I previously assessed Blade (NASDAQ:BLDE) with a Strong Sell rating in June, anticipating the share price to align with the firm’s liquidation value. Since then, the price has declined, but remains marginally overvalued at the time of writing ($3.23). I recommend considering a Hold position until shares reach the cash on hand value of $2.35 per share.
Q3 Performance Recap
The stock price rebounded from a low of $2.27 on November 7th (pre-earnings call) to $2.94 post-earnings. The surge followed the disclosure of positive free cash flow (FCF) and achieving adjusted EBITDA profitability for the first time. While this appears favorable on the surface, it necessitates a deeper examination.
While FCF is a positive development, the operating cash flows – a key indicator of the business’s day-to-day functionality – continue to reflect negative performance with quarterly losses of -$23 million. Although there’s a $2 million improvement from the previous quarter, it’s $6 million worse than Q1. Unless the firm addresses the challenge of improving operating cash flows, doubts about the sustainability of its business model persist.
The reported positive FCF is overshadowed by the overall cash loss, although it’s occurring at a moderated pace. Despite achieving positive FCF, Blade remains cash flow negative, with the Q3 ending cash balance decreasing from $39.4 million to $38.3 million. Notably, the gain from short-term investment proceeds of $20.5 million, while demonstrating financial prudence, could potentially mislead investors if not comprehensively analyzed.
Adjusted EBITDA Evaluation
In Q3, Blade declared a net income of $289,000 and an adjusted EBITDA of $787,000, marking the firm’s first appearance in the black, albeit with nuances. The exclusion of foreign currency translation adjustments from the net income results in a comprehensive loss of -$1.211 million for the quarter. Considering the incorporation of overseas operations, the inclusion of currency adjustments in EBITDA computations is imperative.
Furthermore, the overall net income losses in 2023 YTD surpass those of 2022, despite an increase in revenue. This indicates a need for a meticulous reevaluation of the financial performance.
Growth Prospects: A Qualitative Perspective
Analyzing growth perspectives, it appears that Blade’s capacity to achieve economies of scale is hindered by narrow flight profit margins. The responses to inquiries concerning this issue during the earnings call were unsatisfactory. Discussions around potential growth opportunities lacked concrete commitments and instead hinted at shifts away from the core business model, raising concerns about the firm’s strategic direction.
While the mention of growth potential in the medical segment and complementary services to MediMobility clients is noted, it appears to deviate from the core air transport model. A shift towards an asset-heavy model or strategic vertical integrations might enhance the flight profit margins and signify substantial market opportunities. However, with the regulatory barriers postponing the eVTOL revolution, optimism surrounding Blade’s aircraft deployment seems premature.
Anticipating Blade’s transformation of the skies with eVTOLs should be approached cautiously. The firm, along with investors, must critically assess the path to achieving scale over the next few years without a clear eVTOL strategy.
As hinted during the earnings call, the share price essentially aligns with the cash on hand. While the revenue continues to grow, cash reserves dwindle despite the reported positive FCF. Absent significant advancements in eVTOL certifications or notable M&A announcements, the prospects of altering price targets are slim.
Calculation: Cash Items of $175.688 Million / 74,208,433 Shares of Common Stock = Target Price of $2.35 Per Share