Blade Air Mobility: Don’t Get Overly Excited About Breakeven (BLDE)

Investment Thesis

I covered Blade (NASDAQ:BLDE) back in June with a rating of a Strong Sell, expecting the share price to decline to the liquidation value of the firm, which has largely occurred. Given the recent earnings call and announcement of “breakeven” Q3 financial results, it’s time for an update. The price has declined since my Strong Sell rating, but still slightly overvalued as of the time of writing ($3.23). I won’t suggest a Hold until the shares are trading at the cash on hand value of $2.35 per share.

Q3 Results

The stock price bounced back from a low of $2.27 on November 7th (pre-earnings call), to $2.94 after earnings. The bump came from an announcement of positive free cash flow (FCF) and adjusted EBITDA profitability for the first quarter ever – on the surface this is good news, but as all investors should, we need to dig deeper to understand what changed.

First – let’s talk cash flow. FCF is one part of the story, but operating cash flows tease out the day-to-day function of the business versus the financing and investing cash activities that aren’t core to the business model.

Cash flow from operating activities, the true cash performance metric and reflective of the health of the business model is still negative with -$23 million in quarterly losses, which is around $2 million improvement from the previous quarter, but -$6 million worse than Q1. If the firm can’t put a dent in improving operating cash flows, the viability of the business model is still in question.

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Further, FCF may have been positive, but the firm is still losing cash overall, albeit at a more restrained pace. Q2 ending cash balance was $39.4 million and Q3 reported $38.3 million. A large item that pushed Blade into positive FCF territory but still cash flow negative is the recurring theme of proceeds from selling short-term investments. Q3 had a gain of $20.5 million of proceeds from these investments. While this is certainly a sign of good money management skills, it could mislead investors if they’re not digging into the details of where cash is being generated.

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*Current assets not including accounts receivable, prepaid expenses and other current assets

-$23 million in operating cash losses offset with $20 million in short-term investment proceeds tells the story of a struggling model but a good financial shepherd.

Adjusted EBITDA

The other big Q3 news was net income of $289,000 and adjusted EBITDA of $787,000, putting the firm in the black for the first time…sort of. Foreign currency translation adjustments of -$1.5 million were not included in net income, making the comprehensive loss in the quarter -$1.211 million. Given the firm has acquired overseas operations, and routinely does business overseas, I think the currency adjustments should be included in EBITDA calculations.

Further, 2023 YTD overall has deeper Net Income losses than 2022, despite growing revenue overall.

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Growth: Qualitative Analysis

As I mentioned in the last article, the big question is how will Blade grow and achieve economies of scale when its flight profit margins aren’t large enough to cover its overhead. When investors on the call brought this question up, answers were disappointing, to me.

CEO, Rob Wiesenthal, stated, “The good news from our perspective is obviously the debt markets are closed, valuations on the private side are down. And if there’s ever been a better time for us to make purchase, strap on, kind of bolt-on acquisitions for Medical, where we see a lot of opportunities and maybe some other places, now is the time. But they have to be something that low risk in terms of integration, accretive day one, and really where the platform we built can supercharge the value to us….And we’re looking at those, and we’re seeing those every day.”

At one point, an analyst pointed out “the shares are trading effectively at cash at this point” and indicated the only way to grow share price would be through M&A activity, but no concrete announcements on specific targets or opportunities were made with the CFO saying that on the passenger side of the business: “So until electric vertical aircraft are here and we have more landing zones, I can’t tell you we see anything compelling yet on the passenger side.“

There was mention of opportunities for growth in the medical space, such as ground vehicles, or other complementary services to MediMobility clients but this feels like more shifts away from the core business model than ever.

I’d change my views on growth prospects if Blade shifted from an asset-light model and had aircraft, thus taking a bigger bite of flight profit margins – or other vertical integrations. The other market opportunities like ground transport, movement of cargo, and other concepts also just don’t seem like substantial market opportunities. For anyone hoping for rapid deployment of eVTOLs, the timeline for this revolution is being pushed farther down the road by regulators.

Pricing in the prospect of Blade revolutionizing the skies with these aircraft is premature and I think investors and the firm need to take a hard look at how they will achieve scale over the next 3-4 years without an eVTOL strategy.

Valuation

As mentioned by an analyst on the earnings call, share the price was trading at cash on hand, essentially. Revenue continues to grow, as it always has, but cash continues to dwindle despite declarations of positive free cash flow. Without major announcements that eVTOL aircraft certifications are within sight or creative M&A announcements, I don’t see the price targets changing.

Cash Items of $175.688 Million / 74,208,433 Shares of Common Stock = Target Price of $2.35 Per Share