Wheels Up Experience Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Wheels Up provides private aviation services, including flights, memberships, aircraft management and other aviation services. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $335.1 million | $425.5 million | $686.9 million | $751.1 million |
| Net loss | $160.6 million | $92.8 million | $261.5 million | $181.8 million |
| Adjusted EBITDA (non-GAAP) | $(40.3) million | $(46.9) million | $(89.2) million | $(96.3) million |
| Adjusted contribution margin (non-GAAP) | 5.4% | 4.7% | 3.6% | 2.3% |
| Net cash used in operating activities | Not separately presented for Q2 | $411.7 million | $140.2 million |
- Q2 reported gross margin, calculated including separately presented depreciation and amortization, was negative 2.4%, versus positive 0.1% a year earlier. For the first half, it was negative 3.6%, versus negative 2.8%.
- At June 30, cash and cash equivalents were $151.8 million and restricted cash was $36.5 million. Working capital deficit was $720.8 million.
- Long-term debt had $251.5 million aggregate principal outstanding, bearing 12% interest. Current maturities were $26.5 million; long-term debt, net, was $210.1 million. Debt is secured principally by aircraft and certain intellectual property.
- Total liabilities were $1.37 billion and stockholders’ equity was $12.8 million. Deferred revenue totaled $830.0 million, primarily prepaid flight blocks.
Changes versus prior comparable periods
- Revenue fell 21.3% in Q2 and 8.6% in the first half. Q2 flight revenue declined 17.2%, aircraft management revenue 20.1%, and other revenue 47.4%. Management attributed the flight decline mainly to fewer completed flight legs; lower whole-aircraft sales also reduced other revenue.
- Active Members were down 8% year over year to 11,639; Q2 Live Flight Legs fell 16% to 18,137. Flight revenue per leg declined 1% in Q2 but rose 4% for the first half.
- Net loss worsened year over year, including a $70.0 million non-cash goodwill impairment in Q2 and interest expense on debt issued in October 2022. First-half operating cash use increased to $411.7 million from $140.2 million, in part because deferred revenue declined as prepaid-block sales fell.
- Management reported improved adjusted contribution margins and lower operating expenses, citing cost reductions and operational efficiencies. These non-GAAP measures exclude specified costs and should not be viewed as substitutes for GAAP results.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for any meaningful period after the filing, absent additional funding. It cited recurring losses, operating cash outflows, the working capital deficit and current liquidity projections. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Near-term financing and debt payments: After quarter-end, Delta committed up to $15.0 million under a secured promissory note; the company received the full amount by August 11. The note bears 10% interest, payable in kind, and matures February 4, 2024. Equipment Note lenders extended the grace period for principal and interest then due to August 15, 2023. Additional covenants include a minimum $5.0 million available-cash requirement and restrictions on new debt and liens. The Equipment Notes also require at least $125 million of Adjusted Available Liquidity at quarter-end.
- Management said it was pursuing additional financing and strategic partnerships, considering asset sales and other strategic alternatives, and reducing costs. The filing discusses the possibility of bankruptcy protection among alternatives and warns that funding and cost-reduction efforts may not succeed. No quantified operating or earnings guidance is provided.
- Member program changes took effect June 26, concentrating fixed-rate availability in two primary U.S. service regions; other areas are dynamically priced. Management expects these changes to improve efficiency and flight margins but cautioned that the transition may cause short-term financial variability and member fluctuations.
- A $70.0 million goodwill impairment followed lower projected value for the WUP Legacy reporting unit, attributed mainly to a greater-than-expected working-capital reduction and a higher discount rate. The company also incurred $17.7 million of restructuring charges associated with its plan, which it said were fully incurred and paid by June 30.
- Disclosure controls and procedures were deemed ineffective at June 30 because remediation of previously reported material weaknesses was ongoing. Management stated the financial statements fairly present the company’s position, results and cash flows in all material respects.
- The company effected a 1-for-10 reverse stock split on June 7, 2023; comparative per-share amounts were adjusted retrospectively. Public warrants were subsequently delisted, effective July 17, 2023.
Important facts for investors to verify
- Whether the company obtained sufficient additional financing and met its near-term debt obligations after the August 15 grace-period deadline.
- Available liquidity relative to debt covenant requirements, cash burn, and the timing and terms of any further financing or asset sales.
- Whether prepaid-block sales, deferred revenue, member levels and flight activity stabilize following the June program changes.
- Progress and independently verifiable results of cost reductions, certificate consolidation and other operational initiatives.
- Remediation and testing of internal-control material weaknesses, and any subsequent changes in going-concern or bankruptcy-related disclosures.