half 2024 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Sloan Bohlen, Investor Relations. Thank you. You may begin.

Thank you so much. Good afternoon and thank you for joining flyExclusive's second quarter and first half 2024 earnings conference call. Joining me on the call today is Jim Segrave, flyExclusive Founder and Chief Executive Officer, and Matt Lesmeister, Chief Financial Officer. On our Q1 financial results, our Q1 financial results were announced through our Form 10-Q filed with the SEC on August 12, 2024 and our Q2 financial results were announced after the market closed today, along with the filing of our Form 10-Q for the quarter ended June 30, 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 for 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 on the press releases covering forward looking statements. Rather than rereading this information, we're 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 today. Year-to-date, flyExclusive has made significant progress across a number of strategic priorities. As discussed in our first earnings call, 2024 will be a transformational year for the company as we execute our business plan after successfully becoming a public company in late December of 2023. We are eliminating 37 non-performing aircraft, replacing those with challengers, continuing to build our fractional and club programs, building our leadership team, eliminating outside consulting expenses and rightsizing our SG&A. We have raised $75 million, $50 million and $225 million preferred equity raises and an additional $25 million in a line of credit to support our business plan year-to-date. Operationally, our Jet Club continues to take market share based on our differentiated service offerings. We expect our fleet utilization and business mix to continue to shift and accelerate toward the Club and fractional business in the second half of 2024. This direct-to-customer channel growth will improve both the contractual visibility of our revenues going forward as well as our flight operating margins from the more efficient aircraft we will deploy with our fleet refresh. We have taken large steps to institutionalize both our management team and our balance sheet to ensure flyExclusive is best positioned to execute the business plan we developed well prior to going public. We firmly believe our product offerings will continue to take market share and our platform will win as the premier, most vertically integrated private aviation operator. In the first half of 2024, flyExclusive has made significant progress on all fronts and the team has a lot to be proud of with what we have already accomplished, but we are even more energized about what we can accomplish in the quarters and years ahead. In my remarks, I'd like to frame that discussion in three main topics. First, I'll detail on industry trends and flyExclusive’s own operating performance year-to-date compared to 2023. Second I'll provide an update on the ongoing strategic initiatives to upgrade our fleet with the addition of Challenger briefing, which will also accelerate our entry into the Supermid fractional space. Third, I'll speak to the progress we have made to enhance both near and long term profitability. Some of these changes include a strengthened leadership team and others can be categorized as blocking and tackling along with aggressive cost optimization. Across both, I am extremely pleased by how decisively the team has acted to date and feel even more confident in our ability to deliver profitability and cash flow going forward. With that, let me provide some color on the market and the progress we have made year-to-date. The success of our Jet Club and other membership programs continue to stand out in the industry as we have increased our overall membership by 28% year-to-date. Our fractional club and partnership programs are now approaching nearly 1000 members. These new members and continued wholesale demand drove similar growth in both our total flight hours and hours per aircraft. In fact, flyExclusive continued to gain market share in the first half of 2024, growing flight hours by nearly 17% compared to the top 25 operators, which only grew in the mid-single digits, according to the recently released Argus data. This was accomplished with a smaller fleet as 15 of the non-performing aircraft associated with our fleet refresh project have been eliminated so far this year. We also accomplished this growth in the face of terminating an agreement with a large customer at the end of the second quarter of 2023. This single customer represented 38% of our revenue in the first half of 2023. We've been highly successful in replacing this business with other customers through wholesale, retail, club and fractional channels. The wholesale business continues to be an important channel for us and we expect this to continue for the foreseeable future. We are optimistic that the customer pipeline we have developed will continue to deliver strong growth for our club and fractional business in the second half of 2024. Moving forward at the end of Q2, we engaged a world class and proven marketing firm in our space to help invest deliberately in strategic initiatives that we expect to drive growth in our club and fractional channels. In its first 60 days on the job, this new marketing firm has doubled our qualified leads. The other headwind, the top line revenue compared to 2023 has been a modest decline in effective hourly rates compared to last year. This has been driven by two main factors. First and more meaningful, is a direct result of eliminating non-performing aircraft in the super, mid and large cabin categories. This has caused the change in our revenue mix towards light and midsized aircraft. In short, our flight hours in these categories have gone up while the flight hours in the Supermid and large cabin categories have gone down. The rate for the smaller aircraft obviously are lower than the larger aircraft. We do not see this as a negative outcome as the non-performing aircraft we have eliminated were not contributing. The second impact has been more modest industry-wide demand given a relatively softer economy. We've largely been able to mitigate this by continuing to take market share. The economy has not impacted our core customer demand as evidenced by strong growth in our total hours flowing. In fact, we believe flyExclusive retains a competitive advantage based on our differentiated service that is increasing with the rising quality of our fleet, which I'll speak to in a minute. Moving to our operating profitability, the team has done a decent job to offset top line pressure. At the end of the fourth quarter, we had 750 professionals on our team. Today we have 620 and we project we will have around 600 by the end of the year as we eliminate the remaining non-performing aircraft and continue to optimize operations. The reduction of non-performing aircraft and the associated revenue those planes were generating, even though they were not profitable, contributed to the increase in SG&A as a percentage of revenue. The management team has done a great job with the transformation to a more streamlined public company over the first half of 2024. The combination of increased cost of revenue on the non-performing planes in general and increased SG&A as a percentage of revenue as we eliminated those claims drove our operating loss year-to-date. I'll provide some additional color around how the transformation of the business is impacting profitability, much of which is tied to the fleet refresh we are executing this year. At the peak, the non-performing aircraft were losing as much as $3 million per month. So far, we have eliminated 15 of the 37 non-performing aircraft, or roughly 40% in the first half of 2024. This has reduced the monthly loss on these aircraft to less than $2 million per month. From an SG&A standpoint, we were not running as efficiently as we needed to be and have made the necessary adjustments, reducing our non-pilot, non-technician headcount significantly. Additionally, we were relying on outside consultants to provide public company support. This expense peaked early in the first quarter after going public at nearly $1.3 million per month. Today, this expense is less than $100,000 per month and we expect it to be fully eliminated by year end. With that, let me shift to our fleet refresh project, which we are confident will be the most significant driver of profit change for flyExclusive’s in the second half of 2024. For those not familiar, let me briefly recap our initiative. We are replacing 37 non-performing jets that are losing money with approximately 20 Challenger-350 jets. The Challengers cost on average 18% less to operate and the dispatch availability of this aircraft is projected to be over 100% better than the fleet being replaced. Incidentally, the first Challenger we have added to our fleet has far exceeded these projections. It is running nearly 300% better from a dispatch availability standpoint and is delivering 250% higher contribution on average than the non-performing fleet. The increased margins on the Challenger fleet will rapidly improve our overall margins significantly through this increased dispatch availability and lower operating costs. As indicated earlier, year-to-date we have successfully sold or eliminated 15 of our non-performing jets. The proceeds from these legacy fleet sales are being applied to the purchase of the Challengers. Additionally, the non-performing aircraft we are eliminating have generally appreciated since purchase and therefore are not generating any loss on the asset sale for the company to sell them. They are actually generating significant capital. We can apply to the Challenger fleet purchases. By year end, we expect the majority of the non-performing fleet to be sold. For context, we expect the elimination of these jets to remove what we estimate at its peak with an annual drag on our EBITDA of over $30 million per year the last few years. We put the first Challenger-350 in operation in June and expect to onboard one new Challenger per month through the remainder of 2024. We forecast each of the new aircraft to produce revenue in the $10 million per plane range on an annual basis. Best of all, as mentioned, we expect profitability for these aircraft to be significantly accretive to our fleet-wide margin, which we'll show in our results over the next 18 months. As I noted on our last quarterly call, we see the Challenger-350 not just as an upgrade in aircraft, but also as a strategic investment of capital in a Supermid market that we believe is highly attractive. It also allows us to execute on our fractional program in the Supermid space a full two years prior to our original plan as well. Similar to how we have grown flyExclusive through market share capture, we believe the best opportunity for flyExclusive exists in the Supermid space. Demand in this category remains strong and indications are the Supermid customer is less impacted by a soft economy or inflationary pressure. There have been over 1000 challenges of 300, 350 aircraft produced, making it one of the most proven aircraft ever built. With our initial fleet of Challenger-350 aircraft, we will still be a small fraction of a large market and that provides us with lots of opportunity to capture market share. I'll conclude my remarks with the final topic, which is the significant improvement we have made to our leadership team year-to-date. Becoming a public company executing on a fleet refresh of over 35% of our fleet and the launch of the Challengers and the fractional program along with it required us to significantly step up our routine. I'm very pleased to report that we have done just that with the addition of Matt Lesmeister as our Chief Financial Officer and the promotion of Mike Guina, the President. The positive impact of these changes has been significant and immediate. Matt's leadership and his team supporting him deserve incredible credit for getting our Q2 results filed on time while nearly eliminating outside consulting support and expense at the same time. In just under 50 days as CFO, Matt has filed our Q1 and Q2, 10Qs. We are now fully compliant with our filing deadlines and have the team and leadership in place to stay in compliance in the future. We also see meaningful opportunity to improve on our top and bottom line performance with this leadership that is now in place. For those who have not met him, Matt comes to us from Fox Factory, an over $1 billion per year in revenue public company and before that United Technologies Corporation, a public Fortune 500 company and the parent company of Pratt & Whitney. Aside from institutionalizing our finance department, he is a strategic thinker, a natural team builder, and has been a partner with Mike and myself to optimize operations during the business transformation we are executing this year. Before I hand the call to Matt, I would also like to give Matt the credit for nearly eliminating outside consulting service that was running at an annualized cost of approximately $12 million per year in just his first couple of months on the job, this cost is now over 95% eliminated. Now that he has us in full reporting compliance, he is turning his focus to company-wide improvement and operating efficiency, focused on people and process. He has deep experience in finance and operations and intends to spend significantly more of his time helping with operations. Matt has been successful everywhere he has ever been and we are extremely fortunate to have him here at flyExclusive. With that, let me introduce Matt to his first call and turn it to him to review our financials and balance sheet. Matt?

Thank you Jim, and thanks to everyone on the call as well. I'll quickly echo Jim's sentiment on the meaningful opportunity at flyExclusive. It's why I'm here and I'm excited to work with our analysts and investors to deliver the types of returns we know are achievable in this business. With that, let me organize my comments into two main buckets. First, I'll briefly review our results and then I'll speak to our balance sheet and our recent financing actions. flyExclusive reported first half revenues of $159 million, a decrease of 10%, which is made up of higher member flight hours, but offset by mix with higher light and midsize jet composition. Additionally, with the fleet refresh, we elected to replace our Gulfstream flights with the Challenger 350 aircraft. We have already sold some of our legacy heavy fleet and this has had an impact on our top line revenue. The end result will be more profitable flying in the long run. The timing of revenue shift from our terminated GRP partnership and lower flight rates compared to last year were also factors. As Jim noted, we expect the cross currents in these revenue drivers to ease in the second half and would also note that our growing Challenger 350 fleet will aid our portfolio rates given premium level demand and more limited supply compared to smaller jets or wholesale in general. In the first half, flyExclusive adjusted EBITDA loss of $35 million year-to-date was driven by revenue headwinds cited above, as well as higher operating and SG&A cost compared to a year ago. As Jim detailed my first priority with him and Mike has been cost optimization and we're pleased with the opportunities we have identified to date. We believe there is further opportunity here and we look forward to updating you on those efforts in future quarters. To that point, we are also committed to institutional level financial reporting and we owe it to our shareholders to report our results on a normal quarterly cadence, which is our go forward plan. Our net loss attributable to common shareholders for the first half of 2024 totaled $12.3 million, which compares to $1.6 million in the first half of 2023, shifting to cash flow on our balance sheet. As you saw in our recent release, flyExclusive raised an additional $25.5 million of preferred equity to support our business plan and fleet refresh initiative. These funds were raised after the Q2 close and therefore will be shown on our Q3 reporting. We are currently in discussions for broader financing on existing aircraft to further fund the refresh of the fleet, and have received multiple term sheets to date to support this initiative. Lastly, we have a robust pipeline of fractional sales in tandem with the delivery of our new Challenger 350s. With this new investment, our liquidity is improved and we have a good line of sight to improving cash flow efficiency. In conclusion, flyExclusive is well positioned to take further share, and I'm excited to work with Jim, Mike and the entire organization to execute and drive value for our stakeholders. With that, let me turn the call back to the operator to field your questions.

Thank you. [Operator Instructions] Our first question is from Marvin Fong with BTIG. Please proceed.

Good evening. Thanks for taking my questions. Just a follow up on, I think, on that last bit where you mentioned the pipeline for fractional. Could you just kind of elaborate on where we stand there in terms of what's been sold and what's coming and also some commentary on how the CJ3s are doing in addition to the Challengers? That would be helpful. And then I have a follow up.

So I think we have roughly 50 people in the pipeline that are looking at the two aircraft. The Challenger 350 sales will start on the next airplane to be delivered, which we expect to be in the next 30 days. And of those 50 in the pipeline, roughly eight of those are customers that have contracts in hand being reviewed for the Challenger 350.

Okay, great. And then great color you provided just on identifying the drag and profitability from the nonperforming fleet, I mean, just for excluding the planes you plan to eliminate, just kind of talk us through the margins that, was there any pressure on that part of the business, excluding the non-performers in terms of both revenue and operating cost? It does look like some margin compression that looks beyond what could be explained by the non-performing fleet, but just kind of talk me through what you guys saw as far as the first half?

I think there was some modest, there was some modest margin pressure based on decreased rates and probably increased competition in the space, but really exacerbated by the non-performing aircraft and the operating costs associated with those airplanes. And really even more directly, the extremely poor dispatch availability of that legacy fleet of aircraft we're eliminating. So as we eliminate those airplanes and replace them with more reliable aircraft, the Challenger 350 in this case, that margin not only is returned, it's drastically improved by roughly 250%. Experience, although short for the last 60 days, and the first airplane that we have added to our certificate has been nearly 100% dispatch availability. So almost a 300% improvement over the airplane aircraft it was replacing that were averaging in the mid-30% dispatch availability margin. So the primary driver of the margin has to do with the operating cost of the older legacy fleet more than it does the rate and the competition. If not, there’s not some there. There certainly is. But I think we are mitigating that with the challenges that were adding. And as far as the demand in general, we have mitigated that by taking market share, evidenced by the 17% growth in our flight hours compared to what I think the rest of the market had single-digit growth over the same period.

Got it. Okay, thanks guys. I'll take other questions offline. I appreciate it.

Thanks, Marvin.

We have reached the end of our question-and answer-session. I would like to turn the conference back over to Jim for closing remarks.