Business Context and Reporting Period
On December 27, 2023, flyExclusive, Inc., formerly EG Acquisition Corp., completed its business combination with LGM Enterprises, LLC, the parent of Exclusive Jets, LLC, doing business as flyExclusive. The transaction created an Up-C structure in which substantially all operating assets are held by LGM. The Class A common stock and warrants began trading on NYSE American on December 28, 2023 under “FLYX” and “FLYX WS.”
The filing includes LGM financial information for the nine months ended September 30, 2023 and 2022, historical year-end comparisons for 2022 and 2021, and pro forma information incorporated through Exhibit 99.2. The filing does not provide post-closing full-year 2023 results.
Key Financial Metrics
| Metric | Nine Months Ended September 30, 2023 | Comparable Period | Change |
|---|---|---|---|
| Revenue | $239.4 million | $237.6 million | Up 1% |
| Cost of revenue | $193.6 million | $186.3 million | Up 4% |
| Selling, general and administrative expense | $52.0 million | $36.1 million | Up 44% |
| Depreciation and amortization | $20.2 million | $16.8 million | Up 20% |
| Loss from operations | $(26.3) million | $(1.5) million | Worsened by $24.8 million |
| Net loss | $(30.5) million | Net income of $9.0 million | Worsened by $39.4 million |
| Adjusted EBITDA | $9.5 million | $29.6 million | Down $20.1 million |
| Cash flow from operating activities | $3.6 million | $33.8 million | Down $30.2 million |
| Cash flow from investing activities | $(44.1) million | $(73.6) million | Improved by $29.5 million |
| Cash flow from financing activities | $27.6 million | $36.8 million | Down $9.2 million |
Revenue mix for the nine months ended September 30, 2023 consisted of jet club and charter revenue of $166.2 million, guaranteed revenue program revenue of $66.9 million, fractional ownership revenue of $3.3 million, and maintenance, repair and overhaul revenue of $3.0 million. The implied gross margin before depreciation was approximately 19.1%, compared with approximately 21.6% in the prior-year period; the filing does not present a formal gross margin percentage.
- As of September 30, 2023, liquidity included $10.3 million of cash and cash equivalents, $71.1 million of short-term investments, $2.4 million of available term-loan capacity, and $3.5 million of available revolving-line capacity.
- The company reported $102.9 million of variable-rate debt as of September 30, 2023, excluding variable-interest-entity debt.
- Aircraft fuel represented approximately 27% of cost of revenue. Management estimated that a 10% increase in average fuel prices would increase nine-month 2023 fuel expense by approximately $5.2 million.
- The fleet included 100 aircraft on certificate at September 30, 2023, compared with 90 at September 30, 2022. Members contributing to revenue increased to 836 from 604.
Material Changes Versus Prior Comparable Period
- Jet club and charter revenue increased 14% to $166.2 million, primarily from higher flight hours and, to a lesser extent, higher effective hourly rates.
- Guaranteed revenue program revenue declined 27% to $66.9 million after termination of the company’s sole GRP customer, Wheels Up, effective June 30, 2023. No GRP revenue was generated in the third quarter, and management does not expect GRP revenue beyond the nine months ended September 30, 2023.
- Fractional ownership revenue increased to $3.3 million from an immaterial prior-year amount, while MRO revenue increased to $3.0 million from $0.8 million.
- Cost of revenue increased 4%, including higher salaries and wages, aircraft repair and maintenance, and lease expense, partly offset by a $10.6 million decrease in fuel costs.
- SG&A increased 44%, principally due to higher professional fees, advertising and marketing, personnel costs, and software expense.
- Interest expense increased to $15.6 million from $4.3 million because of higher outstanding debt and higher rates on variable-rate borrowings.
- The company’s loss reflects a $3.6 million unfavorable change in the fair value of a derivative liability and lower aircraft-sale gains, compared with the prior period.
Transaction, Capital Structure and Debt
- Former EGA public stockholders redeemed 2,924,907 shares for approximately $31.9 million, or approximately $10.91 per share.
- Immediately after closing, outstanding securities included 16,924,976 Class A shares, 59,930,000 Class B shares, warrants exercisable for 10,138,877 Class A shares, and 59,930,000 LGM common units held by the existing equityholders.
- Existing equityholders and the Sponsor held approximately 85.3% of outstanding common stock and voting power immediately after closing; former bridge-note holders held approximately 12.4%; former public stockholders held approximately 2.2%.
- The $85.0 million aggregate principal amount of Bridge Notes automatically converted into 9,550,274 Class A shares at closing.
- A $15.7 million senior secured note issued December 1, 2023 bears interest at 14% and matures December 1, 2024. It is secured by specified aircraft and related collateral and includes covenants, restrictions and events of default.
- Management identified approximately $165.8 million of cash requirements over the next 12 months, including debt principal, payables, accrued expenses and non-cancellable lease payments. The company expects to refinance contractual debt maturities; failure to do so would materially impair liquidity.
Guidance, Outlook, Risks and Unusual Items
- Management expects revenue to increase over time through additional aircraft and membership growth, but the filing does not provide formal public revenue or earnings guidance.
- The Wheels Up termination creates a material revenue replacement risk. Management expects to shift toward wholesale and contractual retail customers, but the filing does not quantify the timing or certainty of replacement revenue.
- Liquidity depends on operating cash flow, investment sales, additional borrowing and refinancing. The company has historically maintained a working-capital deficit, partly because customer deposits and deferred revenue relate to future flights.
- Key risks include high leverage and near-term maturities, rising interest rates, fuel-price volatility, aircraft maintenance requirements, pilot availability and attrition, economic downturns, competition, aviation regulation, limited trading liquidity and the costs of operating as a public company.
- The company had applied for $9.5 million and received $9.0 million of Employee Retention Credits as of September 30, 2023. The amount was included in accrued expenses and other current liabilities because eligibility remains uncertain and repayment could be required.
- The company is a controlled company under NYSE rules and is relying on exemptions from certain board and committee independence requirements.
- Marcum LLP was replaced by Elliott Davis, PLLC as independent registered public accounting firm for the year ending December 31, 2023. Marcum’s prior report included substantial doubt regarding EGA’s ability to continue as a going concern, and the filing reports no disagreements with Marcum.
- The company remains an emerging growth company and has elected extended transition periods for certain accounting standards.
Investor Verification Checklist
- Verify the post-combination pro forma balance sheet, debt balances, liquidity and noncontrolling-interest presentation in Exhibit 99.2.
- Assess whether the company can refinance approximately $84.8 million of short-term debt principal and meet the stated $165.8 million of near-term cash requirements.
- Evaluate the pace and profitability of replacing Wheels Up revenue with jet club, fractional, MRO and other contractual revenue.
- Reconcile basic and fully diluted share counts, including Class B unit exchanges, public and private warrants, the warrant exchange and the equity incentive plans.
- Review the terms and collateral coverage of the 14% senior secured note due December 2024, including covenants, make-whole provisions and events of default.
- Review the potential repayment exposure related to the $9.0 million received under the Employee Retention Credit program.
- Confirm the effect of the Tax Receivable Agreement, related-party arrangements and controlled-company governance exemptions on future cash flows and shareholder rights.