Volato Group, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2024 and elsewhere in the Quarterly Report. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of Volato Group, Inc. Overview of Our Business Our mission is to provide our customers more time for the rest of their lives by providing convenient and high-quality travel by using the right aircraft for the mission and by developing proprietary technology designed to make the travel experience more seamless. Our revenue is generated through airplane sales and software-as-a-service subscriptions. In September 2024, we entered into an agreement with flyExclusive, a leading provider of private jet charter services, to transition our aircraft ownership program fleet operations to flyExclusive. This move is expected to bring substantial cost savings and provide Volato with the opportunity to focus on what it believes to be its high-growth areas, including aircraft sales and products and services utilizing our proprietary software. Volato expects to benefit from the margins on aircraft sales without the burden of operational costs, while also generating revenue from its proprietary software, including the Vaunt platform, Volato’s successful empty leg consumer app. In the fourth quarter of 2024, we transferred the aircraft lease agreements to flyExclusive and have no further obligations under the aircraft lease agreements or control over such flight operations. Items related to our aircraft ownership program fleet operations are now included in discontinued operations. Financial highlights for the quarter ended March 31, 2025 include: • We generated total revenue of $25.5 million, an increase of $25.4 million compared to 2024, primarily related to an increase in aircraft sales of $25.1 million as we took delivery of our second Gulfstream G280; • Net income from continuing operations was $0.4 million compared to a net loss of $5.7 million in the first quarter of 2024. The decrease in net loss from continuing operations was the result of higher plane sale revenue mentioned above, and; • We generated a net income of $0.5 million, representing a $17.8 million improvement over the same quarter of the prior year. Key Factors Affecting Results of Operations We believe that the following factors have affected our financial condition and results of operations and are expected to continue to have a significant effect: Airplane Sales We expect to take delivery of three Gulfstream G280 aircraft manufactured by Gulfstream Aerospace Corporation (“Gulfstream”) and sell these airplanes to third parties in 2025. Our first Gulfstream G280 was delivered and sold to a third party in the third quarter of 2024. In February 2025, our second GulfStream G280 was delivered and sold to a third party. Costs and Expense Management In 2022 and 2023, we invested in the core business systems, processes and people required to safely operate a growing, publicly traded private aviation company. In September 2024, we entered into an agreement with flyExclusive to transition our fleet operations to flyExclusive. This move has resulted in substantial cost savings and provides us with the opportunity to focus on what we believe to be our high-growth areas, including aircraft sales and proprietary software. We will continue to take delivery of and sell new aircraft. We expect to benefit from the margins on aircraft sales without the burden of operational costs, while also generating revenue from its proprietary software, including the Vaunt platform, our successful empty leg consumer app. 34 Table of Contents Economic Conditions The private aviation industry is volatile and affected by economic cycles and trends. Our financial performance is susceptible to economically driven changes in demand particularly for our discretionary charter and deposit products. Our cost structure and private aviation demand levels had been greatly impacted by the price of jet fuel, pilot salaries and availability, changes in government regulations, consumer confidence, safety concerns, and other factors. Results of Operations Comparison of three months ended March 31, 2025 and 2024 The following table sets forth our results of operations for the three months ended March 31, 2025 and 2024 (in thousands, except percentages): Three Months Ended March 31, Change In 2025 2024 $ % Revenue $ 25,483 $ 48 $ 25,435 N/M Costs and expenses: Cost of revenue 20,987 52 20,935 N/M Selling, general and administrative 1,970 4,330 (2,360) (55) % Total costs and expenses 22,957 4,382 18,575 424 % Operating income (loss) 2,526 (4,334) 6,860 (158) % Other income (expenses): Other income, net 1,181 4 1,177 N/M Loss from change in fair value of financial instruments (849) (227) (622) 274 % Interest expense, net (2,400) (1,138) (1,262) 111 % Other expenses (2,068) (1,361) (707) 52 % Income (loss) before provision for income taxes and discontinued operations 458 (5,695) 6,153 (108) % Provision for incomes taxes 98 6 92 N/M Net income (loss) from continuing operations 360 (5,701) 6,061 (106) % Net income (loss) from discontinued operations, net of taxes 95 (11,689) 11,784 (101) % Net income (loss) $ 455 $ (17,390) $ 17,845 (103) % N/M - the percentage change is not meaningful Revenue Revenue consists of the following (in thousands, except percentages): Three Months Ended March 31, Change In 2025 2024 $ % Aircraft sales $ 25,100 $ — $ 25,100 100 % Subscription 383 48 335 698 % Total $ 25,483 $ 48 $ 25,435 52990 % 35 Table of Contents Revenue increased by $25.4 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in revenue was the result of an increase in aircraft sales of $25.1 million and subscription based revenue of $335 thousand during the three months ended March 31, 2025 compared to the prior year. The increase in revenue from aircraft sales was the result of the delivery and sale of our second Gulfstream G280 during the quarter. We have orders for two additional Gulfstream G280s and expect delivery in 2025. The increase in subscription based revenues are attributable to our Vaunt platform which began to generate revenue during the 2024 fiscal year. Cost of Revenue Cost of revenue comprises expenses tied to the associated revenue streams: aircraft sales and subscription based revenue. Aircraft sales cost of revenue is our purchase price of the aircraft. Subscription costs includes costs we incur related to our proprietary software, the Vaunt platform. Costs of revenue consists of the following (in thousands, except percentages): Three Months Ended March 31, Change In 2025 2024 $ % Aircraft sales $ 20,930 $ — $ 20,930 100 % Subscription 57 52 5 10 % Total $ 20,987 $ 52 $ 20,935 40260 % Cost of revenue increased by $20.9 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in cost of revenue was primarily a result of an increase in aircraft sales as we took delivery of our second Gulfstream G280 aircraft during the quarter. Selling, general and administrative Selling, general and administrative expenses decreased by $2.4 million for the three months ended March 31, 2025 to $2.0 million, compared to the three months ended March 31, 2024. The decrease in selling, general and administrative is primarily related to the cost savings initiatives implemented during 2024. Loss on change in fair value of financial instruments The loss on change in fair value of financial instruments relates to the fair value adjustment on the 2024 Convertible Notes resulting in a non-cash loss of $0.8 million during the three months ended March 31, 2025. For the three months ended March 31, 2024, the loss on change in fair value of $0.2 million was the result of the fair value adjustment on an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Agreement”). In July 2024, the Forward Purchase Agreement was terminated. Interest Expense Interest expense primarily consists of interest related to our aircraft brokerage and services agreement with OgaraJets LLC and the pre-delivery payment agreement with SAC Leasing G280 LLC. Interest expense increased $1.3 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 primarily as a result of the aircraft brokerage and services agreement with OgaraJets LLC. Liquidity and Capital Resources Overview Our principal sources of liquidity have historically consisted of financing activities, including proceeds from the issuance of stock, borrowings under our credit facilities, and capital raises from convertible debt and preferred stock. We additionally managed liquidity through the aircraft sales. As of March 31, 2025, we had $2.6 million of cash and cash equivalents. Our primary needs for liquidity are to fund working capital, debt service requirements, and for general corporate purposes. 36 Table of Contents We believe factors that could affect our liquidity include the ability of Gulfstream to meet our delivery schedule and our ability to sell those aircraft, whether the closing conditions under the Securities Purchase Agreement are met (or waived) such that we are able to issue one or more additional convertible note under that arrangement, our ability to raise additional funds on favorable terms, the timing and extent of spending on software development and other growth initiatives, our ability to manage our expense, and overall economic conditions. To the extent that our current liquidity is insufficient to fund future activities, we will need to raise additional capital. We may attempt to raise additional capital through the sale of equity securities, through debt financing arrangements, or both. Raising additional capital by issuing equity securities will dilute the ownership of existing shareholders. The occurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. In the event that additional capital is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. We have incurred negative cash flows from operating activities and significant losses from operations historically. Management believes that its current cash position, along with its anticipated margin from aircraft sales and proceeds from future debt and/or equity financings, when combined with prudent expense management, will allow the Company to continue as a going concern and to fund its operations for at least one year from the date of issuance of these financial statements. There are no assurances, however, that management will be able to raise capital or debt on terms acceptable to the Company. If the Company is unable to obtain sufficient additional capital or debt on terms acceptable to the Company, the Company may be required to reduce the near-term scope of its planned development and operations, which could delay implementation of the Company’s business plan and harm its business, financial condition, and operating results. These above matters raise substantial doubt about the Company's ability to continue as a going concern. Cash Flows The following table summarizes our cash flows for the three months ended March 31, 2025, and 2024 (in thousands): Three Months Ended March 31, 2025 2024 Net cash used in operating activities $ (312) $ (7,697) Net cash provided by (used in) investing activities 21 (56) Net cash used in financing activities (1,133) (683) Net decrease in cash and restricted cash $ (1,424) $ (8,436) Cash Flow from Operating Activities Net cash used in operating activities for the quarter ended March 31, 2025 was $0.3 million. The cash outflow from operating activities consisted of our net income of $0.5 million, non-cash items of $1.1 million, and a change in net operating assets and liabilities of $1.9 million. The change in net operating assets and liabilities was primarily as a result of a decrease in customer deposits and deferred revenue of $2.1 million and a decrease in deposits of $1.8 million. The change in net assets and liabilities for discontinued operations for the quarter ended March 31, 2025 was $1.6 million. Net cash used in operating activities for the quarter ended March 31, 2024 was $7.7 million. The cash outflow from operating activities consisted of our net loss of $17.4 million, non-cash items of $0.4 million and a change in net operating assets and liabilities of $6.3 million. The change in net assets and liabilities for discontinued operations for the quarter ended March 31, 2024 was $2.9 million. Cash Flow from Investing Activities Net cash provided by investing activities for the quarter ended March 31, 2025 was $21 thousand. The cash flow from investing activities consisted of the sale of property and equipment. Net cash used in investing activities for the quarter ended March 31, 2024 was $56 thousand. Cash Flow from Financing Activities Net cash used in financing activities for the quarter ended March 31, 2025 was $1.1 million. Cash flow used in financing activities consisted of the repayment on loans of $1.1 million. 37 Table of Contents Net cash used in financing activities for the quarter ended March 31, 2024 was $0.7 million. Cash flow used in financing activities consisted of the repayment on loans of $0.4 million. The cash used in financing from discontinued operations was $0.3 million for the quarter ended March 31, 2024. Sources of Liquidity To date, we have financed our operations primarily through the business combination, sale of preferred stock, borrowings of long-term and short-term debt, loans and convertible notes. As of March 31, 2025, we had a working capital deficit of approximately $18.2 million. As of March 31, 2025, our primary source of liquidity was cash totaling $2.6 million. Based on our recent trends, we expect to fund our operations in 2025 from our cash on hand, cash from operations, one or more sales of convertible promissory notes in accordance with the Securities Purchase Agreement described in Note 2 and Note 10 to our unaudited financial statements in this quarterly report and potentially additional sales of equity or debt securities. The Company believes it has the ability to generate and obtain enough cash to meets its obligations for the next 12 months. During the year ended December 31, 2022, the Company executed a series of purchase agreements with Gulfstream Aerospace, LP for the acquisition of four (4) Gulfstream G-280 aircraft. The first Gulfstream G280 was delivered in the third quarter of 2024 and the second Gulfstream G280 was delivered in the first quarter of 2025. As of March 31, 2025, total consideration due on the remaining two Gulfstream G280s was $41.7 million with expected deliveries in 2025. The maturity date is the earlier of the delivery date of the aircraft or September 14, 2025, which is thirty-five (35) months from the date of funding. The purchase agreement contracts were assigned to SAC G280 LLC as collateral on this credit facility. In the third quarter of 2024, $9.0 million was repaid to SAC G280 LLC as a result of the delivery of the first Gulfstream G280. In the first quarter of 2025, an additional $19.5 million was repaid to SAC G280 LLC as a result of the delivery of the second Gulfstream G280 and the return of $9.0 million in deposits related to the fourth Gulfstream G280. After the delivery of the second Gulfstream G280 and the deposit return related to the fourth Gulfstream G280, the outstanding balance of the credit facility from SAC Leasing was $8.5 million, net. In July 2024, the Company entered into a business loan and security agreement (the “Loan”) with TVT Capital Sources LLC (the “Lender”), which provides for a term loan in the amount of $4.0 million. Net proceeds of $3.8 million were received by the Company and used to fund operations. The Loan bears interest at an annual percentage rate of 165% and matures on January 28, 2025, with principal and interest payments made weekly. In the first quarter of 2025, the loan was repaid in full. Contractual Obligations and Commitments Our principal commitments consist of contractual cash obligations under our credit facilities, operating leases and the 2024 Convertible notes. We have committed to acquire two (2) additional Gulfstream G-280 aircraft for total consideration of $41.7 million with expected deliveries in 2025, of which $15 million was funded and paid through March 31, 2025. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of our operations is based on our consolidated financial statements and accompanying notes, which have been prepared in accordance with GAAP. Certain amounts included in or affecting the consolidated financial statements presented in this Quarterly Report and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the company. A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results of operations and that involves difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future. 38 Table of Contents Revenue Recognition Revenues are recognized on a gross basis and presented on the consolidated statements of operations net of rebates, discounts, and taxes collected concurrent with revenue-producing activities. The transaction price in the Company’s contracts with its customers is fixed at the time control of goods and services are transferred to the customer. Therefore, the Company does not estimate variable consideration or perform a constraint analysis for our contracts. The Company determines revenue recognition pursuant to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, through the following steps: 1. Identification of the contract, or contracts, with a customer. 2. Identification of the performance obligation(s) in the contract. 3. Determination of the transaction price. 4. Allocation of the transaction to the performance obligation(s) in the contract. The Company generates revenue primarily through: (i) the sale of aircraft and (ii) our Vaunt software-as-a-subscription platform. Revenue is recognized when control of the promised service is transferred to a customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies, as a performance obligation, each promise to transfer a good or service to a customer that is distinct. To identify its performance obligations, the Company considers all of the goods and services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. For each revenue stream, we evaluate whether our obligation is to provide the good or service itself, as the principal or to arrange for the good or service to be provided by the other party, as the agent, using the control model. For certain services provided to the customer, primarily in our aircraft management services revenue stream, the Company directs third-party providers to assist in our fulfillment of the performance obligation in contracts with our customers. Any cost reimbursements and third-party costs are recognized in revenue on a gross basis as Volato has pre-negotiated these costs and takes a certain amount of risk that it will not fully recover the costs incurred. In such circumstances, the Company is primarily responsible for satisfying the overall performance obligation with the customer and is considered the principal in the relationship because the Company has the ability to direct the third parties to provide services to our customers. Revenue from aircraft sales is recognized upon the delivery of the aircraft. The Company’s contracts for managing aircraft provide for fixed monthly management fees and reimbursement of operating expenses at a predetermined margin. Generally, contracts require two months advance deposit of estimated expenses. Stock-Based Compensation The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. The Company recognizes the cost of services received in exchange for awards of equity instruments based on the grant-date fair value of equity awards. This cost is recognized as expense over the employee’s requisite vesting period or over the nonemployee’s period of providing goods or services. Any forfeitures of stock-based compensation are recorded as they occur. The Company utilizes the Black Scholes valuation model to value the issuance of stock-based compensation. See Note 14, “Shareholders’ Equity (Deficit)” of the accompanying Notes to Consolidated Financial Statements. 39 Table of Contents JOBS Act We are an “emerging growth company” as defined in the JOBS Act. The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company’s financial statements have not been impacted by the JOBS Act as of March 31, 2025. We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404 of SOX, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (United States) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. We may remain an emerging growth company until the last day of the fiscal year ending after the fifth anniversary of our IPO, although circumstances could cause us to lose that status earlier, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act or if we have total annual gross revenue of $1.235 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth company immediately. Recent Accounting Pronouncements For further information on recent accounting pronouncements, see Note 2 “Summary of Significant Accounting Policies” of the accompanying consolidated financial statements included elsewhere in this Quarterly Report. 40 Table of Contents ITEM 3. . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.